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Investment in corn market continues

For the corn market, the bullish fundamentals include strong feed use and ethanol demand. Investment capital
continues to pour into corn for ethanol. Because of a weaker dollar, investing in corn is popular for those wanting to own tangible products such as the grains as a hedge against inflation.

Bearish signals are big domestic stocks of old crop
corn, initial crop quality ratings at 66% which is 6% higher than the five
year ave and the weather. Bullish factors for new crop Dec futures are
USDA's projected end stocks for the 2006/07 marketing year as well as long
range global end stocks to use for wheat and corn.

Historical Price Trend Page: Our HPT page has strong odds for the long side
of corn next week but the risk to reward is ridiculous. The odds have shown
slightly weaker odds for the four week out period of time.

Export Sales: USDA's export target is 2.025. Cumulative sales of 1.772 bil
bu are 14% better than year ago levels and the highest over the most recent
3 previous marketing years. If corn is able to maintain a similar pace for
the balance of the marketing year, sales could finish at 2.126 bil bu.

Ethanol Production: Ethanol production data is released for the month of
March. Production at 9.3 million barrels is 24% higher than year ago
levels, stocks at 8.7 mil barrels is up 31.2%. Based on current trend, USDA
needs to increase corn use for ethanol by 20 mil bu for the 2005/'06
marketing year. Dating back to 1998/99 monthly ethanol has had a tendency
to soften slightly for the month of April but then steadily climb into the
end of the calendar year.

Basis: dating back to 1989 gulf basis which competes with domestic corn use
has ave 22 cents over July futures, the max 36 the weakest 3 over.
Historically basis has had a tendency to work higher into late August.
However with a greater than ave surplus of old crop stocks, basis is likely
to remain much weaker than ave and find little inspiration to rally unless
a major weather event were to jeopardize the 2006 corn crop.

Corn Yield: Traditionally we do not say much about projected corn yield
until we are much further into the growing-pollination season. However to
meet your request, here is what our research suggest. With the first
initial crop rating at 66% good to excellent, it suggest a yield per acre
of 155.4 bushels. Using USDA's most current planting acreage estimate, the
quality rating yield estimate suggest a corn crop size of 11.002 bil bu or
452 million bushels more than USDA May WASDE estimate. If we add our
projected acreage increase of 1.6 mil acres from the March Planting
Intentions report to the June planted acreage report, the production is
then raised to 11.221 billion. Compare this production estimate to the May
WASDE and it represents increase of 671 mil bu and could take USDA
projected 2006/07 end stocks from 1.141 bil bu to over 1.8 billion bu.

Planted Acres: Allendale estimates corn acres to increase 1.6 million above
USDA's March planted acreage estimate of 78.02 million. At 79.62 mil acres
planted it suggest 2006 corn production of 10.760 bil bu (using USDA's 149
bpa) vs USDA's present estimate of 10.55 billion bu. Another firm based out
of TN is looking for a 1.8 mil acre increase. The two most significant acre
increase from the March to June acreage reports have shown 1.964 million in
2004 when Dec futures rallied 25 cents and 2000's 1.698 mil acre increase
when Dec futures rallied 13.25 cents. This years rally was 10.5 cents.

Acres for Ethanol: Allendale research estimates the 2006 acres needed to
meet ethanol demand is 11.5 million. When looking at multiple factors for
longer range needs, our research suggest acres needed for ethanol
production could peak near 23.2 million by the year 2013. 2007 corn acres
required for ethanol are estimated at 14.1 million acres or 2.6 mil more
than 2006. Dating back to 1985 there has been 6 years when acres have
adjusted 2 million or more with the most significant increase in 1996 at
7.75 million. Where will the additional 11.7 million acres come from when
its peaks in 2013? USDA has made it very well known they theorize acres are
likely to come from soybean acres even if it suggest continuous corn acres
which could stress yield. Can the US afford to have soybean acres give up
11.7 million acres? If the US is willing to give up export market share and
be willing to accept Brazilian imports the answer is a definitive yes.

Presently Brazil is using about 22 million hectares (54.36 mil acres).
Latest estimates suggest Brazil has the potential to expand soybean acres
by approximately 40 million hectares or 98.84 million acres. There in lays
the potential for the US to cut soybean acres and increase corn acres.

