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August 17, 2007

(See attached file: PR070817.pdf)(See attached file: PR070817.xls)
  • Futures were up sharply early in the week on several reports of lower world production coupled with the largest single purchase of SRW in several years. Commodity markets, including wheat, fell back from Wednesday as the careening financial markets created a capital vacuum. While a surprise cut in the discount rate today by the U.S. Federal Reserve led a rebound in the financial sector, it did not keep wheat from falling further. For the week, CBOT September futures finished up 5 cents/bu, the KCBT was down 4 cents/bu and the MGE fell 12 cents/bu. Corn futures were down 5 cents.
  • This week brought another export sales report exceeding 1 MMT. Another strong report is expected for next week based on the 295,000 MT of SRW sale to Egypt, 120,000 MT already in country was also bought by GASC, as well as trader reports of continued import demand strength. U.S. exports are currently 86% higher than last year.
  • The Ukrainian Prime Minister reported his government's wheat production forecast was raised to 15 MMT, up 1 MMT from the previous forecast. The positive news from Ukraine is countered by continued heavy rains in Britain, northern France and Germany delaying harvest and pushing futures prices to new records, dry conditions in Argentina and Australia, and several reports indicating importer demand is not diminishing.
  • The corn/SRW price spread at the CBOT widened 10 cents/bu to $3.44 this week.
  • The SRW premium to SW increased slightly to 19 cents/bu ($7/MT) on the strong Egyptian business and PNW harvest pressure.
  • Tropical storm Erin hit the Texas Gulf ports dead on, but only caused minor loading delays while hurricane Dean is tracking south of the Texas ports, forecast to only graze Corpus Christi. With most of the Gulf export facilities already booked to capacity into October, the first storms of the hurricane season are causing concern.
  • After easing for two weeks, ocean freight resumed its upward march this week as the Baltic Dry Index regained record levels. The usual suspects are credited for squeezing capacity supply, i.e. massive demand for natural resources in China, port congestion at key export terminals in both the Pacific and Atlantic, and seasonal demand for grain and coal. Chinese customs data indicates that iron ore imports this calendar year already exceed 200 MMT. Rates in both the Pacific and Atlantic basin rose $4/MT this week. Routes out of the Gulf are nearly 150% higher than May 2006 and PNW origination is up 115%. A severe shortage of Laker vessels and sky high rates are hampering import interest out of Duluth.
  • Barge rates jumped this week to the highest level of the year on a strong corn export program and the massive Egyptian SRW sales. Rates are up 19% ($4/MT) over last week on the Minneapolis - Gulf (HRS) route and up 79% ($10/MT) for shorter SRW hauls on the lower Mississippi. Rail rates have also taken off on the increased grain movement. The secondary rail market jumped 70% ($9/MT) this week for spot delivery. Deferred months are up, but not as much due to uncertainty as to how the ethanol factor will effect rail demand this fall.

Federal Reserve Press Release:

USW Commercial Sales Report:

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