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Low corn and wheat supplies

World Supplies of starches are down, oilseed up. Dating back to 1993-1994 marketing year, the projected world days supply of corn and wheat are at
historic lows while soybeans are at historic highs. The days supply is
calculated by drawing out world usage from world supply, resulting in
projected end stocks and finally dividing by the days usage value.

As you see first hand, both wheat and corn days of supply have been on a
rather steep decline. Since its 1998-99 peak of 83 days, corn has regressed
65% while wheat has regressed 40%. At 37 days corn supply compares to year
earlier levels of 50 days or 26% less. At no time dating back to 1993-94 has
corn dropped as much as this most recent marketing year of 13 days. It will
be extremely important as the worlds single largest corn producing country,
to have near ideal weather to help correct the decline in days of supply.
However, as we previously stated, even with prospects of 90.45 million acres
of corn planted in 2007, demand is expected to out strip supply within the
US and Allendale 2007-08 end stock projections are expected to be smaller,
than present levels.

The starch cousin wheat is of little help to provide a cushion
in the form of providing a back up for feed. Only a 52 day
supply of world wheat, a historic low dating back to the 1993-94 marketing
year and well off the peak level of 86 days in the 1998-99 for a 40%
regression. 52 days projected vs last years 61 day supply for a 15%
regression. At least if world wheat days of supply could correct higher it
could take pressure off of the corn market. However with weather problems
in the US, Australia, France, Germany, Canadian Prairies, and now Hungary
as announced on Friday, challenges lie ahead.

For soybeans, world days of supply have never been
greater than they are at 63 vs 60 days last year and the 50 days in
2003-04. Amazing to see how days supply were very consistent from 1997-98,
all the way through 2001-02 at 47-48 days. At 63 days, supply soybeans are
well off its historic low of 31 days in 1996-97 or 103% higher.

Planting Progress: On Monday, USDA's National Ag Statistics Service will
use 22% as the five year ave for the fourth full week of April corn
planting progress. This recent Monday corn plantings were estimated at 4%
complete vs 9% five year ave. The most asked question on Thursday is with a
window of opportunity opening at least for the second half of this week,
could we reach 22% by next Monday? Using the 15th week (this week) of the
year as the standard, it is important to know in 2004 we picked up 16% for
the week, in 2005 15% and in 2006 15%. The record amount was 16% gained in
2004. Then you ask but what was the weather like during that particular
week? In 2004, that particular week had rain accumulation of 1-2 inches
west to east. In 2005 with a 15% gain we had half an inch to 1 inch for the
major Midwest and in 2006 with its 15% gain, the west was generally void of
any rain but the east received 1 to 4 inches. Last Monday at 4%, add a
record level of 16% and it may suggest the very best we could see by next
Monday could reach 20%, or 2% behind the five year average.

Dating Back to 1996: The date we typically reach 50% planted has been May
1st. The very worst was a 19% planting pace in 1999 with the very best at
59% in 2004. Since 2000 the very worst has been 33% planted by May 1st.
Looking specifically at next week, April 23rd, the very best pace we have
experienced has been 32% in 2004 and dating back to 2000 19% corn planted.
Last year the pace was 25%. Given the cooler weather in the east this week,
we suggest the very best we could see plantings reach at 19% with the very
worst at 15%.

Corn Fundamentals: the trade remains focus on 3-5 day Midwest weather
forecast. Rains early to mid next week suggest heavier amounts for the
cornbelt. Bullish to corn is a positive responding Gulf basis market which
suggest there may not be enough of a supply to meet month of April demand.
Also bullish to new corn futures is the weakening US dollar which permits
world demand to stick with old crop supplies rather than jump entirely into
new crop supplies in Argentina. Bearish to corn futures are the record corn
crops in Brazil and Argentina which are likely to bridge summer needs for
importers if the US dollar should happen to stage a major rally.

