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New life of contract highs for corn

Historical Price Trends: best odds for the week of June 9, according to our
HPT page is for CBOT July wheat and soybeans. Over the most recent ten
years, odds of 70% for lower wheat and soybean futures than where they
closed on Friday of the previous week. On average July wheat 70% of the
time has closed 9 cents lower and soybeans 7 cents lower. Please see the
HPT page for the complete list for grains and livestock.

For The Week: for the week, July corn futures value increased 8.5%, July
soybean futures value increased 6.8% and July CBOT SRWW value increased by
6.5%, July crude oil value increased 8.7%.

Conclusion: of key interest is CBOT and KCBT wheat futures were able to
close above key pivot points. Viewed as positive but will reserve a degree
of bullish enthusiasm until we have at least two more consecutive closes
above the respected pivot point levels before suggesting a potential
harvest bottom.

Corn Fundamentals: the combination of present heavy rains, week long
forecast of more on the way, rally in crude oil, technical breakout and
stout weekly export corn sales all are contributing to new life of contract
highs for corn. A major east coast news publication released a story late
in the week suggesting how investment money has not only funneled into the
futures, options and indexes, but more notably outright purchasing farmland
throughout the world, grain elevators storage facilities as well as
vessels, rail cars and barges, and other hard assets. Food has come to the
for front and investment funds smell the potential for opportunity. News
wires report the Sec of Ag is watching wether very closely and well aware
of current corn maturation. Could this statement by the Sec of Ag be the
first stepping stone towards another policy change? Last Tuesday CRP was
open for haying and grazing, it appears it may not be a big enough
accounting arena to help support 2008/09 end stocks. Could the ethanol
arena accommodate a much bigger accounting arena to shuffle some usage
around to keep end stocks from becoming too tight? As we discussed last
night...Bearish to corn is rebuilding talk of capping the renewable fuels
standard on ethanol production of 9 billion gallons. Presently USDA has
penciled in 4 billion bushels of corn to be used for 2008/09 production. If
using a 2.65 gallons of ethanol production for a bushel of corn, USDA is
estimating ethanol production of 10.6 billion gallons. IF the Energy and
Agriculture departments were to pull in ethanol production by 1.6 billion
gallons to a level of 9 billion, then USDA could reduce corn use for
ethanol by 660 million bushels. At this juncture Allendale does not
anticipate USDA/Energy Departments to take such drastic measures. China
announced it has increased its 2008 corn production estimate from a level
of 149 million metric tonnes to a new estimate of 154 million tonnes (6.06
billion bushels) for an increase of 190 million bushels.

New Crop Marketing: The total amount hedged as a percent of anticipated
2008 production is 25%. 6110 vs the Dec 2008 is key support, psychological
resistance is 7000. We will monitor and alert when to resume hedges.

Trade Posture: fundamentally Allendale remains bullish to July and December
corn futures based on less than desirable planting pace and emergence. Add
to the list for 2008 production, weaker than year ago levels for corn crop
conditions. Allendale remains guarded to Conservation and Energy policy
change potential. Allendale is a buyer of corn futures on pull backs as the
technical trend is up.

Conclusion: corn and soybeans have reached a point in the present marketing
year where there is only 25% remaining, the 2007/08 marketing year for
wheat is complete as of the last day of May. Most impressive is with 25% of
the soybean marketing year, sales have already surpassed USDA's target of
1.09 billion bushels by 12 million bushels!

Exports: corn exports account for 19% of the total 2007/08 use from annual
production. With 13 weeks remaining in the marketing year, cumulative sales
of 2.307 billion bushels to all nations are 18% higher than year earlier
levels and 21% higher than the five year average. Based on the past 4 weeks
ave weekly sales the US is on pace to sell 2.404 bil bu vs USDA target of
2.5 bil bu. Shipments of 1.845 billion bushels are 14% higher than year
earlier levels and 66% below the five year average.

New Crop Sales-Corn: The old crop marketing year officially ends on August
31. We have sold 125.5 million bushels of new crop corn to date vs 129.8
mil bu a year earlier and 52 million bu for a three year ave.

Exports: soybean exports account for 36% of the total 2007/08 use of
production. With 13 weeks remaining in the marketing year, cumulative sales
of 1.103 billion bushels to all nations are 4% better than year earlier
levels and 19% higher than the five year average. Based on the past 4 weeks
ave weekly sales the US is on pace to sell 1.195 bil bu vs USDA target of
1.09 bil bu. Shipments of 971 million bushels are 1% lower than year
earlier levels and 20% above the five year average.

