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It's all about the weather

Corn Fundamentals: It is all about weather this recent week and is expected
to remain so through the month of July.

Most recent forecast call for high
heat and lack of precip for the middle to end of this week. This could push
USDA into trimming its trend yield in the August crop production report.
Export demand remains unusually high for the 2007-08 marketing year, as end
users want to make certain they receive its share before it is consumed by
the US domestic demand sector. Condition reports are expected to erode next
Monday and more obvious the following week, IF the weather forecast does
develop the way it is painted as of recent. Volatile is the name of the
present game and it is summer time when the most steadfast forecast can
change in less than a day. The most recent 6-10 day forecast does support
the hot and dry private weather forecasters outlook.
Thursdays USDA crop production report: Allendale's research suggested USDA
typically does not favor adjusting yield from the May to June report. USDA
in fact did not adjust its yield projection.

USDA End Stocks: USDA's domestic old crop end stocks are projected at 1.137
bil bu vs the previous years 1.967 bil bu. New crop stocks are projected at
1.502 bil bu. USDA's world old crop end stocks are projected at 101 million
tonnes, vs the previous years 123 MMT and new crop end stocks of 108 MMT,
at 108 MMT it represents the 4th tightest stocks on record dating back to
1980. It is important to understand the 108 MMT projection could be an
early warning sign world producers are responding to high prices.

End Stocks to Use: US old crop end stocks to use are 10% vs the previous
years 17% and represent the third tightest dating back to 1980. New crop
end stocks to use are 12% with much of the growth vs old crop dependent on
the US new crop success.

Weekly Export Sales: Old crop corn sales are running 3% above year ago
levels. We do need to note USDA did trim export potential by 50 million bu
to a new level of 2.1 bil bu. With 8 weeks remaining in the 2006-07
marketing year, the most recent four week shipment pace suggest a final
export target of 2.097 bil bushels. New crop export sales have now reached
201.6 mil bu vs year ago levels of 42.2 mil bu. This development continues
to support ideas of futures and basis improvement the closer we draw to the
actual 2007 harvest.

Ethanol: USDA left unchanged its demand for 2006-07 corn for ethanol use at
2.15 bil bu, 150 million more than for export and now the second largest
user of corn. However based on our research, USDA proposes corn use in
2006-07 to be 34% larger than the previous year, a goal which has only been
achieved once of the eight months thus far. Allendale's research suggest
USDA does need to reduce its outlook by 30 million bushels.

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. Before Dec corn expiration futures are expected to
work back towards 3800 with basis improving. End users and producers, use
the preceding information for your individual marketing needs.

Old Crop Marketing: Recent high prices strained usage and as sales were
made during the final stretch of plantings, they placed a strain on basis
as well as futures. A move to 3650-3700 vs the Sept futures is projected to
complete old crop marketings. Midwest cash average price is $3.30 per
bushel. Cost of carry on farm is estimated at 3.4 cents per bushel per
month. Unless your cash market is willing to pay you to store the crop,
signals suggest it is time to move your old crop inventory as we approach
the 3650-3700 level. Allendale sold its cash corn crop on May, 31, 2007 and
was fortunate not to suffer the recent basis weakness.

Myth of the Weak US Dollar: Allendale published research on Wednesday which
proved there is little if any evidence of a weak US Dollar stimulating
weekly export sales of corn. The research dated back to 2004 to present and
data simply does not support actual stronger sales when the dollar is weak
vs strong. We would advise to not base stronger futures based on strong
demand via a weaker dollar.

Technicals: Old and New crop corn and soybeans and new crop wheat. 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.

Observation: Speaking strictly from a technical standpoint, given the
cushion between the closing price and #1 MA, dips on soybeans are more
likely to be bought than sold. Dec corn futures are now less than 5 cents
away from potentially switching trader momentum from neutral bearish to
neutral bullish as the key pivot point is 3720. Not so for old crop corn
futures as key support is closer to being breeched vs penetrating the key
pivot point.