Observation: corn sales are 17% greater than last year and at 1.750 billion
bu are better than the three year ave of 1.472 bil bu. The developing
problem of declining shipments needs attention. Corn sold must be shipped
in order to prevent additional end stocks in 2006-07 becoming carry in
stocks for 2007-08. We need to average 45 mil bu per week for the balance
of the marketing year and with a 10 wk ave of 40.6 and five week ave of
36.4 million bu, the challenge is not met. Soybean sales of 1.014 bil bu
are better than the three yr ave of 892 mil bu and 27% higher than last yr
at this time. We need to ave 9.2 mil bu per week for the balance of the
marketing year to meet USDA's final export target of 1.08 bil bu. The ten
week ave level has been 27.3 mil bu with the five week ave of 21 mil bu.
Cumulative wheat sales have reached 724 mil bu vs USDA final target of 900
mil bu. Wheat sales are down 11% vs yr earlier levels and at 724 mil
compare to a three yr ave of 871 mil bu. Wheat shipments need to ave 25.2
mil bu per week for the remainder of its marketing year. This compares top
a ten week ave of 17.4 mil bu and five week ave of 16.7 mil bu. To
summarize, soybeans are the best performing with corn sales solid but
shipments bare watching while wheat lags not only in its lack of sales
performance but shipments as well.

Observation: Last Thursday's weekly corn sales of 32 million bu met the top side
of the normal April range as well as wheat with soybeans coming well with
the range. Corn sales are expected to remain strong into May which could
keep basis levels firm to climbing.

Old Crop Cash Marketing: historical research data suggest the timing when
to begin to sell cash corn in tight end stock years is late April to early
May. The average cash value of Midwest corn is $3.37 per bushel which
suggest a cost of carry of 3.7 cents per bu per month. The present May-July
spread is offering 11.2 cents carry which is 3.8 cents per bu more than
full carry. We remain hedged in the July and will continue to keep watch on
the cash and futures carry for early warning signals to begin to move old
crop.

Trade Posture: we remain optimistically bullish to corn futures on tight
domestic and world stocks, growing demand for the 2007-08 corn crop and yet
are aware S America could soften the summer demand for US exports and corn
shipments need to kick up its performance into overdrive. We are willing
buyers of May and July corn futures against technical support or on a break
out above key resistance.

Soybean Fundamentals: Harvest delays in Argentina have not yet been serious
enough to question quality but delayed non the less. Palm oil demand
remains strong and its supply questionable. Bearish to soybean oil is
economics suggest 30 to 31 cents is the break-even for biodiesel
production.

Old Crop Soybeans: the average cash value of Midwest soybeans is $6.80 per
bushel which suggest a cost of carry of 6 cents per bu per month. The
present May-July spread is offering 16.4 cents carry which is 4.4 cents per
bu more than full carry. We remain hedged in the July and will continue to
keep watch on the cash and futures carry for early warning signals to begin
to move old crop soybeans.

Trade Posture: The weakening US dollar and the fact the Rotterdam soybean
price on a per tonne basis is identical for US and Brazil beans, suggest
demand from Asia may last longer than normal for the US. Soybean export
sales and shipments are performing very well as well as soybean crush. We
remain mystified why USDA decided to trim both in the April 10th WASDE. We
remain long term bullish to November futures. The long term outlook does
remain positive for soybeans IF corn does use all of its intended 90.45
million acres. Technically the trend is down. Globally there is more
sentiment to increase wheat and corn production and less oilseeds and would
be viewed as bullish to futures.

Wheat Fundamentals: In a special report, released by World Weather Inc on
Friday, evolving weather dynamics suggest a drier bias well into the month
of May for countries showing signs of dry weather such as portions of
Europe, Commonwealth of Independent states and Australia. Australia is
experiencing serious drought problems. France and Germany are showing
serious rain deficits but forecast do hold out some hope for late next
week. Soon to be added are Russia and Ukraine if rains do not arrive within
two weeks. Wheat in the deeper southern US which was heading and subjected
to the Easter weekend freeze such as the states of AL, AR, and NC is a loss
and yet if weather cooperates in spring wheat country and other nations
could help replace a percentage of the loss.

