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Index funds still active

Corn Commitment of Traders: Subscribers to the Allendale's research through
our website have access to the Special Reports page. In there we update
charts of interest to both grain and livestock traders. Every Friday
afternoon the CFTC releases the Commitment of Traders.

It details what
class of traders was holding what positions as of the previous Tuesday. As
of Tuesday the trading funds (who go either long or short) as a group were
net long 243,687 contracts. Back on October 9 they were only long 96,126
contracts. In fact this is the biggest net long position for them since
March. In the Special Reports section of our website you will find the
chart which compares fund positions to current corn prices. This type of
chart has been added featured in many industry presentations over the
years. The other class of speculators are the index traders. They go
through large money firms like Goldman Sachs and simply want to be long
commodities by following an index of various commodity prices. The money
firm will put appropriate longs on for in various markets to match the
index and give them the profits or losses accordingly. Money continues to
increase from index traders as they are net long 383,014 contracts. Back on
October 9 they were long 351,498 contracts.

Soybean Commitment of Traders: Where trading funds have been doing nothing
but adding to longs in corn it is interesting to see they have been taking
money off the table in soybeans for five weeks now. From August up until
December 11 they had increased their net long position to 137,780
contracts. From that period to current (114,406 contracts net long) they
have been taking profits. The index funds had generally been increasing
longs until last week when they dropped 10,907 contracts from their record
long position. Let's put this in clear terms. The market had been pretty
much straight up from August up until this week. Funds had been driving
this one up until mid December. If they were not doing this last leg then
who was buying? It was commercials. At the same time funds stopped buying
commercials started blowing out of their record net short position. From
December 11 to January 15 they dropped out of 20,477 contracts. Small
speculators started blowing out of their short position a few weeks before.
This is not a bullish information. Essentially the group that led the way
is bailing ship. The only guys buying right now are the losing money that
is saying enough is enough.

KC Wheat Commitment of Traders: Very similar to the soybeans the funds and
index funds have been getting out of longs on this last leg up in prices.
The shorts are the ones bailing out and buying recently. That is not
bullish.

Chicago Wheat Commitment of Traders: This one is a little unusual. Unlike
the other Commitment of Traders findings, the trading funds are not bailing
out of shorts. They are buying. From late November they brought their
19,950 contract net short position up to a 2,517 contract net long position
and prices rallied. In this case the speculative money likes the Chicago
wheat and is still interested in long positions.

2008 Acreage: It is a general policy at Allendale not to discuss numbers
from other firms. You want the best independent market research from a firm
that does not follow the crowd but instead leads the crowd, and we do our
best to provide it. While we keep our brokerage clients abreast of what the
industry is thinking on acreage, production, or prices we do not include
those opinions in our own research and projections. Having said that with
the light holiday related volume the market did look at acreage numbers
another firm released. Back in December this firm, and much of the
industry, felt corn would be losing 6 million acres in 2008 planting. Now
they estimate a 3.6 million acre drop. That could add a little more cushion
to the 2008 balance sheet. At Allendale's annual Outlook Conference
tomorrow morning attendees will hear a number from us which actually is in
the same vein. Keep in mind our estimates which will be released tomorrow
were made back in December. On the soybean end a 5.3 million acre increase
was released when last month they were at a 6.3 million increase. The wheat
is what was discussed by the trade today. Another firm is using USDA's
winter wheat estimate released last week which was a 1.6 million acre
increase. The spring wheat number released today held a 650,000 acre
decline. For the small amount of spring wheat planted (13.297 million acres
last year) that is a decent decline. That number and our 2008 estimate both
put spring wheat acreage at the lowest level since 1983. That explains why
spring wheat futures, traded at the Minneapolis Grain Exchange, finished
limit up and led the rebound.

CBOT Corn Margin Changes: It is well known in the futures industry that in
normal years a rally can be stopped, or a setback seen, after the exchange
raises margins. The amount of good faith deposit' speculators need to have
in a futures account to hold a corn contract was raised from $1,080 to
$1,283. The raising of margins is a statistical issue. If volatility in the
past x number of days has increased, and the risk of trading futures has
increased, then a higher deposit is required. As noted earlier it was not
unusual to see in past years that speculators exited longs after this
announcement. Will that happen this year? Looking at the Commitment of
Traders notes from above the trading funds have already been liquidating
longs.

Corn Fundamentals: bullish to corn futures is the US dollar is weak, export
demand remains hot. South America will begin its harvest in Feb for Brazil
March for Argentina and ultimately apply pressure to US exports. The
perception by the futures trade is South America crops are stressed because
of the lack of timely rains.

Old Crop Marketing: cash and futures spreads suggest to continue to store.
The March - May futures spread is 12.4 cents. At $4.70 cash corn, you need
8.5 cents to store for the two months.

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

New Crop Marketing: The total amount hedged as a percent of anticipated
2008 production is 25%. 4936 vs the Dec 2008 is key support and the
immediate trend is up. We will monitor and alert when to resume hedges.
That will most likely on a breech of technical support and most likely will
be using put options to lock in a floor on prices.

Corn Trade Posture: Allendale remains bullish to corn futures as world and
domestic stocks continue to decline despite higher trending futures prices.
Higher futures and cash prices and new demand from foreign buyers continues
to feed the investment bull. Tight wheat and rice stocks are supportive.

Wheat Fundamentals: Bullish to wheat are thin world and domestic stocks and
aggressive 2007-08 export sales, inspections and shipments. In the face of
rising prices, tightening stocks, continued demand is bullish to futures.
Also bullish to wheat is the pure lack of export competition from
traditional suppliers during this time of year. Not bullish to wheat is the
12 million bushel reduction in domestic demand in the most recent 30 days.
Escalating prices within the US is beginning to curb demand.