New Crop Sales-Soybeans: The old crop marketing year officially ends on
August 31. We have sold 93.7 million bushels of new crop to date vs 143.6
mil bu a year earlier and 90 million bu for a three year ave.

Meal and Oil: with 32% of the marketing year remaining, Cumulative export
sales of soybean meal have met 83% of its marketing year target, 9% below
yr ago levels and 5% below its five year average. Cumulative export sales
of soybean oil have reached 79% of its target vs 65% year on year and are
2% less than its five year average.

Exports: wheat exports account for 54% of the total 2007/08 use of
production. It must be noted, typically exports account for 49% of annual
total use. With the 2007/08 marketing year all but complete, cumulative
wheat sales of 1.249 billion bushels to all nations are 43% higher than
year earlier levels and 26% higher than the five year average. USDA's
export sales target was 1.28 billion bushels, thus sales fell short 31
million bushels. Shipments of 1.19 billion bushels are 45% higher than year
earlier levels and 91% above the five year average.

New Crop Sales-Wheat: The new crop marketing year officially begins June 1.
We have sold 212.6 million bushels of new crop wheat to date vs 113.8 mil
bu a year earlier and a three year average of 97 mil bu.

Soybean Fundamentals: the combination of the Argentina farmers strike,
planting delays because of frequent rains, technical break out to the
upside and crude oil rally contributed to Thursday and Friday's rally. Also
of interest for soybeans is pre release estimates for next Tuesday's WASDE
report does indicate a reduction of 9 million bushels to a level of 134
million vs May's estimate of 145 million bushels. Please view Allendale's
old crop soybean stocks estimates within the bottom half of our Midsession
Comments page. Allendale estimates 2007/08 old crop soybean stocks at 101
million bushels, 11 million bushel fewer than 2003 levels and would be a
record low dating back to 1980. Higher than usual exports and positive pace
of crush are the main reasons for the 44 million bushel reduction. The
Argentina farm strike has made zero progress this recent week between its
farm groups and government. Argentina's loss of exporting cereal grains and
oilseeds is benefitting demand for Brazil and US supplies. At what point
and time does the Argentina military become involved?

New Crop Marketing: We will hold hedges of new crop at 40% of anticipated
2008 production and alert when to resume. A move to 14750 may warrant
additional hedging. Technical chart based support is 13450. The
intermediate trend is up, we will respect the trend before resuming hedges,
covered with bull call spreads or use puts vs outright selling of futures.
We will alert you when to resume hedges.

Trade Posture: technically Allendale is bullish as July and Nov futures
broke out to the upside from its nearly month long range bound trade.
Allendale remains neutral bullish on new crop soybeans as projected 2008/09
stocks are expected to remain below 200 million bushels for the second
consecutive year. Continue to monitor weather, Argentina and crude oils
close correlation to soybean oil futures.

Wheat Fundamentals: harvest reports from Oklahoma indicate greater yields
than expected and not surprising is the weaker protein content. CBOT soft
wheat is likely setting the stage for quality concerns because of too much
rain. Gulf basis remains weak because of the lack of big ticket tenders and
is viewed as bearish to futures. Allendale estimates the winter wheat crop
at 1.813 billion bushels vs USDA's May estimate of 1.778 billion bushels.
Allendale increased 2008/09 wheat end stocks from 483 million bushels to a
new level of 500 million bushels vs old crop stocks of 219 million bushels.
Allendale estimates new crop world wheat stocks at 124.86 million tonnes vs
a May WASDE estimate of 123.99 million tonnes and compares to 2007/08 world
stocks of 110.02 MMT for an increase of 13.3% year on year.

New Crop Marketing: Be aware we are recommending to roll hedges out of July
directly to the Dec futures at 38 cents or better. Why not the Sept? At
this juncture after covering the cost of carry, the roll to Dec will add 16
cents/bu to your merchandizing and 7 cents if we roll to Sept.
Technical resistance for July SRW is 8440, support at 8040. Resistance for
July KCBT is 8350 with support at 7824. Resistance for July MGEX is 10720
with support at 9750. We see no reason to hedge new crop above the 65%
level we have on for now. Allendale will alert you as to when to hedge or
sell new crop to the cash markets.

Trade Posture: The technical close above key pivot points for CBOT and KCBT
is a positive sign for futures but require at least two more consecutive
closes above before we would suggest trader attitude has switch from
bearish to at least neutral to bullish. Fundamentals continue to weigh on
international prices as the world wheat crop is doing well, not great but
not as bad as a year ago. Higher freight cost and multiple northern
hemisphere supplies are expected to find demand shopping closer to home vs
2007's limited supplier choices. Projected end stocks both domestically and
globally are expected to increase in 2008/09 vs 2007/08.

