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February 27, 2012

Latest CME Group Prices

Corn (May12) 648.5
Wheat (May12) 652.75
Soybeans (May12) 1302.5
Soybean Meal (May12) 343.6
Soybean Oil (May12) 54.86
Oats (May12) 310.75
Rough Rice (May12) 1446
Lean Hogs (Apr12) 89.725
Live Cattle (Apr12) 129.5
Feeder Cattle (Mar12) 157.675
Lumber (May12) 278.5
Ethanol (Jul12) 2.327
*Data as of 2:30 CT Source: Dow Jones & SIX Telekurs



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In This Newsletter

India’s MCX Exchange Sets IPO Price

Global Soybean Output To Hit 3-Year Low

USDA Sees Beef Supplies Tightening

Dubai Financial Market Posts 2011 Loss

Monsanto Settles Lawsuits

Farmers Put Squeeze On Corn

Fairtrade: Consumers Still Pay Premium To Help Farmers


Tuesday’s Calendar

7:45 a.m.
Feb 25 ICSC-Goldman Sachs Chain Store Sales Index – WoW (previous +3%), YoY (previous +3.2%)
8:30 a.m.
Jan Advance Report on Durable Goods Total Orders (expected -1.5%), Orders, Ex-Defense (previous +3.5%), Orders, Ex-Transportation (previous +2.1%)
8:55 a.m.
Feb 25 Johnson Redbook Retail Sales Index MoM % Change (previous +1.4%), 12MonChgPct (previous +2.7%), 52WkChgPct (previous +2.9%)
9:00 a.m.
Dec S&P / Case-Shiller Home Price Index SP Composite-10 MoM (previous -1.3%), SP Composite-10 YoY (previous -3.6%), SP Composite-20 MoM (previous -1.3%), SP Composite-20 (expected -3.8%), National QoQ (previous +0.1%), National YoY (previous -3.9%)
10:00 a.m.
Feb Richmond Fed Business Activity Survey Manufacturing Index (previous 12), Retail Revenues Index (previous 23), Services Revenue Index (previous 18), Shipments Index (previous 17)
10:00 a.m.
Feb Consumer Confidence Index (expected 64.9), Expectation Index (previous 76.2), Present Situation Index (previous 38.4)
10:00 a.m.
Senate Committee on Banking, Housing, and Urban Affairs – U.S. Senate Urban Affairs Committee latest hearing on the housing market
10:00 a.m.
Fed Pres Duke testifies on “State of the Housing Market: Removing Barriers to Economic Recovery, Part II” in Washington.
4:30 p.m.
Feb 22 API Weekly Statistical Bulletin Crude Stocks (Net Change) (previous +3.55M), Gasoline Stocks (Net Change) (previous 0.31M), Distillate Stocks (Net Change) (previous +0.63M), Refinery Runs (previous 86.6%)
7:15 p.m.
Cleveland Fed Pres Pianalto speaks on “Prospects for the Nation and the Region” in Westfield Center
State of Michigan – Michigan presidential primary election


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Market Recap


US corn futures continue to wrestle with tight near-term supplies versus expectations stockpiles could balloon in the months ahead. Futures end mixed, with nearby contracts climbing on short-term supplies, and the possibility of Chinese purchases. Deferred contracts, meanwhile, slide on the USDA’s outlook for 94 million corn acres this year, a number some traders say could grow even larger if warm weather allows farmers to plant early. CBOT March corn ends up 3 3/4c to $6.44 1/2 a bushel, Dec corn ends down 1c to $5.57.


US wheat futures end higher on strength in soybeans and short-covering. Traders say that speculators’ huge net-short position leaves the market primed for gains as they cover those. Fundamentally, the market has little supportive news as world supplies are abundant and weather is favorable for US crops. But persistent gains in soybeans, driven by South American crop concerns, are underpinning the whole grains complex, traders say. CBOT March wheat ends up 4 3/4c at $6.45 3/4 per bushel, KCBT March rises 4c to $6.85 and MGEX March adds 4 1/4c to $7.90 3/4.