Soybean Fundamentals: soybean yield is typically made the last week of July
and first two weeks of August. Futures are very much aware of the potential
for heat and dry weather stress especially in the west soybean belt.

US End Stocks: US new crop soybean end stocks are projected at 245 mil bu
vs 600 mil bu for old crop. We have to venture back to 2004 when end stocks
were projected at 256 mil bu to find similar levels vs the 2007-08
projection. In 2004 the end stocks to use were 8.6% vs new crop end stocks
to use of 8.2%. In 2004 the season ave farm price was $5.74 and 2003 SAFP
of $7.34. USDA is using $7.75 as the new crop season ave farm price. The
disparity between futures and actual cash value is overdone, primarily by
the investment community and the actual cash value markets.

World End Stocks: USDA projects new crop end stocks for the world at 52
million tonnes vs yr earlier levels of 64 MMT. To find lower world end
stocks than the 52 million projected for 2007-08 venture back to 2004 when
levels were 48 MMT.

Weekly Export Sales: with eight weeks remaining in the old crop marketing
year suggest a final target of 1.076 bil bu vs USDA estimate of 1.08 bil
bu. Even though sales are 28 mil bu over USDA's target of 1.08 bil bu, it
would not be surprising to see cancellations if weather does not jeopardize
production for the fall of 2007 and if futures prices continue to push
higher and favor a less expansive S American cash price. To date new crop
soybean export sales have reached 152 mil bu vs yr earlier levels of 112
mil bu.

A Note of Caution: Higher futures prices are attracting a great deal of
interest to answer the call and prepare to shoot for a second consecutive
record soybean crop for S America. Allendale is also in the midst of
researching the potential for double crop acres in the southern Midwest to
abnormally increase in 2007 given the high futures priced crop.

On Average: Allendale on average has major investments funds inquiring
about the possibility of Brazil actually reducing planted acres in 2007 for
the 2008 harvest given the stronger Real vs the US dollar. Allendale's
research suggest via fact based evidence and presented Thursday to
subscribers to our Allendale Advisory Report there is little if any
correlation between a strong Real vs a weak US dollar and limiting planted
acres. To help support the prospects for expanded Brazil acres planted in
2007 is word Friday morning of its willingness to postpone debt for corn
and soybean farmers for a period of one year. Unless Brazil develop's
a severe weather problem, we anticipate record crop out of S America for
the second consecutive year. Allendale actually had a conversation one year
ago with a fund out of New York, New York explaining how futures were
attracting soybean planting interest from Brazil and anticipated a 2007
harvest of 55-56 MMT vs 51 MMT the previous year. The fund simply argued
against such thought because of the weak US dollar and stronger Real. They
were buying into an article they have viewed from a non agriculture
business economist. That 2007 soybean harvest from Brazil was actually 59
MMT!

Old Crop Soybeans: As old crop soybean futures rally, the soybean basis for
old crop drops nearly penny for penny. This may provide a much clearer
picture as to what the checkbook value of the old crop soybeans are worth.
The spread between US and Brazil soybeans has widen to a stunning $25 for
the summer. Do not rule out talk of China canceling or slowing soybean
imports because of a weak soybean crush margin and weakening soybean meal
demand because of its hog and poultry disease problems. Also be prepared
for the potential for an independent US soybean crusher to import 4 to 6
cargoes of S American soybeans up the Mississippi River into the Paducah KY
region. The Midwest cash average price for old crop soybeans is $8.48/bu.
Cost of carry is 6.4 cents per bu per month. Allendale recommends unhedged
soybeans to be sold to the cash market unless adequate month-to-month carry
is offered by your buyer. Provided we are approaching the late July, first
half August time frame when soybean pod fill is critical to make or break
production, be aware of Allendale price projections which suggest futures
may endure a $2 to $2.50 price correction lower. Allendale sold its 2006
soybean inventory on May 18th.

2008 Soybeans: We strongly advise to hedge or at least foreword contract a
minimum of 15% of your anticipated 2008 soybean production while futures
hover above 9000 per bushel. Contact your Allendale Representative for
further instructions. 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. We will stand aside from
any further scale up hedging.

