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It doesn't pay to store old corn crop

Overview: This week we will wrap up the overall demand picture. Ethanol production was cleared up on Tuesday where it was suggested USDA needs to drop 15 million bushels off their old crop corn for ethanol number. For new crop we are adding 50 million bushels on USDA's figure. That day we explained how the national average output per bushel of corn is 2.62 gallons of ethanol. On Thursday export sales were covered. For corn we feel USDA needs to add a total of 60 million bushels to their old crop number but may only do 30 this month. New crop corn sales are doing great and a 50 million bushel increase on Friday is not out of reason. It appears the recent inspection pace is about right to meet USDA's old crop soybean expectation. We will add 20 million bushels to USDA's new crop soybean sales estimate. The diamond among the export world is wheat which is blowing the doors off expectations. USDA could easily add from 50 to 100 million bushels on Friday. We will split the difference and use a 75 million bushel increase in our numbers.

Corn Feed Use: From June to July USDA showed concern about the high corn prices at the time affecting feed demand. They dropped it by 100 million bushels to 5.750 billion . For Friday we would look for a return of 25 million of that as prices have declined. On the new crop end they see a small decrease to 5.700 billion but for overall corn fed to increase. Why do we say that? The reason is you now have to figure in corn byproduct. One third of the corn for ethanol comes back and is fed out or exported. Total corn for feed = straight fed corn + a certain amount of ethanol byproduct. Seeing as how ethanol production will be higher again next year there will be an increase in byproduct which will more than offset the 50 million bushel drop in straight corn fed. We have no problem with USDA's assumption. Beef production will be 0 to 1% higher, broilers will be 1 to 2.5% higher, and pork will be 1% higher. So for old crop we will add 25 million and for new crop we will keep it the same.

Corn Fundamentals: With weather back to neutral (scattered rains around the corner) and yield numbers starting to come out corn could tread water through Friday. Earlier this week two yield estimates out were at 152.5 and 148.0. Today one group suggested 153.3 while after the close another said 154.5. We are a little surprised at the last two numbers. This will be a wide range now from a low of 148.0 to a high end of 154.5. USDA was at 150.3 in July. Allendale will release ours on Monday.

The Technical: trend for Sept corn futures is down but potentially developing a near term bottom. Key immediate support is 3064 with resistance of 3374. Please note the very small upward trend for Dec corn futures which began on 7/23.

New Crop Marketing: based on our most recent price projections, Dec corn futures are in a downward correction and estimated to find a bottom near the 3200-3300 level. With the recent low of 3244 made on 7/23/07 Dec corn has met our downside correction. We do not recommend forward contracting at present levels. Before Dec corn expiration futures are expected to work back towards 3700-3800 level. End users and producers, use the preceding information for your individual marketing needs.

Old Crop Marketing: A move to 3650-3700 vs the Sept futures is projected to complete old crop marketings. Midwest cash average price is $2.83 per bushel. Cost of carry on farm is estimated at 3.2 cents per bushel per month. Unless your cash market is willing to pay you to store the crop, signals suggest it does not pay to store the old crop inventory. Allendale sold its cash corn crop on May, 31, 2007 and was fortunate not to suffer basis weakness.

Trade Position: Until Friday we wouldn't expect this market to go anywhere. Compared with today's yield estimates ours will likely be near the low end. We may attempt a quick buy on a correction lower Monday for a two to three day trade.

Soybean Crush: A better than expected performer in soybean use has been crush. Subscribers to this report through the Allendale internet site can view some crucial information on the Special Reports section. Soybean crushers have had good reason to run solid production numbers since harvest. On that page is a chart showing the estimated margin from buying soybeans and selling the meal and oil product. Aside from limited periods they have been running in the black this whole marketing year. USDA expects the crush to run 2.4% higher than last year at 1.780 billion bushels. From September to June though it has run 4.3% higher. We will note crush margins have started to slip recently and are looking for only a 2% increase for July and August. The net result is end of the marketing year crush at 1.806 billion which is 26 more than USDA has right now. For new crop USDA is suggesting a 1.800 billion number for new crop. Though we will certainly recognize demand will be good for soyoil again next year we have to note a smaller crop coming (3.188 06/07 to 2.600-2.700 07/08) will make it harder to pull some numbers in. For a compromise we will suggest USDA needs to bring its new crop estimate down by 25 million bushels to 1.775 billion.

