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Bullish corn

USDA to Re-Survey Six States: released Thursday afternoon...in an effort to
get a better idea of both planted and harvested acres USDA will resurvey
producers in those key flooded acres areas the week of June 23. USDA noted
most of their initial surveys for the June 30 Acreage report were made
before the flooding began. This will likely keep their June 30 numbers a
little on the bullish side. We may not have to wait for months before the
true planted and harvested numbers come out. Keep in mind they still plan
to do a more extensive survey of the entire Corn Belt starting the week of
July 12. The results of that survey will be included in the normal monthly
supply/demand report released August 12.

Timing: with the above announcement could USDA be suggesting a time line of
potential policy change measures to help control food price inflation
within the US. USDA has at its disposal the following to help control the
rise in corn, wheat, and soybean prices, A) announcing the release of CRP
acres for winter wheat planting this fall, B) cap US ethanol production to
keep end stocks of corn above a minimum of 500-550 million bushels, if need
be the initial level reduced to maintain the 500-550 end stocks and then
continue to lower ethanol production if crop size continues to erode in
subsequent crop production reports, C) reduce for a short period of time
the 54 cent per gallon import tax on Brazil sugar cane based ethanol, D)
let futures rise and let cash price dictate the weakest end users of the
three main groups of feed use, exports, and ethanol. There remains an
outside chance the US government could phase in as quickly as possible a
CFTC plan to curb the alleged speculation in crude oil futures and
implement a similar plan for grain and oilseed commodity futures. Allendale
suggest USDA and the US government has a number of choices above but most
likely may piece meal out announcements to tame futures and cash prices,
rather than shock futures lower with one single announcement. USDA has held
a tendency to not intervene within world exports and allow price to dictate
what world demand can best afford US grains and allow world demand to deal
with its individual transportation cost. (IE buying supplies and or
alternative supplies as close to home bases as economically as possible).

Weather: The center stage has been weather and that may likely remain the
case through August. Forecast suggest warmer, less heavy frequent rains for
much of the week of June 23 and the week of June 30. Friday's six to ten
day forecast normal temps and mostly normal precip with the exception of
above normal precip for southwest South Dakota. Short range forecast
suggest heaviest rain accumulation for northwest NE, west central IA and
southeast South Dakota. According to the Crop Moisture index western IA and
northeast NE, are at present wet, just one index away from excessively wet.

Corn Fundamentals: bullish to corn futures is any forecast suggesting a
return to widespread heavy rains for the central Midwest, continued strike
in Argentina, known as the #2 world exporter of corn and #3 world exporter
of soybeans. Bullish to corn is projected US old crop corn stocks of 1.433
billion bushels (11.1% end stocks to use) shrinking to new crop levels of
673 million (5.4% end stocks to use) which is dangerously close to the
record level low of 5% end stocks to use of 1995. Bearish to corn futures
is a forecast calling for average weather conditions, any of the potential
policy changes detailed above and the noticeable buying of feedwheat as a
corn feed alternative.

Old Crop Corn Sales: Old crop export sales are running 16% ahead of the
pace this time last year at a total of 2.341 billion bushels. We did a
great job in making very big sales early on and have seen weekly sales run
below normal levels in the past four months. If we keep the lowered pace
through August 30 we will add another 157 million which puts you at 2.498
billion. USDA's target is 2.450. Good deal right? Not exactly. We do not
ship everything we sell. In the past three years we have averaged a 76
million bushel difference between sales and actual year end shipments.
Towards the end of the marketing year some buyers will switch orders from
old to new crop. The net result is after accounting for that shortfall we
are running to a 2.422 billion bushel target which means old crop demand
needs to be reduced by 28 million bushels.

New Crop Corn Sales: Old crop supplies are not considered "tight". USDA's
current old crop ending stock estimate of 1.4 billion bushels seems like a
huge amount these days. USDA's latest new crop ending stock estimate is
almost half that. So how are foreign buyers reacting to the expected
shortfall? It may be a little surprising to see but they are not securing
new crop supplies like you would expect. We currently have 136 million
bushels on the books for new crop sales. Last year at this time we had 138
million bushels. In the previous five years, we had 29 million bushels of
pre-harvest sales. How about that last serious shortfall situation in 1995?
We had a wet spring and delayed planting then and had 279 million bushels
locked up by this time. We will not compare this to 1993 as during that
year we had the flood problem centered around mid July rather than mid June
like now. The net result is it appears the high prices may be tempering
some demand here. It is still way too early for that to be the case by the
time new crop rolls around but at least for now it appears foreign buyers
are not scrambling. We do not have a argument with USDA suggesting exports
will fall from 2.450 billion in 07/08 to 2.100 in 08/09.