Old Crop Marketing: your old crop wheat is hedged in the March futures. The
present spread between the Mar-May suggest to sell before March futures
expiration. Those not hedged in futures, there are major cash markets which
offer 13 cents to carry the crop until the April time frame. Monthly carry
cost for $8.50/bu cash wheat is 6.5 cents. From Jan to April, your cost to
store is 19.3 cents. It cost you more to store than what the market is
willing to pay. This development is new as of Tuesday and remains through
Thursday. Be prepared to move the balance of the 2007 production. The old
crop value drops $1 per bushel from April to July delivery.

Cash Peak: Dating back to 2000, odds favor a national cash wheat peak for
the months of Dec and March.

MGEX SRWI: In analyzing the most recent soft red wheat index, if the
present March-May spread does not offer full carry, we advise to be poised
to pull the trigger on cash sales with two closes below 8160 SRWI or above
9000 SRWI. Tonights close is 8834.

New Crop: The futures trend has turned from sideways to up. Old resistance
is now new support 8400. We see no reason to hedge new crop above the 65%
level we have on for now. 8130 could be a bull to bear momentum price which
could prompt new additional hedges.

Wheat Trade Posture: Allendale remains bullish fundamentally to old crop
futures but is signaling an air of caution technically. Thin stocks and
continued increased export demand as well as fewer world suppliers is
fundamentally bullish. But with the new crop-old crop discount, look for
world demand to lighten up as we draw closer to the end of Feb, beginning
of March.

Soybean Fundamentals: Private weather forecasters have increased coverage
and amounts for rain in Argentina Thursday evening. Allendale began to sell
old crop inventory this week. Fundamental reasons are cumulative weekly
export inspections are down 11% vs year earlier levels. There is not
sufficient cash carry, the USDA litany of reports last Friday were neutral
at best and the 30 day forecast for South America does not signal any wide
sweeping potential crisis.

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

Old Crop Marketing: the March-May soybean spread is at 19 cents carry. The
cost per month to store soybeans at a cash level of $12.25 is 17.3 cents
for the Mar-May. Our old crop 70% remaining hedges are in the March
futures. If you are not hedged, make certain your local cash market is at
least offering carry to store. If you are bullish, sell the soybeans and
replace inventory with futures and or May call options. Ask your Allendale
Representative to run the Allendale Evaluator for your specific operation.

New Crop Marketing: We will hold at 40% of anticipated 2008 production and
alert when to resume hedges as we work into the South American pod fill
season.

Soybean Trade Posture: Allendale is cautiously bullish to soybeans, soybean
meal and soybean oil as the technical trend remains up, tightening domestic
and world stocks are fundamentally bullish to soybean futures. However as
the South American crop approaches pod fill in late Jan-early Feb, we must
recognize if a 60 million metric tonne crop is in the works for Brazil and
47-49 million tonne Argentine crop, pressure to futures and cash prices are
plausible.

Lean Hogs: Rack this week up as another huge kill week. USDA estimated
290,000 head for tomorrow's run which puts the week at 2.419 million head.
This is the third largest kill of this winter season. The largest would be
the week before Christmas at 2.470 million. Will this ever end? The answer
is yes. It is likely Saturday's kill was bolstered a little to partially
compensate for Monday's holiday reduction. Monday's kill may be off by
55,000 to 60,000 head. Subscribers to this report through Allendale's
website have the bonus of the Special Reports page. We have weekly
slaughter, weights, pork production, and price charts laid out in an easy
to read format. While slaughter rates will remain clearly above 2007 levels
we will note they should follow the normal pattern which is to lighten into
summer. One key issue we are watching is sow slaughter. Are producers
liquidating herds? While we hear all the talk about it the numbers just are
not making it clear. The four week average from the period Dec 15 to Jan 05
actually shows sow slaughter down 2.5%? Aren't we all hearing about sow
killers being full? Perhaps data yet to be released, for the last two
weeks, will finally show it is happening on a consistent basis. We feel
more confident in saying cash hog prices have bottomed. Last Friday the
free market cash hog price (negotiated) was $46.87. Cash hog prices for
Thursday were $48.68. That converts out to a $36 live hog price. Current
breakevens at $49 will make losses per head at $35. It is not a pretty
picture but should improve. For nearby futures we do note feel February at
$54.97 or April at $62.42 need to move too much. They already have a
premium built in, as they should, but do not need much more. For futures
pricing we still contend summer contracts, currently at prices higher than
2007, are overpriced. We will higher than 2007 production levels through
the first three quarters of 2008. We have started hedges on those contracts
and will slowly add to them in the coming weeks.

Live Cattle: At the time of this writing we are still waiting to hear
something on cash cattle sales. Nebraska moved a few cattle yesterday at
$143 and $143.50 which was down sharply from $147 to $148 last week. That
drop in dressed prices would imply a $2 drop on a live basis. Last week's
live price was mostly $92. At this point there has been no live based
trading from Kansas through Texas. Best bids we can find are $89 and asking
prices are $91 or $92. Last night we raised the specter of economic fears
affecting beef demand. Next week we will go into the demand side of the
industry and go into the factors which may or may not affect demand. On the
speculative trading side the April/June fat cattle spread appreciated for
the second day in a row. It has been hammered down for weeks now. Given a
day or two of stability in that spread we will happily jump on board. Also
recent trading statistics on open interest are suggesting the bearish
sentiment may be changing. We are fundamentally bullish this market but
have been waiting for a confirmed bottom before acting on it.

Corn Commitment of Traders: Subscribers to the Allendale's research through our website have access to the Special Reports page. In there we update charts of interest to both grain and livestock traders. Every Friday afternoon the CFTC releases the Commitment of Traders.

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