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Increasing wheat stocks seen as a challenge

Wheat Fundamentals: poor winter wheat crop conditions suggest increasing
2008 USA end stocks to be a major challenge. Unprotected from the insulated
effect of snow cover, southern Plains winter wheat subject to bitter cold
this coming weekend. July Spring wheat futures are premium to winter wheat
contracts at the CBOT and KCBT as it will be up to spring wheat seedings to
make up the difference in potential winter wheat losses. Spring wheat
futures are also attempting to buy acres away from corn and bean for 2008.
Argentina has pulled out of the world export market, at least until the
middle of next week and we anticipate the country may continue to come in
and out of the international export market though much of the early winter.
Weekly wheat sales, inspections and shipments remain strong. The northern
hemisphere has planted 3-4% more wheat acres than year earlier levels and
other than the US, most countries wheat crops are entering dormancy under
average conditions, yes, even China.

The Three Years: early this week we identified the three years which had
less than present 44% good to excellent winter wheat conditions. Odds do
not favor present conditions to heal significantly in spring 2008 and a
domestic wheat stock rebuild to be a challenge. Harvested acres for the
three years in questions were notably less than usual. Allendale's research
suggest if planted winter wheat acres increase for 2008 by four million vs
2007 levels, harvested acres could sink to a level of 73.7% vs a five year
ave of 80.1%.

Basis: over the most recent 18 years, for the 48th week (week of Dec 3rd)
of the calendar year, the average Gulf basis has been 37 cents over March
futures. The max for wheat basis has been 74 over with the minimum at 9
over. The present basis level is 40 cents over. Wheat basis on average has
had a tendency to work sideways from early Dec to the last week of Dec.

Old Crop End Users Panic: not based on the Gulf basis markets for hard red
winter or soft red winter wheat. Basis levels for present through the month
of Feb are providing adequate carry.

Exports: 2007/08 export use is 56% of annual production vs an average level
of 46%. Week ended Nov 22nd had exports sales of 15 mil bu compare to a
five week ave of 11.1 mil bu and ten week ave of 26.1 mil bu. 2007/08
cumulative sales are 95% above yr earlier levels and 75% above the five
year ave. Shipments are 82% above year earlier levels and 63% above the
five year average, helping to set a floor for old crop futures.

Top Ten: thus far in the marketing year, each of the top ten US wheat
importing countries have bought more wheat than year earlier levels. The
largest increase year on year is Algeria at 906% with smallest gain from
Japan at 4%. The top ten cumulative are 74% higher as of Nov 22 vs year
earlier levels, 13.235 mil tonnes vs 7.628 mil tonnes.

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
22.6 cents premium the March. Your cost to store wheat per month is 5.9
cents per bu. The present futures spread is paying more than break even and
warrants 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. As long as your local cash market
is paying you to store unhedged wheat at a rate of 5.9 cents per bushel per
month, then store.

New Crop 2008 Marketing: the July 2008 life of contract high is Friday Nov
30th 7740. After reaching our next scale up hedge target on Thursday of
7220, Allendale is now 55% hedged of anticipated new crop wheat production
at an average level of 6570.

Trade Position: the fundamental facts are world supplies are at risk with
weather problems in Argentina, India and declining conditions in the US.
The technical picture changed out of its negative weakness beginning
Tuesday Nov 20th. We achieved our target on our long KCBT and CBOT wheat on
Wednesday and then Thursday. We have new recommendations to enter March
futures longs in the MGEX trade.

Observation: the positive news is how all three areas were more than enough
to reduce the level needed on a per week basis in order to reach USDA's
final export target. With 48% of the marketing year remaining, wheat needs
to ave 5.18 mil bu of weekly sales or 120 mil bu. Using the most recent
five week sales ave of 11.1 mil bu per week, the USDA target of 1.15 bil bu
could be met in 10.8 weeks or using the most recent ten week ave could be
met in 4.6 weeks.