Corn Technicals: Two weeks ago, July futures closed at 2526 on Friday, last Friday futures closed at
2540 a positive development for the weekly technical chartist. On Friday, the
close did land one cent below 50% retracement from the recent high to low.
Our short term Moving Average indicators are 2540-2560 and 2500. Two weeks ago, the Friday Dec futures close 2772, todays futures close 2790. Our short term
Moving Average indicators are 2790-2800 and 2740. A close below 2740 could
turn trader momentum from neutral to neutral bearish with its sights set on
2630.

Trade Position: we are short old and new crop futures based on a technicals
which at present are more bearish than bullish, strong crop condition
ratings and penetration of short term Moving Averages. Add in heavy old
crop stocks as another reason why we remain short term bearish. Long term
we are bullish new crop corn based on what could develop as historically
this end stocks to use for new crop corn and wheat.

Soybean Fundamentals: weather, poor exports, very large old crop stocks and
prospects for record new crop plantings is bearish to soybean futures.
Bullish to soybean futures is the use of soybean oil for bio diesel.

New Crop Sales: we are 80% hedge on new crop soybeans at a ave price of
6330 as outlined in our Hedge Advice page. We do not recommend as of yet to
cover with a call as we have already done for new crop corn hedges.

Soybean Crush: profit margins for crushing soybeans have come off recent
highs but continue to fall into a range which suggest crushers need to be
at full production. This week the US Census Bureau released its April
soybean crush findings. The report detailed very heavy soybean meal and
soyoil stocks and disappointing amounts of soybeans crushed. Based on the
report USDA needs to trim its soybean for domestic crush by six million bu.

Export Sales: In a word or two, soybean export sales are pitiful. At 848 mil bu of
sales thus far in the 2005/06 marketing year, sales are running 21% below
year ago levels. S America has taken over the helm to meet global demand
and the USA is not likely to resume the responsibility until late October.

Price Projections: Allendale price projections for Nov futures are
estimates to trade in a range of 5500 low to 6500 high throughout planting,
into the growing season and into the harvest. Use these level for hedging
purposes.

Five Year Ave Cash Price: the five year ave cash price for soybeans for the
month of April $6.03, month of May $6.16, month of June $6.22, month of
July $6.25 and month of August $5.81.

Basis: data since 1989 suggest the ave Gulf basis level for the last week
of May has ave 26 cents. Present basis levels are 26 over July futures.
Historical basis suggest it works higher into the first week of Sept.
However given our projected June 1 quarterly stocks levels to be 89% higher
than the three yr ave and 73% higher than the five year ave, we do not see
basis levels appreciating.

Soybean Technicals: Two weeks ago, the Friday July futures contract closed at 5870, last Friday's futures contract closed at 5824. Our short term Moving Average indicators are 5960-5970 and
5990. Two weeks ago, the Friday Nov futures close 6106, todays futures close 6080. Our
short term Moving Average indicators are 6100-6150 and 6200, key support.

Trade Position: big stocks, rapid plantings, Brazil and Argentina selling
soybeans and good weather forecast are all bearish to soybeans. We were
able to meet our short futures objective Monday. Those objectives were near
key levels of support. Upon further evaluation of technicals and
fundamentals we have written orders to re sell on a short covering
correction for both old crop and new crop futures.

Wheat Fundamentals: If there is a grain market which is justifiable in its
level of futures existence based on supply fundamentals it is wheat. High
heat has caused crop conditions to suffer and is viewed as bullish to
futures. However at the same time this bullish enthusiasm is crimping
global demand for the new crop USA supply. Please read Grain Fundamentals
and Export Demand. Australia is battling dry weather conditions at planting
time but Canada's forecast is timely over the next two weeks.

End Stocks to Use: domestic end stocks to use are est at 21.6% vs 2003's
tight levels of 23.2%. World end stocks are thin, primarily because of the
smaller production in the USA. At an estimated 17.7%, they are tighter than
2003's 18.9% and at no time dating back to 1980 have been as tight as they
are presently estimated. With the potential for record low end stocks to
use globally for wheat and corn simultaneously, futures prices are
anticipated to stay firm until world wheat producers respond to the high
futures levels, demand is restricted because of the high prices and or the
energy markets collapse.

