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Reward the soybean market

Soybean Fundamentals: Six to ten day precip maps do not hold out much
promise for key soybean production areas of Brazil which need it the most.
Argentine President plans to increase the export tax on grains in an effort
to raise funds for its government. Exports are big business for the S
American country and its farmers are not pleased with the tax announcement,
as exports are their life blood, their incentive to expand operations.

If
you are in need of cash flow Allendale would advise you to take hold of the
opportunity presented by higher futures, higher Midwest basis and technical
resistance displayed by the daily charts and move soybeans to the cash
market before you think about selling corn. The spreads favor storing corn
over beans if the decision needs to be made.

Soybean Special Report: the trade suggest the soybean oil is easily
persuaded by the trade activity in crude oil. If this is true we need to
try to identify, to what degree. Ultimately if crude oil jumps by $1 or $5
what is the price relationship to soybeans? Soybeans market holds its
potential in the hands of world crude oil trade. We identified the
correlation between soybeans and soybean oil, and crude oil to heating oil
trade activity has a high degree of correlation of at least 85%. The
correlation between crude oil and soybean oil is better than 50% but not as
high as crude to heating oil or as high as soybeans to soybean oil. The
exact correlation between crude oil and soybean oil is 63% and drops to 57%
crude oil to soybeans. In clear terms if crude oil finishes on a positive
note. 63% of the time soybean oil will finish higher.

Crude Oil and Soybean Oil: as explained there is a 63% correlation
between crude oil and soybean oil. Allendale's research suggest if crude
oil drops a dollar the net effect is a 51 point drop in soybean oil. If
crude oil drops $2/barrel then the net effect on soybean oil futures is a
102 point drop and a $5 drop in crude is equivalent to a 256 point drop in
soybean oil. Crude oil closed at $93.49/barrel and soybean oil futures
closed at 42.07 cents per pound. If crude oil were to drop $5/barrel on
Friday, there is a 63% chance soybean oil futures will follow the same
direction and could close at 39.51 cents per pound.

Crude Oil and Soybeans: there is a 57% correlation between crude oils
direction and soybeans. Allendale's economic research suggest if crude oil
closes by $1 in one day, soybeans correct nearly 16 cents lower, if the
crude oil correction is $5 per barrel then there is a 79.62 cent per bushel
correction. It is extremely important to understand the correlation is less
divergent between soybean oil and crude vs that of crude and soybeans.

Conclusion: we understand there is an attachment between crude oil and
soybean oil. It may be important to make sure when discussing you old or
new crop soybean marketing plan, you and your Allendale Representative are
also aware of the technical make of crude oil, support, resistance, Moving
Averages, oversold or overbought. Crude oil has the odds to be the
precursor to the success or failure of your soybeans.

Cash Soybean Oil: our sources suggest the brake even price to manufacture
biodiesel from soybean oil carries a cash price of 38.5 to 39 cents per
pound. As crude oil trends higher and pulls soybean oil higher, the effect
may be crude oil could have a suppressing effect on the actual use of
soybean oil to convert to biodiesel. The most recent cash price for soybean
oil in the greater Midwest is 40.1 cents per pound.

Basis: over the most recent 18 years, for the 44th week (week of Nov 5th)
of the calendar year, the average Gulf basis has been 31 cents over Jan
futures. The max for basis has been 57 over with the minimum at 15 over.
The present basis level is 37 cents over. Basis on average has had a
tendency to work sideways from early Nov to the first week of Dec.

Exports: USDA's export target is 975 million bushels. With 84% of the
marketing year remaining, 47% of the target has been met vs a five year ave
of 44%. Weekly sales of 27.2 million compare to the five week ave of 23.3
million and ten week ave of 17.7 million bushels. Cumulative sales of 461
million bushels thus far in the marketing year are 5% less than year
earlier levels of 487 million bushels and are 12% less than the five yr
ave.

Soybean Marketing: Since 2000 there has been a tendency for the peak cash
price received on a national level to occur in Nov-Dec time frame. The
average cash carry is 15 cents from Oct to Dec. Your on farm storage cost
is approximately 17.7 cents per bushel. At 17.6 cents carrying cost the
Nov-Jan spread is presently near break-even at 16 cents. Allendale does not
anticipate this spread to widen much further and on Oct 11th, rolled Nov
futures to Jan at 17.6 cents.