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US soybean futures extend their recent rally, climbing to fresh five-month highs on strong export demand and declining South American crop forecasts. Soybeans grabbed the spotlight in the grain and oilseed complex, due in large part to an increase in export demand. Soybeans rallied to new near-term highs for the sixth consecutive day, as traders remain relentless buyers amid worries government forecasters are underestimating export demand. Smaller South American production forecasts continue to support soybeans, reflected by China, the world’s leading importer of soybeans buying large amounts of beans from US last week, analysts say. CBOT May soybeans end up 15 3/4c at $13.02 1/2/bushel.

Soybean Meal/Oil

Soy product futures rallied to multi-month highs in unison with soybeans. Ongoing worries about smaller South American crop potential and the positive impact that may have of US soy product demand attracted speculative buyers, analysts say. CBOT May soymeal ended up $7.40 to $343.50/short ton, May soyoil climbed 0.21c to 54.86 cent/pound.


Oat futures ended slightly lower, but managed to pare early losses on broader interest in grain futures. Oats for May delivery finished down 1/4 cent at $3.10 3/4 a bushel.

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US rice futures end flat as weak world demand and domestic acreage concerns keep the market range-bound. Shawn Hackett of Hackett Financial says the market could be poised for a rally as exports pick up, with purchases from China potentially serving as a spark. CBOT March rice closes down 1/2c at $14.20/hundredweight.

Pork Complex

Hog futures face broad losses, pressured by weak wholesale-pork prices and technical moves. April and June futures both fall through 10- and 20-day moving averages. CME April hogs close down 1.2% at 88.65c/pound. Meanwhile, pork prices were modestly higher Friday, but still down more than 1% on the week, raising fears of seasonal weakness even after pork demand has so far failed to get its usual Easter bounce. And choppy cash-hog markets suggest lukewarm export shipments.


Cattle futures were mostly lower, pressured by profit-taking and concerns that very rich beef prices and rising cash costs will push some consumers toward lower-priced meals. CME Feb cattle flat at $1.2755/lb. Feeder cattle for March down 0.8% to $1.5645/lb. Select-grade beef prices are at fresh all-time record highs and choice beef prices are at 9-year highs, levels that make investors watch for prices shock. Investors are cautious about sustainability of cash prices, especially since packer losses endure. Risk of rising gas prices is widely thought to be bearish for beef demand and cattle futures.


CME lumber futures closed lower as the market pulled back from the latest peaks hit Friday. Nearby March fell from a 1 1/2-week high hit Friday on rolling of positions out of that contract before it becomes the spot month and has no daily trading limit. Profit taking occurred in May and July following multi-month highs hit Friday. The easing of prices came despite a rise in pending home sales in January to the highest level in 21 months. March closed down $2.10 per 1,000 board feet, or 0.8%, at $269.00. May fell 1.6% to $278.50. Cash prices $270-$275.


Ethanol futures ended steady, struggling to find direction as support from higher corn prices was offset by weakness in energy futures. Ethanol for May delivery ended unchanged at $2.288 per gallon.

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India’s MCX Exchange Sets IPO Price

Multi Commodity Exchange of India Ltd. priced its INR6.63 billion ($135 million) initial public offering at INR1,032 a share, the upper end of the indicative band, reflecting strong demand for the first ever issue from an exchange operator in the country.

The IPO–India’s first in 2012–received heavy subscription, with bids exceeding 54 times the issue size, or worth about $7.3 billion. The issue is being watched keenly as a barometer of appetite for equity issues in India, as markets rebuild after last year’s heavy losses.

The MCX stock is likely to list on the bourses within 12 working days of the issue closing–Feb. 24–as is typical for IPOs. The issue had opened Feb. 22.

Ambareesh Baliga, chief operating officer at Way2Wealth Brokers, expects the stock to rise by INR275 on listing day, with further gains likely in coming sessions, given the robust demand during subscription.

Analysts have described the issue as reasonably priced, citing its strong parentage, good business model and robust growth prospects.

MCX, which handles 80% of all commodity futures trading in India, is selling about 5.5 million shares, excluding those reserved for cornerstone investors and employees. It had set an indicative price band of INR860 to INR1,032 a share.

