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Range bound wheat market

At the close of the side-by-side trade session on Friday floor trade
estimates in number of contracts, suggest non commercials were even on the
day for wheat, sold 3,000 corn, 3,000 soybeans, 500 soybean meal and 1,500
soybean oil.

Corn Fundamentals: With 56% of the corn pollinating as of this past Sunday
and the five year ave suggesting 60% by next Sunday. The five year ave has
been 35% and was 46% one year ago. The hot dry weather threat is losing its
importance. Noon maps on Friday back peddled off the heat and dry weather
forecast for the first half of next week and suggest cooler temps and
increasing chances of rain for Iowa and Minnesota. Weather importance is
expected to resurface to satisfy kernel fill and expected to keep futures
volatile.

Subsoil Moisture: Abnormally to excessively dry for the majority of IN, OH,
western IA, southern MN and MI, southeast SD. Everywhere else the official
5 foot soil profile map suggest slightly dry/favorably moist conditions. We
will continue to monitor this particular map for improvement or failure as
corn enters the kernel fill stage. Please take a minute or two and view
today's Weather Watch page to see and read how top soil moisture changes
have occurred.
Update With Eight Weeks Remaining: updated Friday July 20th, with 8 weeks
remaining in the 2006-07 marketing year, all but one of the top five US
corn importers have bought less than year earlier levels. USDA estimates
54.340 MMT of US corn to be exported. Thus far the total amount sales
commitments have reached 54.035 MMT. Of that total only Mexico has
purchased more than year earlier levels with Japan down 7%, Korea down 21%,
Taiwan down 7% and Egypt down 4%. With Mexico up 44% total sales for the
top five thus far are 1% higher than last year 52.812 MMT. Equally
interesting is how total new crop export sales have reached 5.120 MMT of
the targeted 50.8 MMT total sales to all countries and of the 5.120 MMT
already sold the top five importers mentioned above account for 53% or
2.700 MMT. We suggest these top five countries less than inspiring 2006-07
purchases do not want to make the same mistake for 2007-08 and are doing
its best to grab a good piece of supply before the rest of the demand (such
as feed and ethanol use) begins to drive prices higher.

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 Tuesday's low of 3314, Allendale suggest our
downside correction objective has been met. 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 $3.07 per
bushel. Cost of carry on farm is estimated at 3.3 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
the recent basis weakness.

Trade Position: Our short Dec futures position objective was met Tuesday.
Corrective rallies based on emerging technicals and fundamentals are now
anticipated to be sold with one eye focused on weather and the other on
building demand.

Wheat Fundamentals: Bullish to wheat; projected world end stocks to use of
16%, tightest dating back to 1980. Projected US end stocks to use of 18.4%,
2nd smallest dating back to 1980 with only 1995's 15.8% tighter and
corrected to 19.3% one year later and then to 31.4% in 1997. The EU-27
lowering its grain crop estimate for the forth consecutive month. Weekly
export sales ending July 12 of 28.2 mil bu vs a five week ave of 26.8 mil
bu. Dry weather stress for the spring wheat crop in the US and Canada BUT
BE AWARE for the middle of next week as forecast suggest rain potential
could be 65 to 70% coverage and .20 to .75 inch coverage. Bearish to wheat
is forthcoming harvest pressure for spring wheat as well as the declining
oat and corn futures markets.

Long Term Bearish: The EU-27 is destined to allow farmers to add acres from
set-aside for this fall's winter wheat planting. The bottom line is the
EU-27 could increase production by 10-17 million tonnes of grain in 2008.

Range Bound: Sept wheat futures remain very much range bound between 6400
top to 6000 bottom. Use this for cash sales out of the field.

Spreads: Spread between CBOT Sept SRWW premium to CBOT Sept corn is $2.98,
this weeks high if you legged in $3.14. How extreme is this spread? The
ten year ave which suggest under a $1 is more the norm rather than the
exception, a maximum of $1.60 to $1.70 and a minimum of something closer to
50 cents all premium to the Sept wheat. At present the chart trend is your
friend. A trend that is very much up since Mid May, its largest correction
of 20-25 cents. Initial support $2.80, stronger support at $2.45. Pivot
point from bull to bear, $1.93.

Spread #2: On Tuesday, Allendale suggested with above average quality crop
for spring wheat and harvest just around the corner and recent solid demand
for CBOT's SRWW, the long Sept CBOT SRWW vs short MGEX Sept wheat spread
could break up through resistance of 5-6 cents prem the MGEX and push into
the 10 to 20 cent premium the CBOT.

As of Friday, the spread has broken up through resistance, ended Thursday
very near even money with minor profit taking on Friday but was able to
hold support of 4 cents premium the Spring wheat futures. Strong weekly
export sales on Thursday and an announcement by USDA shortly after 8 am
CST, Egypt bought 115 K tonnes of USA wheat of which 60 K tonnes was soft
red winter wheat, the balance hard red winter wheat and 106 K tonnes of
winter wheat to Bangladesh.