Old Crop Marketing: 6850 cash corn requires 5 cents per bu per month to
store on farm. The present spread between July and Sept futures is offering
7 cents per bu per month and will cover your cost to carry if hedged in the
September futures. Make certain unhedged corn meets the criteria to offset
cost of carry.

Cash Peak: Dating back to 2000, odds favor a national cash corn peak for
the months of April and May. Allendale has sold all previously hedged 2007
corn. Allendale continues to hold 30% of 2007 production in inventory and
will alert when to move to the cash market. At present we have old crop
cash markets offering 22 cents carry from June to October which is slightly
more than the cost of carry from month to month.

New Crop Marketing: The total amount hedged as a percent of anticipated
2008 production is 25%. 7270 vs the Dec 2008 is key support, psychological
resistance is 8000. We will monitor and alert when to resume hedges.

Trade Posture: Fundamentally Allendale remains bullish to corn futures.
Allendale will likely remain bullish into and through the June 30th planted
acreage report and into the initial stages of 2008 pollination. Allendale
remains guarded against declining feed use, export potential and ethanol
production potential, all because of rising cash prices. Allendale is a
buyer of corn futures as outlined within our Grain Trading strategies page
on pull backs as the technical trend remains up.

Historical Price Trends: best odds for the week of June 23, according to
our HPT page is for CBOT Sept corn and August Lean Hog futures. Over the
most recent ten years, odds of 80% for lower Sept corn and August lean hog
futures than where they closed on Friday of the previous week. On average
Sept corn 80% of the time has closed 12 cents lower and 80% of the time
August Lean hogs close an average of $1.70 lower. Please see the HPT page
for the complete list for grains and livestock.

For The Week: for the week, July corn futures value decreased 1.5%, July
soybean futures value decreased 2% and July CBOT SRWW value increased by
2%, August crude oil value decreased .5%.

For The Month: thus far for the month of June, July corn futures value up
20%, July soybean futures value increased 12.4% and July CBOT SRWW value
increased by 13.7%.

Technicals: For the short term trader, Allendale uses its own unique custom
Moving Averages to monitor price momentum, define key support and
resistance levels as well as advise where key pivot points are located when
bulls may turn bearish and bears to turn bulls. We also include last weeks
closing price for the weekly chartist as we draw closer to the end of the
week to anticipate the possibility for futures to have a positive weekly
close or if weakness is ensuing. A detailed technical look at the grains
and livestock are available within our Allendale Advanced Charts.

Soybean Fundamentals: soybeans remain focused on a poor start to the 2008
crop because of much less than desirable weather, the Argentina farm strike
and the attachment of crude oil to soybean oil. Bullish to soybeans is
projected US old crop corn stocks of 125 million bushels (record low 4.1%
end stocks to use vs 4.4% in 1995) a minor increase to new crop levels of
175 million (5.7% end stocks to use) vs 2005 end stocks to use of 15.5% and
2006 level of 18.7%. Bearish to soybeans is the perception of added soybean
acres as a result of the one week and two week forecast. Building bearish
signals is softening of soybean meal demand in Asia as livestock feeders
consider buying tapioca as a source of protein vs soybean meal.

Old Crop Soybeans Sales: We have 3% more old crop soybeans sold than this
time last year at 1.119 billion bushels. Recent sales have been better than
normal as we have picked up sales normally slated for Argentina. This
strike has had a material impact on export sales and therefore on your
soybean prices. If the keep the same recent pace up, the one accelerated by
the Argentina strike, we will have and extra 82 million bushels of sales on
the books for a total of 1.201 billion on August 30. As with the corn we do
not actually ship everything sold. That shortfall averages 28 million which
puts a 1.173 billion target. That is also clearly above the 1.110 billion
USDA has posted recently. What if the Argentine strike ends and we go back
to a normal pace? Then we only add 62 million bushels for a 1.181 billion
total. That is still above USDA at 1.110. Though today's sales report was
not that hot no matter how you cut it export sales are doing good. It would
not be hard to see a 20 to 30 million bushel reduction off ending stocks
because of this. A 20 to 30 million reduction off an already low 125
million ending stock is a big deal. Anytime we flirt with 100 million
bushels the trade will take notice.

