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Bullish to corn

Think There is a Correlation? You would be right if you think there is a
correlation between soybean oil and crude oil. Nearly as much as ethanol
and corn were attached to crude oil a year ago, it is now soybean oil
(there are no biodiesel futures) and soybeans attached to crude oil.

Uncanny how as crude oil futures have rallied and corrected, soybean oil
has been very sensitive in its movement. Soybean oil futures have been and
remain the leader to soybean futures. So goes the crude oil, so goes the
soybean oil, so goes the soybeans. In fact it may be equally if not more
important to keep your finger on the pulse of the crude oil in assisting
your 2007 and 2008 soybean marketing as it is to keep another finger on the
pulse of the 2007/08 South American (Brazil 62 MMT vs last years 59 MMT,
Argentina 42 MMT vs 42.2 MMT, Paraguay 6.2 MMT vs 6.2 MMT and Uruguay 810
KMT vs 778 KMT) soybean development.

A few critical points to be aware of for Jan crude oil futures are the
five cent chart gap between $88.05 and $88.10 left between 10/18/07 and
10/25/07. Consolidation support at the $86.50 level and if broken another
chart gap between the 10/12/07 high of $83 and 10/15/07 low of $83.65. Jan
crude oil closed at $91.86 on Friday as your reference point. Much of the
recent rally has been at the hands of political unrest in Nigeria as well
as Iran and Turkey. These fundamentals appear as though they may not be
settled at a moments notice and could support the present up trend. Another
event you may want to be aware of is a timing matter. Word has it the major
fund managers cut off performance date to help set their 2007 bonuses is
approximately Nov 15th. We anticipate as we draw closer to the 15th, funds
may be prepared to set their exit points of their present long positions.
This could easily influence how soybean oil and then soybeans react. If you
have questions about the relationship between crude and soybean oil and how
it may impact your trade positions and or cash and futures hedge marketing,
contact your Allendale Representative at 800 551 4626.

Soybean Fundamentals: weather is shaping up for a good beginning for
S America soybean plantings and early growth. Brazil is poised to produce a
record crop and Argentina nearly unchanged from last years record crop.
Soybeans remain influenced by the leader soybean oil which is finding its
direction from crude oil futures. Soydiesel is the connector between crude
oil and soybean oil. Soybean and soybean oil exports could use a boost.
The threat of a mid winter La Nina episode within S America is real and
bears monitoring.

The US Census Bureau: released its month of September soybean crush report
on Thursday. Pre release estimates were anticipating a crush of 147.5
million bushels vs the August crush of 146.2 million bushels. Actual
results came in at 147.50 million tonnes. These results are very much
neutral. The Sept report is for the first month of the 2007/08 marketing
year and compares to 142.4 million bushels for Sept of 2006/07. According
to our special reports crush margin graphic within our web site, crushers
maintain a steady profit per bushel and are halfway between break-even
value and full capacity utilization. USDA has increased its crush demand 1%
vs the 2006/07 marketing year. The Sept 2007/08 began with some noise as
its level is a full 3.6% greater than year earlier levels. Allendale
suggest USDA increase its crush usage by 20 million bushel to a target of
1.845 billion bushels.

Basis: over the most recent 18 years, for the 43rd week (week of Oct 29) of
the calendar year through the first week of Dec, the average Gulf basis has
been held in a range of 16 to 60 cents over futures. The present basis
level is 48 cents over. Soybean basis on average has had a tendency to
slowly work lower into mid Nov and then strengthen into the first week of
Dec.

Exports: USDA's export target is 975 million bushels. With 86% of the
marketing year remaining, 44% of the target has been met vs a five year ave
of 41%. Weekly sales of 17 million compare to the five week ave of 23.3
million and ten week ave of 15 million bushels. Cumulative sales of 433
million bushels thus far in the marketing year are 6% less than year
earlier levels of 463 million bushels and are 9% less than the five yr ave.

Historical Price Trend Page: according to our HPT page, recent ten year
odds have Jan soybeans averaging 14 cents higher 90% of the time vs
Friday's close with 10% odds of an ave of 18 cents lower.