Marketings: Cash wheat values of $4.75 per bushel suggested cost of carry
of 4.3 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.

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, CBOT SRWW
poised to fall through key #1 Moving Average as well as KCBT wheat and
spring wheat futures at the MGEX. Corrective rallies in corn and soybeans
are likely to be approached with sell orders as Allendale did on Friday by
shorting the new crop soybeans and old crop soybean meal. Be aware there is
a triple bottom in the August soybean meal and odds suggest the contract is
now vulnerable to a breech of the 2234 support.

Soybean Fundamentals: the last week of July, first two weeks of August are
of in key need of rains to help with pod fill. Friday's 6-10 day forecast
above normal temps and below ave precip for the heartland. The surprise on
Friday is how above normal precip is forecasted for the extreme west
Midwest. This forecast could keep bulls on guard and prepare the bears to
add to shorts if those above normal forecast creep closer to the central
Nebraska region.
Weekly export sales for soybeans: for week ended July 12th of 6.7 mil bu
compares to the five week ave of 8.2 mil bu and 8 mil bu for the 10 week
ave. With eight weeks remaining in the marketing year, and present pace of
sales and shipments, USDA should have left its June target unchanged of
1.08 bil bu and not raised it in the July WASDE by 10 mil bu. Look for the
extra 10 mil bu to be added into end stocks and result in additional carry
in stocks for the 2007-08 marketing year.

Double Crop Soybeans: When the season ave farm price was $7.34/bu in 2003,
the following year, double crop beans were 6% of the total acres planted or
1% more in 2004 than 2003. At no time dating back to 1993 have the increase
in double crop acres exceeded an increase of 1%. You will only find the
state by state breakdown in the June planted acres report the double crop
soybean acre projections. For 2007 USDA estimates a 3% increase above year
earlier levels. Something else very surprising, at no time does USDA adjust
those double crop acre projections contained in the June Planted Acres
Report.

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. 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 have suggested futures
may endure a $2 to $2.50 price correction lower. In a period of just this
week, futures slid 71 cents on old crop or lost 7.7% of value. Sept and Nov
soybean futures need to penetrate the #2 MA before we suggest the funds may
be attracted back into the long side of a downward trending market. The
potential to move lower is very much real. Allendale sold its 2006 soybean
inventory on May 18th.

2008 Soybeans: we strongly advised 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, July 12.

Brazil: Has Brazil backed off on ideas to be aggressive in 2008 planting
because of the recent sell off? Remember it was the rally above 9000 vs the
May 2008 futures which began the buzz of their interest. Friday nights
close is 9094 with a chart gap below of 8840 to 8650. And a chart gap above
of 9570 to 9216. We believe both gaps may be filled as we draw closer to
the pod fill stage in the USA. Given the present ratio between May 2008
corn and soybean futures of 2.36 to 1, Brazil farmers may be much more
interested in planting soybeans above projected 2008 corn demand.

Allendale Lean Hogs: Our opinion the October and December contracts are
overpriced remains. This week we noted over the past eight years the lean
hog index, the cash hog measure futures are expired against, has fallen an
average of $6.37 from August 14 to October 14. The current discount implied
by today's closing prices is quite a bit too low. We are looking at
re-entering the August/October spread but want to make the speculative
money has finished running the show first. Instead we have simply used the
last run up in prices to add to our hedge position on the October and
December contracts. As we have noted before, no matter how much additional
pork is sold to China this year to replace their PRRS problem it has not
offset the significant drop from our major buyer which is Mexico. Right now
exports are a bearish factor and not possible as the popular press
believes.

Pork in Cold Storage: Each month USDA reports the amount of food products
that are in public storage warehouses. Food items ranging from produce,
nuts, and meats are counted. On the pork end lean hog futures sometimes
react to the Total Pork number. USDA counted 470 million lbs of pork in
warehouses at the end of last month. That is a bit above last year's 413
million lb figure during the same period. Typically pork supplies decline
during this time as usage for loins (barbeque cuts) and pork bellies (bacon
on cheeseburgers) is high. The drop from the previous month was 22 million
lbs which is a bit under the five year average drop of 43 million lbs. The
main point here is overall pork usage was down. Where's the problem? It's
with hams. Part of the big increase in exports in the past three years was
selling hams to Mexico. USDA counted ham stocks at 121 million lbs which is
way above last year's 79 million lb total. What's this tell us? Ham sales
to Mexico were a problem this spring and are remaining a problem. To us
this still confirms increased sales of pork to China are being dwarfed by
the shortfall in sales to Mexico. This report could negatively impact
Monday's lean hog futures by 10 cents.