The portion of shares reserved for retail investors was covered 24.1 times, while that for institutional buyers got 49.1 times more bids. The portion for investors such as corporates was covered 150.4 times.

The MCX IPO is the first after the capital markets regulator last month put in place controls to check volatile price movements on the first day of trading in newly listed stocks.

From now, there will be a one-hour pre-open session for price discovery, with no price bands. But, if an indicative price for the to-be listed stock isn’t discovered in the pre-open, the band during the day will be 20% on either side of the issue price.

Baliga said the latest rules would be more effective for IPOs of mid-cap and small-cap stocks where public and institutional participation isn’t very large and volatility is more, but not for an issue such as MCX, where there is demand from all sections.

MCX, run by Financial Technologies India Ltd. (526881.BY), isn’t raising any funds for itself through the IPO, but some shareholders are selling part of their stakes. These include Financial Technologies, State Bank of India, GLG Financials Fund and Alexandra Mauritius Ltd.

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Global Soybean Output To Hit 3-Year Low

The International Grains Council has lowered its forecast for global soybean output in 2012-13 by almost 4%, as dry weather has affected yield potential in many areas of South America.

Production is forecast at a three-year low of 246.5 million tons, down 7.6% from 2011-12 because of lower output in all major producing regions.

The IGC tabulates its data over an aggregate marketing year covering all major producing and trading countries.

“Adversely dry conditions during the growing season have negatively affected yields in many areas, particularly northern Argentina, southern Brazil and Paraguay,” it said in a recent report.

In southern Brazil states including Parana and Rio Grande do Sul, low soil moisture has significantly hampered crop development, it said.

Brazil’s soybean output may fall 8% to 69.4 million tons from the record reached in 2011-12; down 3.3% from the IGC’s earlier forecast, it said.

The IGC lowered its forecast for Argentina’s soybean output in 2012-13 by almost 10% to 46 million tons, down 6% from last year’s actual production.

“Prolonged dryness has resulted in irreversible yield reduction in some areas of Argentina,” it said.

Paraguay’s production may fall by 40% to just 5 million tons, it said.

Meanwhile, demand is strong. Although the IGC lowered its forecast for China’s soybean imports by 1 million tons, at 56 million tons, it would be a record, up 7% from last year.

The pace of South America’s soybean exports from last year’s harvest have been exceptionally strong, and shipments from Brazil and Argentina were almost three times higher during October-December than year earlier, IGC said.

However, shipments from South America will likely slow in the next few months due to reduced output, it said. The IGC lowered its forecasts for Brazil and Argentina’s soybean exports in 2012-13 by 2.2% and 17%, respectively, while raising it forecast for U.S. soybean exports by almost 3% due to a shift in demand from South America.

The global soymeal trade will likely reach a record 58.4 million tons, up 2.6% on year, the IGC said, citing rising demand in East Asia and the European Union.

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USDA Sees Beef Supplies Tightening

The number of cattle placed in U.S. feedlots in January fell 2.2% compared with a year earlier, a the latest sign that supplies of slaughter-ready animals will tighten through 2012 and beyond.

The U.S. Department of Agriculture’s monthly cattle-on-feed showed slightly tighter coming supplies than the average expectations of analysts. In addition to the falling placements, cattle owners also sold more animals for slaughter than analysts had expected.

The USDA reported 1.85 million head of young cattle, known as feeders, were added to feedlots in January. The USDA released the data Friday afternoon.

The additions, known as placements, were 2.2% below the 1.89 million added to feedlots in January 2011, and 0.3% higher than the five-year average of 1.81 million. Analysts had expected a decrease of 1.2%.

The report was considered mildly supportive of futures.

The total number of cattle on feed remains bigger than a year ago, pointing to the effects of the drought and high prices for young cattle, and translating bigger year-over-year supplies. But the larger-than-expected marketings along with smaller-than-expected fresh placements are both encouraging signs for bullish investors, says Rich Albaugh, analyst with Commodity Services Inc. The total number of cattle on feed fell compared to the previous month.