Soybean Marketing: Since 2000 there has been a tendency for the peak cash
price received on a national level to occur in Nov-Dec time frame. The
average cash carry is 15 cents from Oct to Dec. Your on farm storage cost
is approximately 17.7 cents per bushel. At 17.6 cents carrying cost the
Nov-Jan spread is presently near break-even at 17.6 cents. Allendale does
not anticipate this spread to widen much further and on Oct 11th, rolled
Nov futures to Jan at 17.6 cents. The talk within the greater Midwest is
non forward contracted soybeans are sold to the cash market rather than tie
up storage for corn which is more profitable to store as the market is
paying a much better premium. Nov deliveries begin Tuesday Nov 30th and the
range of estimates are 1,500 to 3,000 contracts to be delivered of a
present 4,138 contracts outstanding.

Allendale Advanced Charts: suggest soybeans remain in its long term up
trend with over head resistance of 10174 and support of 9650. Fridays close
is 9954.

Trade Position: We remain fundamentally bullish soybeans as a result of
tight domestic stocks, steady demand and the extreme drop in world end
stocks to use. We are presently long Nov soybean futures and have raised
our risk level to protect gains already earned for the third consecutive
day. We have written new orders to enter soybean oil longs and suffered a
small loss in the soybean meal on Friday.

Corn Fundamentals: Harvest is expected to pick up next week as forecast
call for mainly dry weather for a period of seven to ten days. Harvest has
not had an over extensive negative impact on basis and or futures and
Allendale does not anticipate it will to the end of harvest. Corn is just
shy of reaching 50% of its export target of 2.35 billion bushels and has
86% of the marketing year remaining.

Allendale Advanced Charts: according to our chartist, Monica Moehring, Dec
corn futures high tested major resistance on Friday and yet maintains a
small uptrend which began the beginning of October. There is about a 15
spread between trend line support and overhead resistance. Do not be
surprised if Dec corn futures enter a mode or minor profit taking the
beginning of next week.

Wheat-Corn Spread: $5.84 premium the Dec wheat on Oct 1, presently $4.28
and in a downtrend. Support is $4.20, resistance at $5 prem the Dec wheat.
Given the severity of the recent sell off of the wheat corn spread we are
willing to sell wheat/buy corn at $5 premium the wheat with an obj of $4.20
prem the wheat or buy wheat/sell corn at $4.20 premium the wheat and use an
obj of $5. Risk is set at 30 cents from the entry points.

Exports: USDA's 2007/08 export target is 2.35 billion bushels, 10% greater
than 2006/07. The 2.35 billion is the largest dating back to 1996 and only
the third time exceeding 2 billion bushels. With 86% of the marketing year
remaining, 46% of the target has been met vs a five year ave of 30%. Weekly
sales of 60.8 million compare to the five week ave of 67.2 million and ten
week ave of 47.9 million bushels. Cumulative sales of 1.071 billion bushels
thus far in the marketing year are 45% greater than year earlier levels and
81% above the five yr ave. Shipments of 307 mil bu thus far in the
marketing year are 3 million less than year earlier levels but 40% above
the five year ave.

Basis: over the most recent 18 years, for the 43rd week (week of Oct 29) of
the calendar year through the first week of Dec, the average Gulf basis has
been held in a range of 30 to 32 cents over Dec futures. The present basis
level is 60 cents over and we do not anticipate basis the greatly deviate
from the present value at least through the first week of December.

Marketing: Cost of carry from Dec hedges to March is 3.5 cents per bushel
per month, or the need for a carry of 10.5 cents. The futures market is
offering 16.4 cents. Allendale did roll its Dec corn hedges, covered with
bull call spreads to the March futures on 9/27/07.

2008 Corn Production: Allendale has 10% of anticipated 2008 corn production
hedged at a level of 4220. The Dec 2008 corn futures life of contract high
is 4344, with a recent Oct low of 3864. Allendale has resting orders to
hedge an additional 10% at a futures price level of 4360. The recent trade
range has been 3900 low to 4250 high. We will be methodical in hedging for
the balance of the 2007 calendar year and extremely cautious entering 2008
spring plantings if in fact corn acres are replaced with bean and wheat
acres.

Trade Position: fundamentally we remain bullish to corn even with record
production as demand remains strong globally and record low levels of world
end stocks to use. We entered long Dec corn futures on Wed achieved our
objective by Friday and have resting orders to be long March futures.
Technically Dec corn remains range bound between 3750 to 3350.

Technicals: Old and New crop corn and soybeans and new crop wheat. 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.