New Crop Soybean Sales: Current new crop sales total 95 million bushels.
That is lower than the previous two years at this point which were 109 and
145 million bushels respectively. We would normally stop right here and
state that foreign buyers are not scrambling for US new crop soybeans.
However, this morning an overnight sale of 2.24 million tonnes of US
soybeans was made to China. They canceled 463.5k tonnes of old crop sales
that was on the books but not shipped yet.

Old Crop Marketing: $15.04 cash soybeans require 9 cents of carry per
month. If not hedged, make certain your local cash markets are offering you
sufficient carry. Contact an Allendale representative for alternative
marketing strategies for your specific operation. The present July/August
futures spread offers only three cents carry.

Cash Peak: Dating back to 2000, odds favor a national cash soybean peak for
the months of August, December and April.

New Crop Marketing: We will hold hedges of new crop at 40% of anticipated
2008 production and alert when to resume. Technical chart based support is
14920. The technical trend is clearly up, we will respect the trend before
resuming hedges, and plan to cover with bull call spreads or use puts vs
outright selling of futures. We will alert you when to resume hedges.

Trade Posture: technically Allendale is bullish as July and Nov futures
technical trend is clearly up. The Argentine farm strike is extended to
Friday, June 27th. Farm groups will not allow the sale of cereal grains or
oilseeds. The future of the Argentine sliding tax scale on soybeans is now
up to the Argentine Congress. Allendale remains bullish soybeans given
record low levels of stocks to use and a less than stellar start to the
2008 planting and early growth campaign.

Wheat Fundamentals: Egypt launched a tender to buy 55,000 to 60,000 tonnes
of wheat, canceled the tender on Thursday then reissued the tender after
the close of futures on Friday. In the lead to supply the wheat is Russia.
Recent rains have interrupted the hard red winter wheat harvest in #1
producing state of Kansas. However the initial harvest surge is expected to
begin the week of June 23. Oklahoma's harvest is more than 2/3 rds complete
and results are said to be above expectations on both yield and protein
content. Spring wheat conditions are increasing week to week. Keep your eye
on Canadian wheat weather as they have enough moisture for about one week
before crops begin to show signs of weather related stress. Dry Argentina
is receiving beneficial rains as well as east Australia. However east
Australia forecast calls for net drying the week of June 23. There is a
push to open CRP as soon as possible, this could be viewed as most bearish
to July 2009 wheat futures as its likely the first to be planted fall of
2008. Bullish to world wheat use is the rising cash corn price as livestock
feed is switching to wheat as an alternative source of starch.

Wheat Sales: The wheat marketing year goes from June 1 to May 30. Therefore
we only have two weeks under our belt to report on. It is still too early
to say with confidence that we are ahead of or behind a certain target
pace. We have 297 million bushels of sales on the books which is a large
53% over last year at this time. This is the largest number on hand since
the 1996/97 production year. At this week's sales pace we could run a 1.385
billion bushel sales which is above the 1.000 billion USDA has plugged in.
That sounds really good. However do not get excited. World wheat production
is on the rise. It would not be surprising to see sales fall once crops are
set in other countries.

Wheat Crop Marketing: $6.65 cash wheat requires 4.8 cents of carry per
month. If not hedged, make certain your local cash markets are offering you
sufficient carry. The present July-Dec wheat futures spread is offering 41
cents carry, just a few weeks ago, Allendale rolled its July hedges
directly to the Dec to cover the cost of carry and added the remaining
balance to its merchandizing ledger. We see no reason to hedge new crop
above the 65% level we have on for now. Corn's futures rally is the key to
supporting wheat futures. Allendale will alert you as to when to hedge or
sell new crop to the cash markets.

Trade Posture: Technicals are bullish. Fundamentals from the neighboring
corn pit help to support the wheat. South Korea is clearly substituting
wheat vs corn for feed. Other world corn buyers are expected to follow suit
and help set a floor under wheat as long as corn prices continue to rise
internationally. Fundamentals continue to weigh on international prices as
the world wheat crop as a whole is doing well with projected world wheat
end stocks to rise 14.7% compared to 14.3% from 2003 to 2004.

Lean Hogs: We were expecting Thursday's $1.70 gain in the pork cutout to
add support but today was a big price reaction. The trade is excited that
packers are looking for hogs to fill orders for July 4 features. We have
made it very clear in recent weeks that pork is the only protein to have
CLEARLY benefitted from the troubled economy. Consumers have moved into
pork much better than expected. We would assume grocers, which normally
feature July 4 as a hamburger and hot dog holiday, may be making room for
some pork steaks and chops in the upcoming features. While this is
supportive we do not feel it will make a lasting up trend here. All we have
done in recent days is bring prices from below true value back to true
value. In a few days we may be above value.