Wheat Fundamentals: Of the three main tradable on the CBOT floor,
fundamentally wheat has the strongest reason to hold it value. See the data
immediately below.

What Economic Rationing?: First things first, exports are much more
important to usage for wheat than corn or soybeans. When you factor
typically 50% of wheat annual production is used via exports vs 32-36% for
soybeans vs 18-20% for corn, exports matter for wheat! For the week ending
July 5th, Net sales of 1,183,400 metric tons were two and one-fifth times
the previous week and two and one-quarter times the prior 4-week average.
During that particular week, wheat futures had a high of 6500 and a low of
5740, Thursday's closing price 6214. Price certainly did not prevent
foreign demand.

End Stocks: USDA projects US end stocks at 418 mil bu. Only in 1995 were
end stocks lower at 377 mil bu. More importantly world wheat stocks are est
at 117 mil tonnes vs the previous years 124 MMT and only in 1980 and 1981
have stocks been lower at 113 mil tonnes. More importantly is how the end
stocks to use projected for 2007-08 are 16%. They have never been lower.
Not even in 1980 and 1981 when stocks to use were 20-21%. Last year when
the end stocks to use were 17.1% the season ave farm price was $4.26 vs
USDA present projection for 2007-08 at $5.10 per bushel. Dating back to
1980 the SAFP has never been higher.

Marketings: Cash wheat values of $5.10 per bushel suggested cost of carry
of 4.6 cents per bushel per month. Overwhelmingly it is 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. If weather is able to be more conducive for
better corn production, by the time October rolls around, corn could
pressure the value of your wheat inventory. Call your Allendale
Representative for your specific cash marketing needs. One last item to
consider and is attached to the Oct-Nov time frame. Our day to day contact
with Midwest farmers suggest less likelihood to plant winter wheat in 2007
given the present 2008 soybean and corn prices than the July 2008 wheat
futures price of 5600-5800. As we approach the fall harvest of corn and
soybeans begins in October, firm 2008 cash corn and soybean prices for 2008
are likely to attract more attention of returning to a more reasonable crop
rotation between corn and beans. We see this action as supportive to
Oct-Nov 2007 cash wheat prices.

Allendale Lean Hogs: ...Pork Exports to China. One of the big stories this
week dealt with rumors of pork sales to China. As you know China has a
solid problems with pig fever and PRRS. These production problems and other
factors pushed 2007 pork prices 40% higher than last year. To help
alleviate some of the shortfall China has stepped up purchases from other
countries.

Last week, we reported Jan - Apr US exports to China were up 33%
over last year. We now have numbers for the month of May in hand. They show
exports were up 165% over last May. There's no doubt pork sales to China
will remain sharply higher for the remainder of the year. On the other hand
we have to face some clear facts. China is only the fifth largest buyer of
US pork with 11% of the US pork export market last year. A huge jump in
exports from a relatively low level is still a low level. Making it clear,
we are not trying to downplay this news. It is good. It's not enough to
offset the other problems in exports right now. Even during those big May
pork exports to China overall pork exports were down 10% in May from last.
That's right US pork exports (the saviour of this market in the previous
three years) is down this year. Jan to May exports are down 3%. News wires
will hail Chinese pork exports all day long but you won't find them
discussing the bigger story which is exports to Mexico, our #2 market, were
down 47% in May. The loss of the Mexican market is more important. Overall
our viewpoint of a sideways market still stands. If this market continues
much higher we may start adding to current hedges levels soon.

Allendale Live Cattle: Active cash cattle trading at $91 was seen on a live
basis today. That total was $1 higher than last week but was expected. We
must also note today's boxed beef report showed a small loss for both
choice and select product. Keep in mind to expect any further cash cattle
gains we need to see beef gains. We feel current prices could simply be
near the high end of a sideways trade which should start after this week.

Corn Fundamentals: It is all about weather this recent week and is expected to remain so through the month of July.

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