Soybean Fundamentals: Early guesses out this week for soybean yields were 42.4 and 41.6 compared with USDA in July at 41.5. During the trade we picked up a 42.7 then after the close a 42.4. Generally, we can say a 41.6 to 42.7 range in guesses is not that large. It appears the trade wants to be conservative and see how pod fill goes before rocking the boat too much. Allendale will release ours on Monday. As with the corn this market could tread water in the short term.

Old Crop Soybeans: Allendale has and continues to recommend unhedged soybeans to be sold to the cash market unless adequate month to month carry is offered by your buyer.

2008 Soybeans: Allendale officially hedged it first portion of 2008 anticipated production on July 5th and has written orders to add as outlined in our Hedge Advice page. Allendale had resting orders to hedge 10% more new crop 2007 at 9200 filled Thursday, July 12.

Trade Position: The only thing we would feel comfortable doing right now is selling the soymeal if given the chance.

Old Crop Soybeans: Allendale has and continues to recommend unhedged soybeans to be sold to the cash market unless adequate month to month carry is offered by your buyer.

2008 Soybeans: Allendale officially hedged it first portion of 2008 anticipated production on July 5th and has written orders to add as outlined in our Hedge Advice page. Allendale had resting orders to hedge 10% more new crop 2007 at 9200 filled Thursday, July 12.

Trade Position: The only thing we would feel comfortable doing right now is selling the soymeal if given the chance.

Wheat for Food Use: During the old crop Jan to May period food use was up around 2% over previous year levels. We will recognize the jump in wheat prices may be cooling that demand a little and are plugging in only a .5% increase for this new year. That puts us right at USDA's 1.011 billion figure. No change there.

Wheat Fundamentals: All news out this week was supportive. Taiwan will cut its wheat import tariff in half to 3.25%. They may ease the residue levels for wheat imports later this month. India announced they would cut their tariff completely for wheat flour. It was at 30%. Today Pakistan confirmed they would not be in the export side of the market even though they have a surplus. On the weather side the Canadian Wheat Board lowered their estimate of Western Canada's wheat crop and Europe is forecast to receive rain. We will recognize the strong likely hood of another jump in winter wheat plantings which will start soon. For now however, this is still a strong market.

The Technical: Trend is up, breaking up and out of its recent trade range of 6500 to 6000. Key immediate support is 6320. A breach of the levels is expected to push Sept futures back down to the 6200 and then potentially 6000. Overhead resistance is derived from the monthly charts and suggest 6900 from May of 1996. If penetrated then we need to prepare for a move to 7170 made April of 1996.

Marketings: For cash marketings typically the Oct-Nov time frame when cash wheat prices peak. We recommended to sell into the cash market in the October time frame. However do not ignore present firm cash prices for wheat to sell into. Call your Allendale Representative for your specific cash marketing needs.

New Crop 2008: The July 2008 CBOT wheat futures are locked in a range of 5600 to 5900. There is plenty of bullish enthusiasm for world wheat and we are on the upper end of the trade range. We recommended to hedge a minimum of 15% of new crop 2008 wheat futures against anticipated production Wednesday morning and were filled at 5760. You will find the next level to hedge within our Hedge Advice page.

Trade Position: We will recognize the trend is still up and news is still coming in bullish. We have orders in to buy the Minneapolis on a pullback.