The USDA report put the number of cattle sold for slaughter last month at nearly 1.82 million, up 2.4% compared with a year earlier and 1.1% above the five-year average of 1.80 million. Analysts expected marketings to rise by 0.3%.

The stronger-than-expected marketings are considered bullish for cattle futures because it means feedlots sold off animals last month more aggressively than expected, leaving them with smaller inventories.

The strong marketings reflect high cash cattle prices in recent months. Beef processors have competed to tightening supplies, driving up prices and sending profit margin estimates for packers into negative territory since autumn.

Some analysts question the report’s marketings figure after monthly slaughter data showed steer and heifer slaughters in January were down nearly 1.9% from a year ago.

The total number of cattle in feedlots as of February 1 was 11.81 million. The current herd on feed is larger than a year ago by 2.1%, further evidence of the big number of cattle forced off pasture lands earlier this year.

The current herd is 2.7% bigger the five-year average of 11.50 million. Analyst had expected the on-feed herd to grow by 2.5% compared with the same time last year.

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Dubai Financial Market Posts 2011 Loss

Bourse operator Dubai Financial Market reported a net loss of 6.9 million U.A.E. dirhams ($1.88 million) in 2011, compared with a AED78.9 million net profit in the year earlier period, as global economic uncertainty weighed on trading activity and curtailed revenue.

Total revenue reached AED176.5 million last year, compared with AED260.5 million in 2010, DFM said in an emailed statement. Total revenue comprised of AED119.6 million operational revenue and AED56.9 million of investment revenue and other income.

The group includes its subsidiary Nasdaq Dubai, which it acquired in 2010. DFM, the only listed Arab bourse, on a standalone basis made a net profit of AED8 million in 2011, compared with a net profit of AED89.9 million the year before, the statement added.

DFM trade value has considerably overshadowed the revenues, with a 54% decline in 2011, the bourse-operator said.

Trading volumes on the Dubai market have fallen sharply since the global financial crisis in 2008. The benchmark stocks gauge dropped some 17% in 2011 amid continued concerns about the emirate’s ability to service its huge debt pile.

But market activity has risen strongly this year so far with the main index adding about 24% to date as worries about Dubai’s credit worthiness ease a bit, and on hopes of a recovery in the emirate’s real estate sector, analysts say.

Many investors also view Dubai as a relatively safe investment destination after political turmoil in other regional countries during the Arab Spring.

Investors are also hoping that, as market activity increases, index provider MSCI will consider upgrading the U.A.E. to emerging market status, from frontier status, a move that would encourage more funds to invest in the local market. MSCI last year had delayed its decision on a possible U.A.E. market reclassification.

DFM meanwhile said it expects revenue from new streams–including real-time data selling, listing fees, online advertising and cash dividend distribution on behalf of listed companies–to pick up going forward.

The company’s total revenue from these new sources amounted to AED4.7 million in 2011, which is 2.8% of the total revenue, it added.

DFM is also planning several new initiatives, along with the U.A.E. market regulator, to further improve and develop the market, according to Essa Kazim, managing director and chief executive at the company.

“The plans include short selling, market maker, trading covered warrants, trading rights issues, stock swap agreements, Direct Market Access Mechanism, and the implementation of XBRL, the data preparation analysis and publishing system. We believe that these enhancements lay the foundation for a new era of sustainable growth,” Kazim said in the statement.

Kazim also expects dozens of companies from various sectors, most of which are not represented on DFM, such as retail, tourism, health and education, to go public and list on the DFM or Nasdaq Dubai.

“We expect these plans to come to fruition once the market gains momentum and the realization of family-run businesses and private companies that the time has come to benefit from IPOs and listings,” he noted.

DFM shares closed 8.5% higher at AED0.997 Sunday.

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Monsanto Settles Lawsuits

Monsanto Co. has agreed to spend up to $93 million on medical testing and the cleanup of as many as 4,500 homes in a West Virginia city where a legacy company once produced Agent Orange and other chemicals.

The legal settlement would resolve a series of lawsuits brought by residents of Nitro, W.Va., over health problems blamed on a now-closed plant. The settlement, which still must be reviewed by a county circuit-court judge, doesn’t include any finding of wrongdoing by Monsanto or its legacy companies, according to a joint statement released by the agribusiness group and the plaintiffs Friday.