Bellies in Cold Storage: Since there are so few fundamental resources for
pork belly traders to monitor this report is watched closely, and reacted
to, by pork belly futures. Typically stocks decline from May through
September as bacon usage increases in the summer and early fall then stocks
increase as usage falls. 47.7 million lbs of pork bellies were counted at
the end of last month which is just above last year's 46.1 million lb
number. The key issue we look at though is the drawdown compared with last
month. Today's number indicates a 9.6 million lb drawdown. The five year
average drawdown is 8.8 million lbs. The main point here is bacon usage is
doing right as it should. We would call pork belly futures to open 20 cents
higher on Monday.

Allendale Live Cattle: After the two reports out at 2pm, which are detailed
below, cash cattle started trading at $90. That was steady to $1 lower than
last week's action and possibly a little disappointing to some. However, it
fits in with the $2 lower dressed Nebraska trade that happened on Thursday.
It also fits into our ideas this cash cattle market is confirming a
sideways action from $87 to $91 through August. We are simply at the high
end and likely to move lower now. In the short term you could argue this
market may need to correct lower. In the medium term (September through
February) CME futures are likely priced right. In the long term (2008-2009)
prices are likely to trade sideways before falling from 2010 to 2012.

Cattle on Feed: Placements of calves/feeder cattle into feedlots during
June at 85.1% of last year were a little smaller than the trade had
expected. Keep in mind the corn market didn't peak until June 18. Even for
the week after that corn prices were high. With high corn costs in mind
placements were down 15%. In the placement breakdown lightweight animals
from 600-699lbs and under 600 lbs were down 24% and 28% respectively. This
simply shows people wanted to feed out feeders for a short time on that
high priced corn and didn't want to feed out calves which would be on that
corn into February. This sets the fall market up for slaughters to be close
to last year's levels while the early 2008 fat cattle market could be a
little lighter. Marketings at 97.4% of last year were a little better than
expected. Yes, feedlots didn't market as many as last year but we would
argue they simply had less ready cattle to market. Remember those light
placements in the winter as corn prices were rising. They are being
marketed now. We would call Monday's open to be 40 cents higher for all
live cattle contracts from August through February.

Cattle Inventory: This report is more of a longer term update on the basis
of the cattle/beef industry. The main question we use it to answer is,
"What's going on with cow/calf industry? Are they expanding or
contracting?" If you are unfamiliar with the industry the building block of
supply is cow/calf producers. These operators have cows and bulls on farm
and produce calves each year. Almost all steer calves (unbred boys) and
around 80-85% of heifer calves are sold each year and eventually end up in
feedlots. During expansion producers will hold a few extra heifers back to
eventually increase the cow herd. Of the three main meats (beef, chicken,
and pork) the beef industry has the longest reaction to price signals.

In
2004 producers started expansion by holding back heifers from the fall trip
to sale barn. Those heifers were bred in 2005 and calved in 2006. Calves
born in 2006 were weaned in the fall and will be marketed out of feedlots
from summer of 2007 through summer of 2008. This example is a bit
simplistic but the point is from the decision to expand to the beef
actually hitting the market there can be as much as a three year lag. On
the price end when expansion first starts prices spike higher. There are
fewer heifers available for the feedlot and producers hold old cows for an
extra year or two. After five years of expansion or so supplies are too
heavy and prices too low. When producers first decide to contract prices
actually get worse. That is because they stop holding heifers back (which
makes more available to feedlots) and increase cow slaughter to reduce
their herd (which swamps the market with low priced ground beef). The last
contraction period hit when calf prices were $64 in 1995 and 1996. Fall
calf prices in 2001 were up to $95. Drought in 2002 forced an extra year of
cow liquidation. In 2003, when Canada found BSE and US prices rose, fall
calves were $109. In 2004, as producers decided to expand and keep heifer
calves off the fall sale barn market, prices were $125.

The fall of 2005
calf market saw a record price of $128. In fall of 2006, as some of the
expansion calves starting being marketed at the sale barn, prices were
$123. Now that you see how this process works what did today's report say?
Heifers held back on farms that are set to go into the cow herd were seen
at 94% of last year's level. A 6% drop in beef heifers is something big.
During the first six months of this year drought (lack of forage) forced
cow liquidation and made producers sell some heifers to the sale barn for
the feedlot. This means calf supplies for the feedlot will be slightly down
in 2008 and 2009. The means calf prices, and likely live cattle prices,
will remain at these high levels as well. Having said this bullish news
will not last forever? These calf prices are tremendous and if moisture
returns, as it is right now, producers have the incentive to, and will,
expand again. We are still in the expansion phase of the cattle cycle, it
is simply on hold. For cow/calf producers we still urge them to go against
the tied. Do not hold back any extra heifers during this expansion. Sell
more of them when prices are high and slowly reduce your herd. When
everyone is bellyaching in a few years with the low prices coming and
contraction starts that is the time to pick up some high quality heifers
for 70 cents on the dollar and rebuild the herd.

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 side-by-side trade session on Friday floor trade estimates in number of contracts, suggest non commercials were even on the day for wheat, sold 3,000 corn, 3,000 soybeans, 500 soybean meal and 1,500 soybean oil.

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