Live Cattle: Though the meeting between US Sec of Ag Johanns and his Japanese counterpart were canceled this week due to the Japanese official resigning it didn't stop lower level technical discussions from happening. That news helped today's psychology. Active cash cattle trading was seen in the southern plains at $92 and $92.50. That was up $1 from last week's $91 and $91.50 action. Though we will discount the hopes for something getting something done on the Japanese front we will recognize some of today's CME enthusiasm may be tied to the almost limit up close in the October hogs. There is some belief that a strong pork trade will help beef and vice versa. The big downer for the week was the ban (presumed temporary) of US beef by South Korea. We are guessing it will take anywhere from two to six months to get this one reopened. In terms of actual trade this year they were still minuscule at best. The hopes this market had for them were big though. Overall though we did lift hedges weeks ago in anticipation of a late summer rally this one has certainly moved beyond our expectations. This week we took advantage of it by restarting hedges on 25% of expected fat cattle marketings using the October and December futures. We are not calling a top by any measure but simply recognizing these prices are in the areas we had expected them to reach months from now.

Lean Hogs: China. China. China. Is there anything more to say? The rumor Thursday morning was 5,000 to 6,000 carcasses were ordered from China. That would not make transportation sense. Maybe the rumor meant the equivalent amount of meat from 5,000 hogs. That comes out to 1 million lbs. Later on, and continued into today was a rumor that the amount was 5 to 10 million lbs.

Either way there are rumors that China has finally started some of the dream levels of pork buying. No one at all has argued with that. They will, and they are, buying extra pork this year compared to last year. The only argument is the amount of pork. This week we computed that to run a $9 premium over October 2006 and a $12 premium over December 2006 China would need to jump its purchases to around 85 to 100 million lbs of US pork each month.

Last year in the second half of the year they ran 6 to 15 million lbs. Our guess is they may run up to 25 to 35 million lbs. Let's keep something in mind, until we have any solid reason to believe we have dream levels of pork being bought we will not believe this is anything but ridiculous. If we are wrong we will be the first ones to say it. Now, if they are buying dream amounts of pork then cash hogs should be rallying and certainly wholesale pork should be rallying right? For the week we estimate cash hog prices fell around 30 cents. For the week the pork cutout, the measure of overall wholesale pork prices, fell $3.45. Also, we heard some talk that packers would run a big kill on Saturday for these Chinese orders. Thursday the estimates were to see a 15,000 to 18,000 head kill on Saturday. The talk was, if these Chinese buys were happening we could see a 20,000 head, 30,000 head, or even more kill. Well, this afternoon USDA estimated the kill at 14,000 head. Now, we still have every reason to believe Chinese buys are a bust. However, does that mean the market will top Monday and go straight down? No. This market is being run by the bulls. When they decide to give up is when we can call a top. Yes, that means this market could run another two weeks or even three weeks. What to do then? For hedgers we are still very happy with being 100% hedged right now. Your biggest risk is to the downside right now. When this market realizes the Chinese numbers aren't there this market may go down hard and not give you the chance to sell. (Limit down). For speculators do not sell futures. We are advising to buy October puts and December bear put spreads.

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. At the close of the open outcry CBOT trade session, floor trade estimates suggest funds bought 2,000 wheat, bought 1,500 corn, bought 3,500 contracts of soybeans, bought 1,500 soybean meal, and were unchanged in soybean oil.

Overview: This week we will wrap up the overall demand picture. Ethanol production was cleared up on Tuesday where it was suggested USDA needs to drop 15 million bushels off their old crop corn for ethanol number. For new crop we are adding 50 million bushels on USDA's figure. That day we explained how the national average output per bushel of corn is 2.62 gallons of ethanol. On Thursday export sales were covered. For corn we feel USDA needs to add a total of 60 million bushels to their old crop number but may only do 30 this month. New crop corn sales are doing great and a 50 million bushel increase on Friday is not out of reason. It appears the recent inspection pace is about right to meet USDA's old crop soybean expectation. We will add 20 million bushels to USDA's new crop soybean sales estimate. The diamond among the export world is wheat which is blowing the doors off expectations. USDA could easily add from 50 to 100 million bushels on Friday. We will split the difference and use a 75 million bushel increase in our numbers.

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