Trade Posture: evolving bullish fundamentals from weather problems assisted
in building a floor under new crop wheat futures as well as recent heavy
old crop wheat export sales. World wheat days of supply after demand has
taken away from production is 52 for 2006-07 vs 60 days the previous year
and well off its peak of 86 days in 1998-99. There is a noticeable
correlation between corn and wheat days of supply dating back to 2000-01 as
they work in tandem with a spread of 10-14 days supply prem the wheat.
Dating back to 1993-94 both have never been as small as they are at present
and may require more than just ave world weather conditions to rebound for
2007-08.

Allendale Lean Hogs: Most of Friday's futures action was spent at lower
prices. Two disturbing stories were released Friday. That same chemical
which was found in pet food in recent weeks was also found in hog feed from
a farm in California. The chemical melamine has been found in some protein
ingredients from China. Officials have quarantined the farm and are trying
to find out where meat from the hogs already sold went to. In a situation
like this the news is bearish to prices. Though supplies could be smaller
the key issue is what type of demand decline could be seen. Generally US
consumers are the least concerned about these type of problems in livestock
so we view this as only a one or two day problem. In other news the
Michigan Department of Agriculture has banned the importation of Wisconsin
hogs. Testing this week confirmed the presence of Pseudorabies (PRV) in
Clark County, Wisconsin. Though Wisconsin does have a presence of a well
know genetics company neither Wisconsin or Michigan are the major players
in the hog industry. Overall we remain supportive to cash hogs, pork, and
futures prices for the normal move into May. Our $78 price target for June
was reached but don't be surprised if $1 to $2 higher than that is
eventually seen. There is no reason to start new hedges at current prices.

Cold Storage: On Friday, USDA released the monthly Cold Storage report.
They counted 55.260 million lbs of pork bellies in storage at the end of
last month. That was a little under our estimate of 56.533 million lbs and
the average guess of 57.2 million lbs and could be considered slightly
bullish for Monday to the tune of 10 to 20 cents. They also count other
pork cuts and give a total pork estimate in this report. 506 million lbs of
pork bellies were counted which was an increase of 22 million lbs from last
month. Typically at this time pork stocks DECREASE by 4 million lbs. This
news is bearish lean hog futures to the tune of 10 to 20 cents.

Allendale Live Cattle: Friday's Cattle on Feed report did hold negative news
but it wasn't as bad as expected. Many subscribers appreciate a little
background with the numbers so we'll tell the story as well as the numbers.
The USDA report categorizes feedlot information into four categories. They
are Placements, Marketings, Other Disappearance, and April 1 On Feed. The
simple equation is March 1 On Feed + Placements - Marketings - Other
Disappearance = April 1 On Feed.

Placements: New feeders or calves going into feedlots are called
placements. Depending on the weight, sex, breeds, and other information,
they will finish anywhere from three to eight months. USDA told us today
placements during the month of March were 7.0% higher than last year, during
March. During March corn prices fell and fat cattle prices rose which
increased feedlot interest. Cow/calf producers were eager to take advantage
of the higher feeder prices and moved more animals than usual. That was
almost exactly on expectations of a 6.9% increase. Our number was in the
ballpark but on the higher end of estimates at a 9.6% increase. At this
time of year most placements will be dominated by medium and heavyweight
feeders rather than calves. That puts finishing around September to October
which would impact the October live cattle contract. As the number came in
as expected there should be no impact on the far deferreds.