Trade Position: We remain fundamentally bullish soybeans as a result of
tight domestic stocks, steady demand (could use some improvement in the
exports) and the extreme drop in world end stocks to use. We are long
soybean meal and have orders to enter soybean oil and soybean longs.

Observation: even with a paltry 6.6 mil bu in weekly USA wheat sales. They
were enough to reduce the amount needed on a per week basis to meet USDA's
target of 1.15 billion bushels. Soybeans clearly the leader at 27.2 mil bu
and strong performances by soybean meal and soybean oil. With 92% of the
marketing year remaining for soybean meal and soybean oil, meal has reached
33% of its export commitment vs 31% a year earlier and compares to a five
year ave of 35%. Soybean oil at 21% of export commitment is better than yr
earlier levels of 18% but well below its 29% five year ave.

Corn Fundamentals: Argentina's government suggest the corn crop could be
targeting 25 mil tonnes of production rather than an est 22.5 million
tonnes. Would be bearish to corn if world stocks were more plentiful and
Argentina planning on raising the tax on grain exports. Word out of Brazil
is the country is anticipating a smaller winter corn crop because of
delayed soybean plantings. You might be asking of what importance is the
Brazil "corn" crop? It is gaining momentum as a export competitor. For
years world demand has steered towards the US first (50-60 million tonnes,
then a distant second has been Argentina (12-16 MMT) and China last (2-6
MMT), without Brazil even mentioned. Brazil has been encouraged by world
demand to become more of a force and expected to export 8-10 MMT in the
2007/08 marketing year. If problems persist for planting its winter corn
crop, we view this as supportive to the US corn futures and cash markets.

Friday Nov 9th Crop Production: what are the odds of an additional
reduction in the November 9th USDA crop production report? The answer based
on history dating back to 1990 is overwhelming. In each year, USDA reduced
the corn yield from the September to October crop production report since
1990, USDA has followed the reduction with yet another reduction in the
November crop report. Since 1990, USDA reduced the bushel per acre yield 5
times from the September to October report. Each of the five years, USDA
further reduced yield from the October to November report. The most
significant yield reduction has been 7.2 bushels per acre in 1993 (the year
of the great Midwest flood with the smallest yield reduction of 1.3 bu/acre
in 1990. The most recent yield reduction was 2.3 bu per acre in 2006. The
ave yield reduction for the five years is 3.1 bu per acre. If we toss out
the 1993 flood year, the average of the four years is 2.1 bushels per acre.
The ten year ave adjustment in harvested acres from Oct to Nov has been
zero. Thus if we shave 2.1 bu per acre off of the Oct yield estimate of
154.7 bu per acre on 86.07 million harvested acres, production for 2007
could drop to 13.134 billion bu or by 180.7 million bushels from its
present estimate of 13.318 billion bu.

Exports: USDA's 2007/08 export target is 2.35 billion bushels, 10% greater
than 2006/07. The 2.35 billion is the largest dating back to 1996 and only
the third time exceeding 2 billion bushels. With 84% of the marketing year
remaining, 47% of the target has been met vs a five year ave of 33%. Weekly
sales of 25 million compare to the five week ave of 58.6 million and ten
week ave of 49.8 million bushels. Cumulative sales of 1.095 billion bushels
thus far in the marketing year are 41% greater than year earlier levels and
66% above the five yr ave. Shipments of 355 mil bu thus far in the
marketing year are 1 million more than year earlier levels and 39% above
the five year ave.

Basis: over the most recent 18 years, for the 44th week (week of Nov 5th)
of the calendar year, the average Gulf basis has been 32 cents over Dec
futures. The max for basis has been 59 over with the minimum at 14 over.
The present basis level is 57 cents over. Basis on average has had a
tendency to work sideways from early Nov to the first week of Dec.

Ethanol: after reaching a recent low of 1.53 (10/01/07) per gallon vs the
Dec futures, the technical trend has been up and closed Tuesday at 1.75 per
gallon and then slipped to 1.71 for a increase of 11.7% in one month. Chart
based resistance begins to build at 1.80 with heavy consolidation at 1.87.
Friday's close 1.78.