Exports: In the week ending November 22, 56 grain vessels were loaded in
the U.S. Gulf, up 14 percent from last year. Sixty-seven vessels were due
within the next ten days, 8 percent higher than the same period a year
ago. For the week ending November 21, the cost of shipping grain from the
Gulf to Japan was $120 per mt, up 2 percent from the previous week and
93.4% higher than year earlier levels. The cost from the PNW to Japan was
$82 per mt, down 9 percent vs the previous week.

Corn Fundamentals: See South Korea's purchases within the "The Top Five"
below. China's corn for spirits manufacturing are gearing back up in the
wake of the countries worst fuel crisis in four years. Not to drown their
sorrows but to assist in the manufacturing of ethanol. China will release 2
million tonnes of corn reserves to tame inflation and fuel the ethanol
plants. Replanting is underway in Argentina after the recent frost-freeze
but under net drying conditions. US corn export sales and inspections are
firm but the shipments need a huge boost.

Ethanol: Dec futures closed 3.5 cents higher to settle at $1.95/gallon. Key
technical resistance of $1.95 with support at $1.87. The long term trend
remains up since finding a bottom of $1.536 on Oct 1, 2007. DDG prices
remain firm at 33 cents per pound of protein with 48% soybean meal closing
the price gap.

Basis: over the most recent 18 years, for the 48th week (week of Dec 3rd)
of the calendar year, the average Gulf basis has been 30 cents over Dec
futures. The max for basis has been 55 over with the minimum at 17 over.
The present basis level is 50 cents over Dec futures, 33 over March
futures. Basis on average has had a tendency to work sideways to slightly
higher from early Dec to the last week of Dec.

Exports: 2007/08 export use is 17% of annual production vs an average level
of 20%. Weekly exports sales of 72.5 mil bu for the week ending Nov 22nd
compare to a five week ave of 56.6 mil bu and ten week ave of 61.8 mil bu.
2007/08 cumulative sales are 37% above yr earlier levels and 58% above the
five year ave. Shipments are 12% above year earlier levels but 55% below
the most recent five year average.

The Top Five: only number three US corn importer Taiwan lags in its
purchases, down 19% vs year earlier levels. Number 1 Japan up 11%, Mexico
up 17%, Korea 120% and Egypt up 95%. Cumulative purchase for the top five
importing countries is 25% better than year earlier levels. 20.377 million
tonnes vs 16.32 million one year earlier. South Korea's accelerated pace is
a result of covering needs much earlier than normal and awareness its
alternative supplier, China may be sidelined in the spring, early summer of
2008. Could S Korea ultimately cancel these earlier than normal purchases
from the US. The answer lies within US farmers actual 2008 corn plantings.

Marketing: Cost of carry from Dec hedges to March is 3.6 cents per bushel
per month, or the need for a carry of 10.8 cents. The futures market is
offering 17.2 cents. Allendale did roll its Dec corn hedges to the March
futures on 9/27/07. If you have not rolled Dec corn hedges, get them
rolled. See complete marketing advice within our Hedge Advice page. If your
2007 harvest is not hedged in the futures then look to your local cash
markets to discover if the buyer is offering carry of at least 3.6 cents
per bu, per month. Contact your Allendale representative for re ownership
ideas. To secure cash flow needs, keep your eye on the US Dollar. If a
technical signal should begin to suggest a potential bottom (as it
presently is), respond by first selling cash soybeans and then corn. Take
advantage of the opportunity.

Cash Peaks: Dating back to 2000, national corn prices have peaked more
frequently in the months of Dec, April and May.

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 4364 as of Wed Nov 7th, 2007, with a recent Oct low of 3864. Allendale
had resting orders to hedge an additional 10% at a futures price level of
4360 which was filled and brings us up to a level of 20% hedged at an ave
price of 4290. 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 for corn and its cousin the wheat. We have written new
orders to re enter long March futures and initial long July corn futures.
Those new orders can be found within our Grain Trading Strategies page.
Wall street may be doing its best to beat up on ethanol but Allendale's
view suggest publicly traded companies may be taking the worst beating and
the big picture by USDA suggest ethanol is accomplishing more than just
using corn as it revitalizes rural America.