At the close: of the side by side CBOT trade session on Friday, floor trade
estimates in number of contracts suggest funds bought 7,000 wheat, 13,000
corn, 3,000 soybeans, 1,000 soybean meal, and 3,000 soybean oil.

New Crop Odds: Tuesday, June 10th USDA will release its second 2008/09
market year outlook. Dating back to 2000, the June WASDE, odds are heavy
against adjusting planted or harvested acres for corn, soybeans and wheat.
Only once in 2002 did USDA adjust acres for corn and soybeans. From the
month of May to June WASDE, USDA reduced planted and harvest corn acres by
1 million and increased soybean planted and harvested acres by 500,000.
With regards to yield, odds are heavy for USDA to reduce its wheat
yield estimate. Since 2000, USDA has reduced its June wheat yield estimate
vs its May yield estimate. Of the most recent eight years, three have
experienced a reduction of 1 bushel or more, the largest reduction of 1.4
bushel per acre in 2002 and smallest reduction of 0.2 bushel per acre in
2007. Allendale estimates the very least of any adjustment to the June 10
WASDE is for USDA to trim its yield estimate for corn.

Lean Hogs: We are hesitant to point this out but with today's 99 cent
decline in wholesale pork prices it means the pork cutout lost $2.98 for
the week. There are concerns about this week's kill being 11% larger than
the same week last year. The previous three week's kill was a bit more mild
at 5% to 6% higher. Will slaughters go back to the >10% higher pace we were
used to back in April? We do not think so. We would suggest this week's
kill may have ballooned a little due to crop progress. In the previous
three weeks grain farmers were on again/off again and tried their hardest
to get in the fields. This week's widespread rains may have kept them out
and given them a chance to work on marketings. The second reason for the
pork break is rumors China may have finished up its export needs for
summer. While we will still export large sums of pork through this summer
perhaps the orders for that pork are finishing up and thus there is "no new
export news" left. That argument is tough to prove just yet. Pork is not
included in the weekly export sales report and thus we have no idea of
actual sales that have not been shipped yet. In addition the only shipment
information we get is delayed. We only have shipment information through
March right now. We will get April data at the end of next week. With that
in mind we only have "talk" to go on. The "talk" we heard earlier this week
is some declines in new orders for pork to China have been seen. We do not
like putting any faith in rumors though. Remember those rumors in December
and January of extremely large sow slaughter totals and liquidation? Keep
in mind it did not happen significantly until later March. On the
liquidation front the latest number we have is for the week ending May 24
which was only a 6% higher sow slaughter. Keep in mind we need to see it
>10%. It was at that total in 9 of the previous 12 weeks. Liquidation is
happening but we need it to continue to even think of hitting those big
price premiums posted in the 2009 futures contracts.

Lean Hog Pricing: We still argue summer futures are just fine in the mid
$70's. We do feel traders are incorrectly putting October and December
futures in the "bullish on liquidation" group. Keep in mind significant sow
liquidation did not hit until later March. That means, at the earliest, a
year over year decline in pork production will hit in 2009 only. We do look
for fourth quarter 2008 pork production to about equal the record level
posted in fourth quarter 2007. We are neutral to summer contracts but
bearish October and December futures. Our downside target is $65 for the
December. Speculative traders may simply hold the short $80 July calls
through their expiration.

Live Cattle: Today was very surprising. Since April 1 live cattle future
have been mirroring the ups and downs (mostly ups) seen in crude oil. We
argue this market has been inundated with general commodity market buying
rather than following beef fundamentals. In this case we argue the live
cattle futures were pulling cash cattle and wholesale beef rather than
either of those two leading futures. Today's $10 crude oil rally did NOT
mean a tremendous jump in live cattle futures. Are we ready to go back to
beef based fundamentals now? If so we look for a $93 June futures objective
for this month. One thing to note is the investment community and news
wires are all hyped up on the lower supply of cattle/beef which will hit in
2009. We have been on that bandwagon since the beginning. However, are
April futures really justified to be $112? April futures 2008 just expired
at $91.65. That is a 22% increase?!? What kind of supply decline is this
market thinking? We are in no way suggesting to sell August or anything
beyond that. We are clearly bullish. However, keep in mind these investment
groups in this live cattle futures market have no idea about real value
here. Just keep that in mind here for the coming months.

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

Historical Price Trends: best odds for the week of June 9, according to our HPT page is for CBOT July wheat and soybeans. Over the most recent ten years, odds of 70% for lower wheat and soybean futures than where they closed on Friday of the previous week. On average July wheat 70% of the time has closed 9 cents lower and soybeans 7 cents lower. Please see the HPT page for the complete list for grains and livestock.

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