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Corn futures may have bottomed

Historical Price Trends: best odds for the week of August 18, according to
our HPT page is for CBOT October Live Cattle suggesting 80% odds of lower
trade by the end of next week, vs where futures closed on Friday Aug 15.
The average decline has been 117 points. Please access our Historical Price
Trend page for the balance of the commodities odds for next week.

For The Week: for the week of August 11th, September corn futures value
increased 6%, September soybean futures value increased 3% and Sept CBOT
SRWW value increased by 3%.

For The Month: thus far for the month of August, Sept corn futures value
down 11%, September soybean futures value down 15% and September CBOT SRWW
value up 5%.

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.

Conclusion: most immediately corn has support of its identical #1 and #2
Moving averages for Sept and Dec futures but overhead resistance of the
pivot point. Technically the trade could be willing to buy against the
support and use a target of the pivot point.

Price Projections: Allendale's December corn futures price projections
suggest futures may have bottomed and now point to a move higher to the
6500 level. What this may suggest is for end users to lock in inputs at
present levels and cover with longs puts in case crude oil continues to
drag futures lower. Producers may want to buy calls at these lower levels
and use a target very near the 6500 level to catch up on hedges for 2008
corn production.

Price Projections: Allendale's November soybean futures price projections
suggest futures may have bottomed and now point to a move higher to the
13750 level. What this may suggest is for end users to lock in inputs at
present levels and cover with longs puts in case crude oil continues to
drag futures lower. Producers may want to buy calls at these lower levels
and use a target very near the 13750 level to catch up on hedges for 2008
soybean production.

Price Projections: Allendale's December wheat futures price projection
suggest futures may have bottomed at the 7800 level and now point to a move
higher to the 900 level. What this may suggest is for end users to lock in
inputs at present levels and cover with longs puts in case corn and
soybeans technically pull futures lower. Producers may want to buy calls at
these lower levels and use a target very near the 9000 level to convert
present hedges to the cash market.

Old Crop Corn Exports Are Weak: The key at this time of year is trying to
get the corn out of the country before buyers make cancellations or switch
orders to the fresh new crop supplies as there is only two weeks remaining
to the 2007/08 marketing year. Therefore for old crop we watch shipments
and not sales now. Will we meet USDA's 2.425 billion bushel target exports?
The good news is shipments were much higher than usual all through the
grain price rally. The bad news is since grain prices peaked they have
actually gone down to normal levels.

*** In essence low prices are not turning on old crop demand. In fact low
prices are making foreign buyers a little complacent on old crop. What new
orders they are making based on low prices is in new crop. ***

The bottom line is we are not on pace to meet USDA. They are currently
around 50 million bushels too high.

Don't Give Up Hope, New Crop Sales Are Good: The table below shows pre
harvest sales by August 7. Today we learned 37 million bushels of new crop
sales were made last week which brings the total sales to 303 million.
Though it is under last year's total this is pretty respectable. Hitting
USDA's 2.000 billion bushel new crop target seems pretty easy.

Of Interest: Friday's chart featured on our "Of Interest page" of this
report shows the weekly pre-harvest sales pace. It is good to see foreign
buyers were not deterred from buying US corn when prices were high and are
buying it well now that prices are low. In the coming months USDA may need
to increase their new crop sales estimate.

The Corn Message: The short term fundamental news released Thursday morning
was a net wash. Old crop corn sales were disappointing while new crop corn
sales were positive. The "outside markets" did not have much of a pull on
Thursday but came back with a vengeance on Friday. We likely have poorer
ear development which may be confirmed at harvest, frost risk, and a good
chance USDA will revise its new crop demand estimates higher (feed,
ethanol, and exports). While we are bullish we would feel better if corn
was being backed by a rising crude oil market. Crude oil is still
officially in a downtrend and the feature driver of corn futures direction.
There remains a chance for corn to disassociate itself from crude oil if a
frost were to actually begin to trim corn for grain production.

Trade Posture: Fundamentally Allendale remains long term bullish to corn on
tight stocks to use that we feel will get tighter in the coming months. For
the chart picture we had been bearish-neutral and short on the Grain
Trading Strategies page. Given Friday's trade action we are officially
short term neutral and willing to trade the immediate range. For the first
time in the most recent three weeks, commercials did not buy equal to or
more than what non commercials sold in the number of contracts corn. For
this latest week, commercials bought only half of what the non commercials
sold.

