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June 13, 2008

(See attached file: PR 080613.xlsx)(See attached file: PR 080613.pdf)

Highlights
  • Wheat markets keyed off corn as USDA slashed its yield estimate, fields in the Midwest remain under water and rains continue to inundate the region. The optimistic outlook for wheat harvests in Northern Hemisphere exporters remains firmly in place as combines roll through Texas and Oklahoma with elevators literally overflowing, but prices notched higher on large daily swings including a limit-up close in the front 4 positions in each of the exchanges on Wednesday. For the week, July delivery positions at the CBOT climbed 71 cents/bu, the KCBOT rose 78 cents/bu and the MGE nearby was up 27 cents/bu. Corn nearbys shot up 81 cents/bu and soybeans rose $1.02/bu.
  • Export sales for the week were strong on a large Japanese tender as well as continued HRW demand from Nigeria and Brazil. The first week of the marketing year added 335,000 MT to the 2008/09 book, taking the total to 7.2 MMT. The Japanese tender included nearly 53,000 MT of SW, combined with an unusual second tender this week and 2 other North Asian tenders, returned bullish sentiment to the SW demand picture.
  • SW new crop prices higher on strong export demand and uncertainty in the supply outlook. Unsure of their own harvest potential, producers in the PNW have been bird-dogging the Australian weather situation, content to wait to market their crop. New crop SW prices rose 85 cents/bu ($31/MT) this week while old crop positions remain unchanged at $10.75/bu ($395/MT) as consistent importers are covered into August after new crop SW is available.
  • HRW cash prices rise, even as harvest advances. Despite the rise in futures, basis prices continue to firm on tight elevator capacity and the unclear protein outlook. As the harvest moves west, more protein is becoming available and test weights remain good. But continuing rains in Kansas combined with the low protein content of the early harvest has moved protein premiums much higher, evidenced by Taiwan paying $2.70/bu ($99/MT) over KU08 for 13% protein HRW this week.
  • HRS conditions improved on recent rains as the importance of the outcome of that crop in meeting protein demand this year appears to be increasing. Export interest remains very quiet outside of the consistent North Asian region as importers are hoping to stretch supplies to new crop September positions to take advantage of the 15-20% ($75 to $95/MT) inverse.
  • SRW still lacking demand as strong futures and freight push landed values into Egypt $20-$30/MT above Black Sea prices. Currently priced $15/MT below corn FOB Gulf, traders expect some SRW substitution for corn in international feedmills. Interior basis will have to fall to overcome domestic transportation costs for SRW to move into the U.S. cattle feedlots. This week SRW basis premiums fell to $1.20/bu under WU08.
  • Middle East demand to expand as crop failures in Iran, Iraq and Pakistan will increase import demand in those countries by a total of approximately 10 MMT according to statements by the respective countries' trade ministers this week. The Iraq minister reported the country is planning to build a strategic reserve of 1.5 MMT of wheat this year, representing half of annual imports. Other countries may adopt similar strategies this year. The Pakistani government reported it will cut subsidies on food, as well as fuel and fertilizer, in order to ameliorate budget deficits. Another policy that would affect global demand if other countries do the same.
  • USDA increased its global production forecast to 663 MMT, 52 MMT above last year with U.S. SRW expected to rise 60%, 8 MMT from last year. USDA left its forecast for Australian production unchanged.
  • Argentine fiasco continues: Just as the government and the country's farmers seemed to come to some resolution with the government, clearing the export registry for 1 MMT of wheat, Argentine truckers blocked roads to protest the prolonged conflict. Officials said gunmen shot at six fuel trucks trying to avoid a highway blockade. The outlook for exports from the country remains unclear.
  • Ocean freight bubble bursts with rates off over 10% ($15/MT) in the Atlantic this week as capacity demand from China reportedly dropped precipitously. After front-loading iron ore purchases this year, China appears covered into the near term. The price decline instigated a further decline in demand as importers around the world wait for bottoming in the market before booking freight.

File Name
PR 080613.xlsx
PR 080613.pdf
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