“The settlements provide needed medical benefits and remediation services to the people of Nitro and broader community,” Stuart Calwell, a lawyer for the plaintiffs, said in the statement. Monsanto officials, Mr. Calwell and others involved in the suit were barred Friday by a court order from commenting beyond the joint statement.

Monsanto said it would spend up to $9 million on cleaning homes and $21 million establishing a medical-monitoring program at a local hospital for which thousands of people will be eligible to apply. The company will make an additional $63 million available for the program, which will operate for 30 years.

“We are pleased to resolve this matter and end any concerns about historic operations at the Nitro plant,” said Scott Partridge, a vice president at Monsanto, which has also agreed to pay plaintiff legal fees for the last seven years.

Monsanto is the product of multiple deals that started in the late 1990s that saw its chemicals and pharmaceuticals units divested, leaving what became the world’s largest crop-seed producer and maker of herbicides such as Roundup, used widely by farmers. Monsanto retained liabilities related to the legacy company that produced Agent Orange.

Monsanto said Friday’s settlement will reduce earnings for the fiscal year ending Aug. 31 by approximately five cents a share.

Nitro is a city of 6,000 that sits along the Kanawha River in an industrial region known as “chemical valley.” The city has a long history of chemical production and was named Nitro by the U.S. government after a large federal plant was built there to manufacture explosives during World War I.

The settlement addresses the impact of chemicals produced by the plant, including Agent Orange for the U.S. military. It closed in 2004 after operating for 75 years. In Nitro, residents have had concerns about health effects from the plant since at least the 1970s, according to Rusty Casto, the city’s mayor and a lifelong resident.

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Talking Points

Farmers Put Squeeze On Corn

A new phenomenon is underpinning corn prices: prosperous farmers.

Having benefited from high prices last year, farmers are becoming more choosy about when they sell their corn. Right now, some are opting to stockpile some of their harvest, rather than sell it, a decision analysts say is helping keep corn prices relatively high.

Farmers now hold about 64% of the nation’s corn in storage, up from 62.7% a little over a year ago and the highest in two years, according to the latest quarterly government survey.

The increase, while modest, comes as the U.S. Department of Agriculture projects global corn stockpiles will drop to the lowest level since the 1973-74 crop year, in terms of days of use.

This is causing an unusual supply squeeze in parts of the Midwest, driving prices higher for grain processors, livestock ranchers and ethanol makers. The added cost could pinch buyers’ profit margins and could spur them to try to pass the added costs onto customers.

“The producer does have a stronger hand,” says Rich Feltes, vice president for research at futures broker R.J. O’Brien in Chicago.

Rick Elliott, a farmer in Monmouth, Ill., has about 350,000 bushels of corn in storage, up from his typical 300,000 bushels at this time of year. He has invested in new grain bins that have helped him and his family more than double their storage space in 10 years.

“Bins have always made us money,” he says. “It gives us lots of options.”

The stockpiling has upended the usual price cycle for corn. The grain is typically plentiful in the Midwest — where most U.S. corn is grown — at this time of year, in the months after the harvest, and often sells there at a 10-cent to 30-cent discount to the price in the futures market, R.J. O’Brien’s Mr. Feltes says.

But this year, some buyers in parts of the Midwest are paying a premium. On Friday, Cargill Inc., one of the nation’s largest grain processors, offered 25 cents a bushel above the base-line futures price for corn at its grain elevator in Bloomingburg, Ohio.

Overall, corn prices in the U.S. futures market have nearly doubled since mid-2010, when worries about a weak corn harvest were at their peak.

They have slipped slightly from a 2011 record, and farmers are expected to plant lots of corn this year. Corn futures for March delivery edged up 0.2% Friday to settle at $6.4075 per bushel, still down 0.9% so far this year.

By holding onto corn, farmers are betting prices will resume their recent upswing. The strategy carries risks, including the chance that corn prices could drop sharply. Mr. Elliott, the western Illinois farmer, protects himself by buying options that, in effect, guarantee him a certain floor price.