Marketings: Cattle that are finished in feedlots and sold to packers are
counted as Marketed. The trade already gets slaughter numbers for steers
and heifers from a different branch of USDA a few weeks beforehand. So, generally this report is pretty close to expectations. The trade had
expected a drop in March Marketings totaling 3.9%. The actual decline was
5.6%. The means we had more market ready cattle in feedlots than expected
which is bearish the nearby live cattle contracts. This is also important
right now due to the recent change to a lower trend in cash cattle prices.
This lower Marketing number could add to the normal pressure cash cattle
feel at this time of year until their summer bottom.

Other Disappearance: While there are actually four categories in the Cattle
on Feed report the trade generally ignores this one. Other Disappearance
includes death loss, cattle taken out of the feedlot and put back on
pasture, and shipments to other feedlots. The number is extremely small
compared to Placements and Marketings and does not affect the others.

On Feed: This is the total count of cattle that are in feedlots as of April
1. With larger Placements and lower Marketings its obvious the total
feedlot population will have grown on a percentage basis from last month.
On March 1 the feedlot population was 3.5% smaller than last year and it
jumped by April 1 to only 1.4% lower. Keep in mind a 1.4% lower feedlot
population does not equal 1.4% lower slaughters. Our placement model
suggests cattle slaughter will move down to equal with last year in the
coming weeks, post a 5% to 10% decline during May through August, then push
back to above last year levels from September on out.

Pricing: We noted in the paragraph above a shortfall coming during summer.
That is due to the lower winter placements. Let's get over the confusing
point here. Cash cattle prices are the lowest in the summer as we have a
crushing amount of cattle coming out at that time. Weekly kills will
continue to rise straight into summer. The only key here is the numbers
will not be AS CRUSHING as they usually are. The June and August contracts
implying cash cattle only down to $90 to $92 should have that priced in.
Let's keep our heads screwed on straight here though. That $90 to $92
action would still be a full $10 over last year's market. With placements
higher in February, and now in March, it would appear we will have a few
extra cattle hitting in the fall time frame that would normally hit the
market in the summer.

Cow/Calf Corner: Last week, we noted at this time of year cow/calf and
backgrounders are evaluating what to do with these spring feeders. They've
either been on wheat pastures or a low-to-medium gain drylot ration of some
sort. From here the first option would be to sell the feeders and take home
a check. Based on Oklahoma City prices this week and including shrink and
commission that would bring in $727 per head. The next option would be to
continue ownership through the feedlot. 725 lb steers placed in the feedlot
in April would finish out in early October. By hedging using the October
futures contract our feedlot model suggests producers would receive $477
extra in revenue which would just cover the $476 in extra cost. Our cost
numbers include feed, yardage, and shrink.

Essentially, there is no
difference in profit from selling the feeder today or putting it through
the feedlot. Depending on the frame size (small to medium only) and pasture
availability, another option would be to run those feeders on early summer
grass and sell them or run them in the feedlot after that. Our models
suggest a three month grass program would bring an additional $39 per head
after shrink and commission. The good thing about a quick summer pasture
program it allows for feedlot finishing into the better priced winter fat
market. Our model suggests starting a heavy feeder in July would actually
bring in a $63 profit. Wrapping this up for decision makers there is no
difference in profit at this time from selling spring feeders right now
versus feedlot finishing.

For producers holding the right kind of cattle
with pasture availability, a short grass program followed by ownership
through the feedlot would be the best bet. Now, if you do plan on holding
those feeders for awhile should you be hedging right now? The May contract
is suggesting feeder prices at a clear premium to May of 2006 which we feel
may not last. With that in mind we would suggest sales on the May contract
immediately. For June through October feeder sales it appears those feeder
futures are priced correctly. Typically feeder futures find a bottom in
April or May then rally into fall. With that in mind we would not suggest
hedges on June through October feeder sales at this time.

World Supplies of starches are down, oilseed up. Dating back to 1993-1994 marketing year, the projected world days supply of corn and wheat are at historic lows while soybeans are at historic highs. The days supply is calculated by drawing out world usage from world supply, resulting in projected end stocks and finally dividing by the days usage value.

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