Soybeans Fundamentals: sensitive to soybeans and soybean oil is the crude
oil market (biodiesel) precious metals and US dollar. Bullish to soybeans
is the notable dryness setting in within Argentina but be aware the latest
six to ten day forecast is perceived by the trade to bring moisture. Strong
export sales, inspections but shipments need some help. There is a three
week up trend in soybean oil. As long as the trend can maintain even with
the negativeness in crude oil, we view soybean as supported. If the three
week trend is breeched then look for soybeans to buckle.

Exports: 2007/08 export use is 37% of annual production vs an average level
of 35%. Weekly exports sales of 41.1 mil bu for the week ending Nov 22nd
compare to a five week ave of 41 mil bu and ten week ave of 32.2 mil bu.
2007/08 cumulative sales are 7% above yr earlier levels and 8% above the
five year ave. Shipments are 14% below year earlier levels but 23% above
the most recent five year average.

The Top Five: numbers four and five US soybean importer EU-25 and Taiwan
lags in its purchases, down 24% and 28% respectively vs year earlier
levels. Number 1 China up 28%, Mexico up 8%, and Japan up 2%. Cumulative
purchase for the top five importing countries is 12% better than year
earlier levels. 12.723 million tonnes vs 11.356 million one year earlier.

Brazil Real vs US Dollar: in a notable downtrend Aug through mid Nov,
bottomed at 1.72 on 11/08/07. Retraced 50% to 1.87 on 11/27/07 and now
three consecutive days of lower lows and lower highs. Keep you eye on the
spread as we suspect China and the other top four importers of soybeans
are.

US Census Bureau: released its October soybean crush data and is very
impressive at 163.5 million bushels vs the previous months 147.7 mil bu and
yr earlier levels of 161.7 mil bu. USDA projects crush at 1.806 billion bu
or 1% stronger than yr earlier levels. Year to date, the crush is running
2.3% stronger and USDA needs to revise its projected target up by 11
million bushels. In anticipation of the Nov US Census Bureau crush, since
1999/2000, seven years (one yr unchanged) found the Nov crush less than the
October by an ave of 4.8 mil bu and a range of 1 mil bu less to as much as
7 mil bu less.

Basis: over the most recent 18 years, for the 48th week (week of Dec 3rd)
of the calendar year, the average Gulf basis has been 36 cents over Jan
futures. The max for basis has been 61 over with the minimum at 24 over.
The present basis level is 48 cents over. Basis on average has had a
tendency to work higher from the first week to the last week of Dec.

2008 Soybeans: on Monday 11/19/08 Allendale hedged an additional 10% of
anticipated 2008 soybean production at a level of $10.25/bu. Allendale now
has 30% of anticipated 2008 production hedged at an average levels of
$9.59/bu.

Trade Position: We remain fundamentally bullish soybeans as a result of the
strength in outside futures trade. Bearish to soybeans is the anticipated
drop in soybean use for bio diesel production as cash prices for soybean
oil have put operating margins in the red. Allendale suggest to focus on
the US dollar, soybean oil futures technical uptrend and Brazil/US currency
spread. At the present stage of the game, S America is working with a
record crop.

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.

Wheat Fundamentals: poor winter wheat crop conditions suggest increasing 2008 USA end stocks to be a major challenge. Unprotected from the insulated effect of snow cover, southern Plains winter wheat subject to bitter cold this coming weekend. July Spring wheat futures are premium to winter wheat contracts at the CBOT and KCBT as it will be up to spring wheat seedings to make up the difference in potential winter wheat losses. Spring wheat futures are also attempting to buy acres away from corn and bean for 2008. Argentina has pulled out of the world export market, at least until the middle of next week and we anticipate the country may continue to come in and out of the international export market though much of the early winter. Weekly wheat sales, inspections and shipments remain strong. The northern hemisphere has planted 3-4% more wheat acres than year earlier levels and other than the US, most countries wheat crops are entering dormancy under average conditions, yes, even China.

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