China Makes Headlines: despite the fact China's imports of soybeans is
22.8% higher from January to July 2008 vs year earlier amounts, the country
had suggested its needs would likely slow during the Olympics. China made
headlines bearish to Palm oil by canceling 40,000 tonnes of palm oil which
it had previously purchased. With palm oil cash prices declining 33% from
its peak in March, China is back trading the cash markets. It has been
suggested China and India combined have now made adjustments on upwards of
800,000 tonnes of palm oil. Crude oil futures weakness continues to be the
main driver of weaker soybean and soybean oil prices but this fresh news of
the washouts, fundamentally damaged the confidence for bulls. The positive
news is two fold, #1 restricted Midwest moisture resulting in net drying
may support futures on ideas of reduced podfill and #2 is the tightness in
old and new crop end stocks, may limit the downward pressure. Working
against old crop futures is domestic crush which is the biggest user of
soybeans. Around mid-month NOPA reports an industry reported estimate of
crush. That is usually a very good indicator of what the government will
say on its Census Bureau report released around the 23rd. In April, May,
and June NOPA's crush figures were +.9%, +.5%, and -5.7% versus last year
respectively. Notice a trend there? The July numbers, released Thursday,
indicated a 6.7% lower crush! The problem is the marketing year ends at the
end of August. Can we make up for the June and July shortfalls in only one
month? The answer is likely a very emphatic no. Crush would have to jump to
15% higher than last year in August to make that target.

*** Based on Allendale's research our estimate of a 2% lower crush in
August we may only reach 1.807 million bushels for the year. That is 23
million bushels lower than USDA estimates. 23 million bushels on top of a
135 ending stock is a notable adjustment. That is why soybean futures began
to lag Thursday.

Old Crop Soybean Exports: Though today USDA reported a net cancellation for
old crop sales we rather focus on shipments. That is more important right
now. They have been skyrocketing above normal levels since March, even
through the big grain rally. We may end the year just a few bushels under
USDA's target.

New Crop Soybean Sales: We will fully admit Thursday's sales number on new
crop bookings were small at 4 million bushels (119,300 tonnes). However
take a look at those pre-harvest bookings we have made. It seems we should
hit USDA's 1.000 billion bushel target without a big problem.

The Soybean Message: Thursday and Friday was a blow to the bull's
confidence. However, the weak NOPA crush report may not stop the overriding
theme. The 135 million bushel ending stock level USDA told us this week for
both old and new crop futures is tight. We still have the well known
message of frost risk. These are still important factors to consider.

Trade Posture: Allendale remains long term bullish to soybeans as 2008/09
ending stocks are estimated at 135 million bushels. However the immediate
technical trend is mixed with outside old crop fundamentals mostly bearish.
Allendale will sell short covering rallies until the technical climate
begins to prove a neutral/bullish bias.

Wheat Sales are Neutral: Before Friday's wheat futures opening the bearish
news was Egypt bought 155,000 tonnes of non USA wheat, instead favoring
Russia and Ukraine origin. The bullish news is Iran, yes Iran bought
689,000 tonnes of USA wheat, rather than sourcing from Canada. USA wheat
sales are a little ahead of average at this point but and may slip to below
average. Let's keep in mind there is a big 10% increase in world wheat
production expected this year. We had great exports last year but will
return to normal, maybe a little lower, this year.

The Wheat Message: Thursday's wheat sales report may not dramatically
change anyone's mind. This market is still under the influence from corn
and soybeans. Ukraine announced this week it milling quality wheat has
shrunk to just 32% vs year earlier levels of 70%. The importance of this
estimate is it could likely place more demand into world wheat suppliers
such as the US. However with more feed wheat available may suggest more
competition to international demand for US, Argentina and Brazil corn.
Wheat Domestic Stocks and Stocks to Use: 2008/09 end stocks are projected
at 574 mil bu via the July WASDE vs 537 million bushels estimates in the
July WASDE, an increase of 6.8%. 2008/09 end stocks to use projections are
25% for the August WASDE report vs 23.1% in July up 87% year on year.

World Stocks and Stocks to Use: 2008/09 world end stocks are projected at
136 million tonnes vs the July WASDE estimate of 133 million tonnes, up 21
MMT yr on yr. This compares to the 1995/96 year on year increase of 8 MMT
regarded as a notable increase. 2008/09 world end stocks to use for August
is estimated at 17.7% vs 17.3% estimated in the month of June vs 15.7% for
the 2007/08 marketing year. At 17.7% end stocks to use, it represents the
third tightest level dating back to 1980.