Export Sales: next Thursday's weekly export sales report will be the last
weekly sales report for the 2005/06 marketing year as the 2006/07 begins
June 1. Actual 2005/06 sales of 964 million representing a level which is
4% lower than year ago levels. New crop sales are projected at 900 million
bu vs the 2005/06 level of 1 bil bu. World competitors could take USA
market share if prices stay lofty too long within the USA. However our
study does suggest between domestic use and export use it has been the
domestic use which suffers in short crop high futures price years and
export have the potential to grow as the year progresses.

Basis: Gulf basis levels for the last week of May typically average 22
cents over July futures. Present basis is 5 cents under July futures. Two
reasons may explain this 30 cent spread. #1 is with extremely high futures,
basis typically is weak. #2 is suspicions of a poor quality crop because of
adverse weather which causes futures to trade higher, is viewed as bearish
to basis, why bid up for a poor quality crop? Historically basis remains
flat until a marked improvement begins to sprout in early Oct. Allendale
suggest basis has the potential to double, and possibly triple its
historical ave by the time the middle of August rolls around even with
futures still above $4. Our advice is do not be so quick to lock in basis
but we would advise the use of hedges covered with calls during these high
futures valued time.

Wheat Technicals: key custom Moving Averages for July wheat futures are as

follows: CBOT's SRWW ='s 4140-4160 & 3960, Friday's close 4154, KCBT's HRWW
='s 5050-5040 & 4790, Friday's close 5060, and MGEX Spring Wheat ='s
4650-4600 & 4530, Friday's close 4700.

Allendale Lean Hogs: In sympathy with the cattle market rally lean hog
futures finished higher. For the week wholesale pork closed $1.01 higher.
While there are many in the pork industry looking for pork to pick up
poultry demand from bird flu fears this weekend we cannot jump on that
bandwagon. US consumers are looking at around 10% cheaper chicken breast
prices and 20% cheaper leg quarter prices than last year. In other news
this morning we noted the pork industry is asking a lot of questions about
Japan's new feed additive withdrawal regulations. After three years of
study they will widen their list of residues from 283 substances to 799.
The maximum residue amounts will still be from 3% to 5%. Pork producers may
need to contact their packer, veterinarian, or feed salesman for more
information. Overall for trading most contracts are in a sideways pattern.
We would still encourage speculators to look for the next move to be steady
to lower.

Allendale Lean Hogs: In sympathy with the cattle market rally lean hog
futures finished higher. For the week wholesale pork closed $1.01 higher.
While there are many in the pork industry looking for pork to pick up
poultry demand from bird flu fears this weekend we cannot jump on that
bandwagon. US consumers are looking at around 10% cheaper chicken breast
prices and 20% cheaper leg quarter prices than last year. In other news
this morning we noted the pork industry is asking a lot of questions about
Japan's new feed additive withdrawal regulations. After three years of
study they will widen their list of residues from 283 substances to 799.
The maximum residue amounts will still be from 3% to 5%. Pork producers may
need to contact their packer, veterinarian, or feed salesman for more
information. Overall for trading most contracts are in a sideways pattern.
We would still encourage speculators to look for the next move to be steady
to lower.

Allendale Live Cattle: Nebraska cleaned up its showlists yesterday at
prices steady with last week. Today the live based trading areas of Kansas,
Oklahoma, and Texas surprised the trade with a full $2 higher action at $81
and $81.50. It was clear futures were not anticipating this action. Right
before trading started summer futures contracts were only moderately
higher. Packers are looking at the generally clear weekend forecast for
metropolitan areas and expecting a better than normal beef clearance. You
may be interested to know ground beef prices are around 3% lower while
steak cuts are running 8% lower. April choice beef at the retail level are
about 5% lower than last year. Lower beef and good weather are two factors.

A third is the fact the economy is doing much better than the general media
portrays. First quarter GDP numbers were 5.3% higher than last year's first
quarter. The rebound in cash cattle prices over the past two months will
also restart talk of an early season bottom. We will admit we had
underestimated this late-May demand but it is hard to suggest post-holiday
demand will remain this strong. For speculative trading we noted until near
term resistance is broken we would remain neutral. With the close above
resistance today it is time to go with the trend. We will still refrain
from adding any hedges for some time.

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
in this day and age.

For the corn market, the bullish fundamentals include strong feed use and ethanol demand. Investment capital continues to pour into corn for ethanol. Because of a weaker dollar, investing in corn is popular for those wanting to own tangible products such as the grains as a hedge against inflation.

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