Observation: Dec corn futures able to close above last Friday's close and
yet has immediate resistance of the 3740 pivot point. The ability for wheat
to close above psychological $8 mark may offer some support but much of the
trade remains focused on the long term up trend 7920 needing to hold and
daily chartist suggest the head and shoulders formation suggest Dec CBOT
wheat futures may ultimately be destined for 7200. Soybeans, like corn were
able last Fridays 9832 at the end of business this Friday to maintain a
string of three consecutive higher weekly closes.

Observation: Bearish to soybeans and wheat but bullish to corn if you want
to compare the actual results to pre release estimates. Bullish to corn,
beans and wheat if you compare the actual results to what is required on a
per week basis in sales and shipments as the levels are now requiring less
per week than week earlier values.

Wheat Fundamentals: Timing is ripening for the success of GMO wheat. Years
ago Monsanto was encouraging the US, Canada and Australia to enter the GMO
arena. The short and sweet was at the time the US's #1 export client
warned, if GMO was planted in the US, they would find supplies elsewhere.
The issue was dropped immediately. GMO is back in the spot light.
Australia's Prime Minister is asking its states not to block the idea as it
could play a very key role for the country's food security. In the same
breath, Japan is asking #1 wheat producing state of Western Australia to
not plant GMO wheat as its citizens surveyed do not want GMO in its food.
Japan suggest a premium could be paid to stay non GMO. Timing could not be
better for GMO to enter the world arena with historically tight stocks and
the evidence corn and soybeans have supplied by GMO technology. Do not be
surprised if GMO wheat makes headlines within the global community
headlines within the next 3 to 6 months. What if the top three traditional
major world exporters, US, Canada and Australia agree in unison its time to
alleviate pressure on declining wheat stocks, what choice does Japan and or
other major importers have? The way Australia sees its, after back to back
crop disasters, they are one year away from a critical meltdown.

Old Crop-New Crop: the Dec-July wheat spread at $1.23 prem the Dec. Life of
contract high $2.90, in a typical year 35 to 50 cents carry. Immediate
support at $1.20 prem the Dec with resistance of $2 prem the Dec.
Allendale recommends to buy the Dec, sell the July at $1.20 prem the Dec,
risk 15 cents from entry and use an obj of $1.83.

USA Stocks to Use: Stocks to use of 13.3% also a record dating back to 1980
compare to 15.8% last month vs last years 22.3% and 2005's 26.5%.

World Stocks to Use: End stocks to use at 14.8% vs 15.5% last month are
record low dating back to 1980. The five year ave has been 20.04%. Last
year end stocks to use for world wheat was 16.8%.

Basis: over the most recent 18 years, for the 43rd week (week of Oct 29) of
the calendar year through the first week of Dec, the average Gulf basis has
been held in a range of 31 to 39 cents over Dec futures. Specifically for
just the 43rd week over the past 18 years, the max for wheat basis has been
74 over with the minimum at 13 over. The present basis level is 50 cents
over. Wheat basis on average has had a tendency to slowly work higher from
late Oct to the first week of Dec.

Exports: USDA's export target is 1.15 billion bushels. Dating back to
1999/00, this marketing yr exports are projected the second highest with
2003/04 at 1.158 billion bu. With 59% of the marketing year remaining, 84%
of the target has been met vs a five year ave of 58%. Weekly sales of 20.4
million compare to the five week ave of 41.1 million and ten week ave of
44.7 million bushels. Cumulative sales of 970 million bushels thus far in
the marketing year are 127% greater than year earlier levels of 428 million
bushels and 107% above the five yr ave.

Here are the facts; 30 weeks remain in the 2007/08 marketing year, thats
57%. Thus far of the 1.15 billion bushel export target for wheat, sales
have reached 970 million. This leaves a balance of 180 million bushels
which need to be sold or 5.81 mil bu per week of the remaining marketing
year. The most recent 5 and 10 week ave has been 43 mil bu per week. This
suggest in 4.18 weeks we have met the 1.15 bil bu target. Lets say worst
case scenario we only average what was sold the week ended Oct 18th of 20.4
million bushel, then we reach the goal in 8.8 weeks and have 21.2 weeks
remaining in the marketing year. How important are exports to wheat, very
important as it accounts for 44% use of the total 2007/08 supply, corn 16%
and soybeans 31%. Our Allendale research has shown 75% of the time when the
export sales pace begins as aggressively as it has this year, USDA
continues to increase its export projections for wheat.

