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December 21, 2006

(See attached file: PR061221.pdf)(See attached file: PR061221.xls)

Christmas came early to the U.S. Great Plains with conditions much improved by the "perfect storm." Significant, widespread rainfall in severely deficit areas of the southern Plains followed by thick snow cover is extremely beneficial, considered by those in the country to be the best winter storm in years. Recent, well above normal temperatures have delayed vernalization (dormancy), and kept the soil profile from hardening, allowing the current precipitation to have considerable effect. More moisture is needed and more is forecast for this weekend and next week. Optimism is very high in the country. News of lingering drought in the EU and China is considered by the trade to be over stated, suggesting a big rebound in winter wheat supplies for 2007.

Export sales remain "routine," providing little impetus to move the markets. SRW futures at the CBOT have been supported by strength in corn prices, limiting export demand. From last week CBOT wheat March nearbys are up 9 cents/bu as was corn. The KCBOT fell 1.5 cents and the MGE came down 2.5. Traders are hopeful that this small "break" in the boards for HRW/HRS will invite more export interest.

Extreme fog has blanketed the Gulf ports, complicating logistics significantly. The Houston ship channel was closed for several days and the port is getting rain today. Movement of ocean vessels into Texas and NOLA berths is very difficult, delaying loading. Weather conditions, combined with the (relatively) new, more severe barge demurrage penalties have caused nearby SRW basis prices to crash, down 20 cents/bu from 45 cents/bu last week. Large spread in trader basis quotes as anyone holding a barge is looking more actively for a SRW bid.

Barge rates continued to plummet this week, pushing the HRS market to the center Gulf (NOLA) away from the Texas Gulf. Rates on the Illinois, Ohio and lower Mississippi Rivers are 44 to 52% ($15 to $19/MT) lower than last year and 53 to 65% down from October 2006. SRW basis quotes are down 10 cents/bu in the deferred months from last week.

Rail rates generally unchanged from last week. The tariff rail rate for Kansas City - Galveston (HRW) at $23/MT is up 5% from last year, Minneapolis - Houston (HRS) at $33/MT is 25% higher than last year and Minneapolis - Portland at $42/MT is even with last year. The secondary market continues to trade at parity with tariff rates.

Interior demand continues to support durum prices. The price range is revised up 15 cents/bu on the lower end with the Gulf program nominally trading at $6.94 to $7.35/bushel ($255 to $270/MT).

HRW premium to SRW rose slightly to 50 cents/bu ($18/MT), still much lower than the 78 cent/bu premium marked three weeks ago. The SRW nearby cash premium to SW fell 8 cents/bu to 30 cents ($11/MT) as freight rates in the Pacific continue to moderate, allowing the SRW/SW spread to narrow.

The ocean freight rate spread between the PNW and Gulf declined again this week as vessels continue to shift from the Atlantic to the more lucrative Pacific. Gulf - Japan at $53/MT is up $11/MT (20%) from last year. PNW - Japan at $29/MT is up $10/MT (35%) from December 2005.

The dollar was generally unchanged at very weak levels against the British pound ($1.96) and euro ($1.32). The Japanese yen weakened to an all-time low against the euro (Y156). At 118, the yen remains weak against the dollar with experts looking for levels of Y125 should the Bank of Japan not raise interest rates this spring.

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