Energy Information Administration: has released its month of August,
2006/07 marketing year data. The data suggest for the 2006/07 marketing
year, total corn use for ethanol production reached 2.084 billion bushels
vs USDA's present estimate of 2.115 billion bushels and will require the
USDA to reduce corn for ethanol in 2006/07 by 31 million bushels. The month
of August had record production of 13.5 million barrels but for the first
time dating back to the beginning of ethanol stock data record keeping
found double digit stocks of 10.3 million barrels. One year earlier for the
month of August stocks were 9.2 million barrels and 9.7 million in July
2007. USDA and the Department of Energy had agreed upon a 2006/07 target of
141 million barrels of ethanol to be produced for a total of 5.9 billion
gallons. 2006/07 actual production came in at 5.8 billion gallons even
though DOE long range plans had a 6.1 billion gallon goal to blend with
motor gasoline.

Marketing: Cost of carry from Dec hedges to March is 3.5 cents per bushel
per month, or the need for a carry of 10.5 cents. The futures market is
offering 17 cents. Allendale did roll its Dec corn hedges, covered with
bull call spreads to the March futures on 9/27/07.

2008 Corn Production: Allendale has 10% of anticipated 2008 corn production
hedged at a level of 4220. The Dec 2008 corn futures life of contract high
is 4344, with a recent Oct low of 3864. Allendale has resting orders to
hedge an additional 10% at a futures price level of 4360. The recent trade
range has been 3900 low to 4270 high. 4270 high on 9/27/07 and again
10/31/07, viewed as double top resistance. We will be methodical in hedging
for the balance of the 2007 calendar year and extremely cautious entering
2008 spring plantings if in fact corn acres are replaced with bean and
wheat acres.

Trade Position: fundamentally we remain bullish to corn even with record
production as demand remains strong globally and record low levels of world
end stocks to use. We have entered long March corn futures on Thursday and
have written new orders to be long the Dec futures.

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: With the long term trend line taken out on Dec CBOT SRWW,
traders are expected to be more aware of emerging technicals. The # one and
two MA for corn and beans are just under Friday's close and need to hold to
keep from free falling as wheat has done. Positive technical development as
both March and Dec corn close above the key pivot points. A close above the
levels again on Monday could confirm traders have turned bullish, possibly
setting the harvest lows in the rearview mirror.

Jan 18-19: our 18th annual conference in Crystal Lake, IL. Call 800 551
4626 for a special 50% off offer.

Wheat Fundamentals: In less than 24 hours, Egypt snapped a tender and
immediately made the purchase of 275 K tonnes of wheat. The official
breakdown is within our Midsession Comments page. The purchase is for
Jan/Feb shipment. India is expected to launch an official tender for nearly
1 million tonnes of wheat. Because of quality standards, the USA is not
expected to provide any of the business but its refreshing to see demand
pick back up on the recent break in prices and removing supply from thinly
stocked world stores.

Basis: over the most recent 18 years, for the 44th week (week of Nov 5th)
of the calendar year, the average Gulf basis has been 34 cents over Dec
futures. The max for wheat basis has been 72 over with the minimum at 14
over. The present basis level is 50 cents over. Wheat basis on average has
had a tendency to slowly work higher from early Nov to the first week of
Dec.

Exports: USDA's export target is 1.15 billion bushels. Dating back to
1999/00, this marketing yr exports are projected the second highest with
2003/04 at 1.158 billion bu. With 57% of the marketing year remaining, 85%
of the target has been met vs a five year ave of 60%. Weekly sales of 6.6
million compare to the five week ave of 31.3 million and ten week ave of
41.5 million bushels. Cumulative sales of 977 million bushels thus far in
the marketing year are 119% greater than year earlier levels of 445 million
bushels and 99% above the five yr ave.

2007 Cash Marketing: Allendale sold 50% of its 2007 wheat inventory on
9/18/07 based on historicals. The second opportunity is next April-May. See
our Hedge Advice page for instructions. The Dec/Mar CBOT wheat spread is 21
cents premium the March. Your cost to store wheat per month is 5.8 cents
per bu. The present futures spread is near break even and warrants the need
to roll Dec Hedges to March 2008 futures. On Monday 10/22/07 we rolled the
remaining 50% of our 2007 wheat hedged in the Dec 2007 futures to the March
2008 futures.