Trade Posture: Technicals are neutral to bullish. Declining Spring wheat
conditions is supportive to Sept MGEX futures. Despite record world wheat
production, the days supply of all grains has shrunk from 59 this year to
58 days for 2009 vs 115 days in 1999/2000 and 2000/01. Although US end
stocks have increased dramatically by 87%, world end stocks to use remain
precariously razor thin. Allendale would recommend building a bullish base
via at the money or slightly out of the money long calls or bull call
spreads and then add to the long position with futures when its respective
key pivot point are penetrated above.

Lean Hogs: For the week October futures fell $1.62. Cash hogs confirmed
their top for the year on Tuesday. They are lower than that right now but
the market is not racing lower however. The reason for that is cash pork.
Wholesale pork prices actually came back and put in new highs today. For
now the cash pork side is saying they want to see the increase in pork
supplies come before pricing in some downside. We would assume they are
getting good last minute orders for Labor Day. While it all sounds good
realistically this cash hog and pork market should break. Pork production
this week was 419 million lbs. In September it will run around 465 and in
October it will push around 490. We also have some big questions regarding
export demand. With the dollar moving higher will we maintain this great
export pace? While we are still feeling the October lean hog contract could
stand to shed a little more weight those 2009's might be a little slim.
What is interesting here is the futures trade is treating all 2009
contracts about the same. They are assuming higher corn prices would mean
more liquidation of the hog herd and therefore less pork. However, being
realistic there is a 10 month lag from liquidation to when pork production
is affected. Realistically what does today's corn price have to do with
February lean hog futures? Very little. The trade is dumbly acting as
though 2009's are all the same. We are not going to argue with them though.
If we they get some contracts priced wrong we will take advantage of it.
For now we are not adding any hedges. Instead all hog producers who buy
feed need to working on a feed hedge plan.

Chicken: In case you do not know it is chicken which is the king meat in
the US. Though there is no futures trading on broiler prices, and there has
not been for many years, we do monitor chicken closely. It is the second
largest consumer of corn and therefore a big factor in our feed estimates
on the corn balance sheet. It is also important to see what chicken is up
to for a competition comparison when we are making beef and pork price
estimates. Though chicken prices are higher if you dig into the story a
little deeper the demand for premium priced boneless breasts is actually
down. It is the lower end market (leg quarters, legs, wings) which are
supporting prices. Surprisingly in this economic downturn US consumers are
moving out of chicken breasts and into something else.

Beef: The column for beef is for fresh prices. Fresh is a composite of all
grades (mainly choice and select) and is a truer measure of overall beef
prices than only choice. Adjusted for inflation beef prices were below last
year in April and May. However, you will note a resurgence recently. The
message here is domestic beef demand is improving. Consumers backed away
from the premium protein in March and April as the economy worsened but
they are back now.

Pork: While pork appears to be the worst of the group on a plain price
basis it is the biggest winner on a true demand basis. Pork production was
up 10% over last year. Taking out the raging exports we find the amount of
pork left for US consumers is up 6%. So you have domestic supply up 6% and
prices (not adjusted for inflation) are up 1%. That is a very big deal.

Live Cattle: We would argue most of today's sell-off was related to general
"commodity selling" rather than beef-only fundamentals. On the cash side
most live based action was $100 which was steady while Nebraska wavered
between $160 early on and $159 at the end. That was steady to $1 higher.
Overall we are pleased with the short strangle option position. We put it
on at a $3 credit and today it closed at $3.12 which is only 12 cents. As
long as the market stays in the wide price range we noted in previous
commentaries this position should work just fine. For 2009's it is
interesting to see all deferreds are now bunched together in the $105 to
$108 range. If corn breaks a little more and we get a chance at buying
$102's or $103's we will jump on it.

Retail Meat Prices: This week the government released prices for retail
level meat prices. We have highlighted the three main proteins here. You
will also notice we only listed the price comparison to last year. These
numbers only give us a glimpse of the price meat is moving at in the US. It
is not a complete measure of demand. For that we would have to adjust the
prices for inflation then throw in the amount of each meat left for US
consumers on a per person basis after exports were taken out.

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

Historical Price Trends: best odds for the week of August 18, according to our HPT page is for CBOT October Live Cattle suggesting 80% odds of lower trade by the end of next week, vs where futures closed on Friday Aug 15. The average decline has been 117 points. Please access our Historical Price Trend page for the balance of the commodities odds for next week.

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