Cold Storage: Every month USDA releases data on stocks of meat and other
food items in frozen storage warehouses. Stocks of pork, though at the
second highest levels in history for the end of May, were down a big 85
million lbs from the previous month. That is a record decline for the month
of May. All cuts of pork contributed to this number in a supportive way. It
should not impact prices on Monday but will keep ideas of continued strong
exports alive.

Live Cattle: This morning we noted how just about every factor on our list
of topics was supportive. It was important for this market to respond
accordingly today. The CME action did not disappoint. New highs were made
in all contracts from August on out. We started the day with news that the
South Korea negotiations would continue. Crude oil was stronger during the
day. We traded cash cattle higher yesterday and could look forward to a
bullish Cattle on Feed report today. We also noted how volume dried up on
yesterday's lower CME prices. That is a supportive sign.

Cattle on Feed Placements: Today's update on inflows and outflows of cattle
in feedlots during May was bullish as expected. USDA estimated cattle
starting feedlot style feeding ,placements, was 88.0% of last May. This was
the lowest May placement since 1997. It also marks this the third month in
a row. Of smaller placements. The reason for this is mostly due to corn.
Feedlots have been losing money for almost one year straight now. They
bought feeders at a certain price then saw corn prices push higher
throughout the feeding period. Our understanding is that few feedlots had
hedges on corn needs during this rally and that most still do not. We can
also note there is good competition for those stockers and lightweight
feeders at the sale barn from grass feeders. Lighter weight small and
medium frame cattle can be put on pasture for low and moderate gains for a
few months. Grass is a clearly a cheaper feed as opposed to high cost corn
per lb of gain. The last factor to note is available feeder supplies. The
total amount of calves and feeders for feedlots from September 2007 through
August 2008 will be about even with the previous year. We have a smaller
supply of 2007 US born calves and are balancing that out with larger
imports from Canada. Since we placed 8% more from September through
February that means we will have less available from March through August.
We know the overall number of placements was down. However was it uniform
among all weight classes, which finish out later, or was the drop centered
on heavier feeders, which finish out sooner? For the most part numbers were
pretty uniformly from under 500 lb calves through over 800 lb feeders.
These animals will finish out from October through January.

Cattle on Feed Marketings: The number of finished cattle leaving feedlots
was 102.6% over last year. We marketed more cattle during May because we
simply had more cattle available (from bigger winter placements) and also
because feedlots cleaned up some of the backlog. In early May steer
carcasses were 22 lbs higher than last year. At the end of May they were 11
lbs heavier. The same numbers for heifers were 18 lbs heavier in early May
and 10 lbs heavier at the end of May. Good job feedlots.

Cattle On Feed: The net result of fewer cattle in and more cattle out means
the feedlot population on May 1 at 98.6% of last year fell to 95.9% of last
year on June 1. The key here is when these fewer cattle will be marketed.
Our models suggest numbers will be equal to, or higher than, last year for
the next few weeks. We should switch to below last year slaughters, and
stay there, around August.

Now that we know supplies in the coming months we can look at prices. Cash
cattle generally are low in the summer and rise in the fall/winter as
supplies drop off seasonally. The current futures are implying cash cattle
will go from this week's $94 cash cattle trade on up to $112 by the end of
December. That implied end of December price is a full 22% higher than
2007!!! While we are bullish based on falling supplies we still cannot
fundamentally justify a 22% premium. Keeping it simple we do not expect
this market to fall to true value. As long as commodity long-only
speculators are still buying we have a good chance of keeping these
artificially high prices. We will not stand in front of this market with
sales.

Allendale is registered with the CFTC and NFA and is a member of the NIBA.
The bottom line is we are a regulated firm which can be extremely important.

USDA to Re-Survey Six States: released Thursday afternoon...in an effort to get a better idea of both planted and harvested acres USDA will resurvey producers in those key flooded acres areas the week of June 23. USDA noted most of their initial surveys for the June 30 Acreage report were made before the flooding began. This will likely keep their June 30 numbers a little on the bullish side. We may not have to wait for months before the true planted and harvested numbers come out. Keep in mind they still plan to do a more extensive survey of the entire Corn Belt starting the week of July 12. The results of that survey will be included in the normal monthly supply/demand report released August 12.

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