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January 12, 2007

(See attached file: PR070112.pdf)(See attached file: PR070112.xls)

After retreating through Wednesday, wheat futures followed corn up yesterday and today. Corn locked on limit rise both days (20 cent/bu). From last week CBOT SRW futures are up 9 cents/bushel, the KCBOT up 24 cents and the MGE up 20.

The WASDE report released this morning showed a continuation of trends in both corn and wheat. Long story short: U.S. corn supply down, demand up...way up. USDA reports the opposite for wheat. U.S. wheat export forecast was revised down for the second month in a row, down 680,000 MT from the last report for a total 1.4 MMT decline from the November estimates. Strong prices named as the culprit. The two anemic export sales reports over the holidays supported a lower export forecast.

This week's price rise further dampens any elastic importer interest. Consistent buyers still active including Asia, Nigeria and a 100,000 MT sale to Iraq reported today. Traders perceive South American millers may be covered into February. Some regions reportedly waiting until new crop to book coverage.

Healthy global winter wheat crop on the way. USDA acreage estimates, also released today, show a 9% increase in all class winter wheat acres with HRW up 9%, SRW up 13% and SW up 2%. Weather conditions have been favorable in the southern plains, where a third major storm is expected to continue through the weekend, providing needed moisture. Reports of icy conditions, which smother plants, are troubling.

SRW basis prices remain depressed with nearby FOB Gulf cash prices at a 20 cent premium to the CBOT. The higher boards pushed SRW cash prices to $5.00/bu, 9 cents/bu ($3/MT) above last week.

HRS basis at the Gulf is up this week on higher barge rates.

HRW futures up much more than SRW, pushing the HRW premium to SRW up to 81 cents/bu ($30/MT). The SRW nearby cash premium to SW has gone negative with the PNW reacting strongly to the board jump today. SW is currently 21 cents ($8/MT) more expensive than SRW.

Barge rates bounced back with a surge in grain shipments this week after falling for 2 months. Rates are up 7 to 17% from last week. Rail rates are largely unchanged from last week, with the secondary market discounted to tariff rail rates. Routes and rates include: Kansas City to Galveston (HRW) up 5% from last year at $23/MT; North Dakota to Houston up 2% to $48/MT and North Dakota to Portland up 3% to $42/MT (HRS/durum). Truck rates are down on lower fuel costs.

The global ocean freight market has been very good at moving vessels to more profitable routes over the last month, yet vessels owners have apparently overshot the mark in shifting capacity over to the Pacific. A supply shortage pushed rates in the Atlantic basin up $2/MT while the Pacific is unchanged from last week. Although Chinese demand remains strong, an increase in bookings to move the South American grain harvest along with continuing mineral transport is responsible for the increase in the Atlantic.

At $1.29/euro, the dollar rout seems to have bottomed out. The Chinese renminbi reached a milestone this week, breaking through the Rmb 7.8/$ barrier, now stronger than the Hong Kong dollar.

USW Commercial Sales Report:

USDA World Agricultural Supply and Demand Estimates Report:

USDA (NASS) Winter Wheat Seedings Report:

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