New Crop 2008 Marketing: the July 2008 life of contract high is 6970
achieved Monday Oct 22. The recent low is 6480. Allendale is 35% hedged of
anticipated new crop wheat production at a level of 6150. Allendale has
resting orders to hedge an additional 10% at a level of 7220.

Trade Position: the fundamental facts are world supplies are challenged by
aggressive demand. However the technical picture took a beating on
Thursday. We entered and stopped out of MGEX and KCBT longs on Thursday but
remain long CBOT Dec wheat and will leave our stop unchanged. We have
written new orders to sell KCBT and MGEX Dec wheat purely from a technical
stand point.

Lean Hogs: Every Friday afternoon USDA released preliminary estimates of
that week's kill levels. Every Thursday afternoon the release a report
detailing revised levels for two weeks ago. Yesterday's actual kill report
for the week of October 20 revised the kill from 2.345 million to 2.330
million. Typically a 15,000 change is a big one. This echos a similar
revision from the week before. As it stands right now the record kill was
posted three weeks ago at 2.340 million head. Since then the kill has
fallen to 2.331, 2.324, and 2.322 million head for this week. We can
confirm that slaughter levels are declining as expected. However they are
not dropping dramatically. This week's kill was 6% larger than last year.
There are two questions everyone wants answers to. 1) "Is the low in?" and
2) "Are we liquidating the breeding herd yet to stop this from being a long
term problem?" As to number one we have to say the answer is no. As you can
see this week's slaughter levels were almost the same as last week. We need
to see some type of drop off to tell this market the worst is behind us.
For the second question sow slaughter in the past four weeks has averaged
6% higher than the same period posted last year. Producers are starting to
liquidate. However, keep in mind it will take weeks of doing this to dent
the size of the breeding herd. Additionally those extra sows and unbred
gilts being marketed are helping to add to the tonnage problem right now.

Also keep in mind the hog supply for the next six months is already set as
those hogs are on the ground right now. We could see the hog flow from
seven to nine months out dented slightly as some producers market pregnant
gilts/sows. It is the period after nine months out which will see slower
production numbers as breeding for the period is going on right now. In
essence what we are saying is we could find a bottom at anytime. Our
studies suggest prices have declined enough. We could bottom on Monday or
it could take some time into December. One other factor to look at is do
not expect to see prices go right back to year ago levels after this late
fall/early winter price decline. Look at the June 2008 futures which closed
today at $75.65. This year the June 2007 contract expired at $72.70 on June
14. Yes that is right the June 2008 contact is actually at a premium to the
2007 contract. Could China buying increase in 2008 due to the Olympics?
Yes. Will it be enough to offset the larger supplies that will be posted in
the first six months of 2008? Probably not. That's why our biggest concern
right now is not with the December 2007 contract but with the 2008 ones.

Live Cattle: One the bearish hand we have been running larger kills for six
weeks now. That has added a little pressure but when combined with much
larger hog kills and growing broiler production there has been a lot of
pressure. This summer's cash cattle lows were $86 at the end of June. It
rallied to $96 at the end of September before South Korea found the
vertebrae in a shipment. Since then we have traded lower. Last week's
average was $93 and we would expect the same or maybe even $1 lower a some
point this afternoon. Kansas through Texas, at the time of this writing,
are still holding out. Nebraska moved cattle yesterday and today at $142
and $143 which was steady to $1 lower. One key thing which keeps us
supportive is the lower kills which should show up from now through
February.

Futures are implying cash cattle will be at $94 at the end of
December which still seems a little low. We have made it clear we have been
wrong on this last leg down in cattle prices. The charts now show a bearish
pattern which projects down to $89.87 on the December. We flat out do not
believe that will happen but have to suggest for speculative positions
right now trading on the short side is what you have to do.

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,

Soybean Fundamentals: Six to ten day precip maps do not hold out much promise for key soybean production areas of Brazil which need it the most. Argentine President plans to increase the export tax on grains in an effort to raise funds for its government. Exports are big business for the S American country and its farmers are not pleased with the tax announcement, as exports are their life blood, their incentive to expand operations.

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