2007 Cash Marketing: Allendale sold 50% of its 2007 wheat inventory on
9/18/07 based on historicals. The second opportunity is next April-May. See
our Hedge Advice page for instructions. The Dec/Mar CBOT wheat spread is 19
cents premium the March. Your cost to store wheat per month is 5.8 cents
per bu. The present futures spread is near break even and may warrant the
need to roll Dec Hedges to March 2008 futures. On Monday 10/22/07 we rolled
the remaining 50% of our 2007 wheat hedged in the Dec 2007 futures to the
March 2008 futures.

New Crop 2008 Marketing: the July 2008 life of contract high is 6970
achieved Monday Oct 22. The recent low is 6480. Allendale is 35% hedged of
anticipated new crop wheat production at a level of 6150. Allendale has
resting orders to hedge an additional 10% at a level of 7220.

Trade Position: the fundamental facts are world supplies are challenged by
aggressive demand. We are willing buyers. We entered long KCBT and MGEX old
crop futures positions on Tuesday of last week, raised our risk levels to
protect very healthy gains earned on Monday which were triggered on Tuesday
Oct 23. On Wednesday we entered a Dec CBOT long position and stopped out on
technical based selling on Thursday.

Lean Hogs: There have now been four weeks of +2.3 million head slaughters
in a row. These are all records. We will note previously USDA indicated the
record was put in two weeks ago at 2.353 million. Yesterday afternoon USDA
released the actual slaughter report covering that week where they dropped
it to 2.340 million. That puts last week's 2.345 million run as the record
holder. The supply picture into Thanksgiving should moderate down to the
2.3 million head area. Two weeks after Thanksgiving we could see one more
attempt at last week's record. The near term picture should clear a little
due to the slow drop in slaughters expected. Also, some are suggesting
wholesale pork prices may have declined enough to start seeing some
switching from poultry or beef. Until we do see supplies decline we will
continue to note bears are running the show. That means no bottom picking
speculative trades here.

Live Cattle: This was a rough week for CME live cattle futures. The
December contract fell $2.17. Choice boxed beef was down $3.05 and select
was off $3.51 for the week. There are a few concerns the trade has right
now. We noted the industry has realized we will not be shipping beef to
South Korea until 2008. There was still some hope we would get this issue
straightened out soon.

We can also note there are still concerns about the
economy. New highs in energy prices and possibly less spendable
dollars in the food budget are a concern. Also extra supplies from
competing meats at the meat counter are something to note. Hog slaughters
are at record levels. Broiler production was 1% to 2% higher through
September. In October it has cranked up to 3% to 4% higher. Do these
declines mean cash cattle prices will fall? No. Keep in mind CME futures
had big premiums in them implying cash cattle would rally strong through
the rest of the year. Even at today's December closing price it is implying
cash cattle will finish the year at $98. All we are doing by breaking the
CME trade is taking some of the cash cattle premium off the table.

One
thing we do have to note is this week's cash cattle trading. At the time of
this writing there has been no live based action. However, dressed sales in
Nebraska are being noted at $143 which is $1 to $2 lower than last week. On
the live end we noted this morning October futures were implying $94 cash.
With the $1 drop in futures today that puts them at $93. That would look
about right given the lower beef prices and dressed Nebraska sales. For
fundamental price direction our models still suggest more of a sideways
market right now. Beef supplies should be equal to last year at the largest
then fall early next year. Having said our supportive fundamental outlook
we will note the February contract has broken through the point needed to
validate a bearish Head and Shoulders formation. It could imply move down
to $92.87. The December contract, which is the dominant contract right now,
is close to validating the same formation. So how do we play this? We will
hold our supportive fundamental viewpoint until the charts (the December
contract) prove otherwise. If we are wrong on our longer term supportive
viewpoint we will say it clearly. Fighting a market is the last thing to
do. On the feeder end however the bearish fundamental viewpoint we took has
worked well. Earlier our downside target on the January was filled. Today
the $110 downside target for the March contract was filled.

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.

Think There is a Correlation? You would be right if you think there is a correlation between soybean oil and crude oil. Nearly as much as ethanol and corn were attached to crude oil a year ago, it is now soybean oil (there are no biodiesel futures) and soybeans attached to crude oil.

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