The U.S. Department of Agriculture recently forecast that farmers would plant more acres of corn than at any point since 1944. If the prediction proves correct, a large crop could undercut prices.

Higher crop prices helped push net farm income to $98.1 billion last year, up 24% from 2010, according to the USDA.

A shrinking debt load among U.S. farmers also is contributing to their ability to hang onto corn. Last year, the total debt of all farms added up to 10.5% of assets, the lowest level since 2007, according to the USDA.

Debt as a percentage of assets is significantly lower than a decade ago, and the proportion is half that of 1986, when it was 21%. That mountain of debt triggered the 1980s farm crisis, as farmers who had borrowed heavily as property values soared faced foreclosure when the prices reversed.

“Farmers are paying off loans,” says Jason Henderson, an economist at the Federal Reserve Bank of Kansas City and the top executive of its Omaha, Neb., branch. They are using cash to pay for seeds and fertilizer for this year’s crop, rather than buying on credit, he says.

To store their inventory, farmers are investing in grain bins that can hold tens of thousands — or even hundreds of thousands — of bushels of corn that can often be stockpiled for months. Farmers have 12.8 billion bushels of total grain storage capacity, according to the latest U.S. government figures, up 10% from 11.7 billion in 2006. The current capacity would hold last year’s entire corn harvest.

Mr. Elliott says he isn’t trying to drive prices up by holding on to his corn, and can’t sway the market as an individual farming operation, but plans to wait until prices have risen before selling.

There are other reasons why corn is piling up in some places. It can be a logistical challenge to get a bumper crop to market quickly.

But some farmers are simply waiting for higher prices, says Lance Tarochione, who grows corn in London Mills, Ill., and also works with other farmers as a seed agronomist.

“Although historically these prices are amazing, they’re not as high as they were a while ago. I think guys are just thinking this will come back,” he says. “They’re gambling that holding it is going to make them money.”

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Fairtrade: Consumers Still Pay Premium To Help Farmers

UK-based Fairtrade Foundation said estimated retail sales of Fairtrade products in 2011 totaled GBP1.32 billion–an increase of 12% on year–highlighting that consumers aren’t abandoning Fairtrade products for which they have to pay a premium, despite the tough economic climate.

Strong sales figures last year reflect the greater responsibility people feel nowadays about how their food is sourced, in line with more awareness by the large retailers about such issues, said Harriet Lamb, the chief executive of the Fairtrade Foundation, a non-profit organization which advocates the payment of a higher price to some of the world’s poorest farmers for their exports of cocoa, coffee, sugar, bananas, tea, cotton and flowers to developed countries.

It’s annual cocoa and sugar sales witnessed significant sales growth last year at 34% and 21% respectively, which the organization said means Fairtrade premiums–the extra that producers receive for business development–increased by more than 10% in 2011.

Certification and product labelling using the Fairtrade mark are the main tools for the foundation’s development goals of ensuring that farmers receive a fair price, which often results in goods on the shop shelves costing slightly more.

Lamb said it’s a myth that all Fairtrade products are sold at a premium, and sometimes a brand that agrees to source its cocoa or sugar via Fairtrade will absorb the additional costs.

“Often, a brand will absorb the cost of using Fairtrade, as they see it as a worthwhile investment in improving their brand image, so this is a reason why our products are not always at a premium and have maintained growth last year,” Lamb said.

She said companies are also committing to Fairtrade because they understand it’s the right path to food security, as investment in smallholders ensures the future supply of commodities like cocoa, coffee, sugar, tea, fruit and more.

An increasing number of retailers and customers have converted over the last few years to what has been dubbed ethical shopping.

The U.K.’s Fairtrade Foundation has a vast range of more than 4,500 licensed products while U.S.-based Fair Trade USA–a non-profit organization that also guarantees farmers a fair price–saw sales for its products surge soar by 24% in 2010.

The newest move announced is by UK supermarket giant Morrisons, which plans to convert all its sugar to Fairtrade joining supermarket majors Marks & Spencer Group PLC, J Sainsbury PLC, Waitrose and Tesco PLC.

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