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World end stocks tell the true outlook

Three surprises were included in Friday's WASDE Reports: The first is how
aggressive USDA was with its first actual farmer survey by increasing corn
yield by 3.2 bu per acre. #2 surprise was how the USDA survey found a sub 3
billion bu soybean crop and dropped yield by 1.1 bu per acre vs the July
est. #3 surprise was to learn first hand on the CBOT trade floor how the
locals went into the report long corn, short soybeans.

Corn Fundamentals: Corn demand remains strong domestically and exports.
More animal units at least into the end of the year suggest steady feed
demand. More ethanol plants coming on line also suggest higher trending
corn demand. Friday's price weakness and into the initial push of the 2006
harvest is expected to find higher than usual demand especially with world
stocks at 93 MMT second smallest since 89 MMT in 1983. Bearish to corn is
the technical picture, larger than usual China corn crop and talk of Asia
and Europe knocking on Brazil and Argentina's door to seek corn supplies.

Crop Production History: When was the last time USDA raised corn yield as
much as they did Friday's 3.2 bu per acre, in 2004 by 3.9 bpa which grew to
160.4 bpa in the Jan annual report. USDA raised yield 4.9 bpa in 2000 to a
level of 141.9 bpa only to see it drop to 137.1 in the Jan report. USDA
raised the Aug yield by 5.9 bpa in 1995 only to have it revised down to
113.5 in the Jan report. A comment heard on the floor Friday was "August
corn crops which are bigger than the July, only get bigger into Jan.
Evidence above says do your research before you make such an off the cuff
remark.

USDA raised USA corn production by 236 mil bu over the July report.
Once again a remark made this morning shortly after the CBOT panel
discussion began was this Aug revision higher was the largest dating back
to 1970. In 2004 the production was increased by 284 mil bu to 10.919 bil
bu, with a Jan production level of 11.807 bil bu. In 2000 the Aug prod was
increased by 356 mil bu for a crop size of 10.369 bil bu, only to drop to
9.968 bil bu in the Jan report. In 1995 the crop size was increased by 337
mil bu to a level of 8.122 bil bu only to find a Jan level of 7.374 bil bu.
Once again its time to break out the research archives and not make such
outlandish statements. To summarize, yes the crop has the potential to
become larger and is dependent on Aug to early Sept weather to help move
the crop forward. What we have learned by the private weather sector is the
mid Aug to mid Sept weather is expected to mainly conducive to crop
maturity. However historically you can not rule out the possibility of this
near 11 bil bu crop becoming smaller IF the private weather sector gets it
wrong.

Dec Corn Five Year Ave: The most recent five yr historical ave suggest Dec
consolidate in Aug and then sells off by 30 cents into harvest.

Corn Marketing: Only move enough old crop to make room for new crop
supplies as old crop basis is weak and expected to remain weak into the end
of the year. Our new crop hedges were rolled to the July to pay for storage
on farm and added an additional 9 cents to our storage revenue for the 2006
corn crop.

Five Year Ave Cash Price: The five year ave cash price for corn for the
month of August $2.14, month of Sept $2.13, month of Oct $2.05, month of
Dec $2.11.

Corn End Stocks to Use: Projected end stocks to use now at 10.4% vs 9.4% in
2003 for the domestic situation. Globally a level of 11.6% vs 2003's 14.3%.
Projected world end stocks for 2006-07 now 93 MMT vs 103 in 2003! Lets go
back to 1983 to find smaller stocks of 89 MMT! See wheat below.

Corn Technicals: Sept futures close is 2246 vs last Friday's 2450, down
8.1% for the week. Our key custom Moving Averages are 2380, 2400 and 2460.
Dec futures close is 2416 vs last Friday's 2622, down 7.7%. Our key custom
Moving Averages are 2560, 2570 and 2570.

Trade Position: Our short futures objectives were achieved today, please
see Grain Trading Strategies page. Fundamentally the US corn crop grew from
the July to Aug time frame and technicals are bearish. Long term we are
very bullish to futures because of extremely thin and end stocks to use at
levels very near the domestic situation in 2003 and tighter than 2003
globally. All futures did in the fall of 2003 was come under harvest
pressure, then demand kicked in very aggressively and rallied futures into
the late winter-early spring, rewarding those with enough patience to not
sell grain off the combine but be long futures and calls.

Soybean Fundamentals: If it were not for the bullish stance on soybean oil
by the investment community as it seeks yet another food for fuel source.
Soybean production is made in the month of November and we suggest a bigger
crop and yield potential for the month of Sept USDA crop report. Export
demand for USA soybeans for the 2005-06 marketing year will likely be met
but after your lower your target enough times, you are likely to finally
hit the mark. Domestic and global stocks are still very heavy. Any thoughts
of rallying soybeans back to $6 is thought to be the incentive needed for
Brazil to plant another solid crop for 2007's harvest. Timing of this sub 3
bil bu crop does stifle thoughts of a quick fall 2006, early 2007 marketing
plan. It is why it is important to get those Nov hedges rolled out to July
to pay for ownership.

Soybean Yield: USDA dropped yield 1.1 bu per acre vs the July report. Last
year USDA dropped yield 1.2 bpa only to raise the Sept increase of .9 bpa
by an additional 3.7 bpa in the January annual report. Four of the past
five years found the Jan annual report containing a higher yield than the
August crop report. We see similar results for the Jan 2007 crop report.

Soybean Production: USDA decreased the crop size by 82 mil bu. In 2005 they
decreased prod by 99 mil bu and increased it by 65 mil bu in Sept then
added 230 million bu from the Sept to Jan. Of the last five years the Jan
annual production report had a larger crop size than the August report.
Like corn, Aug into Sept weather is the key. Private weather forecasters
suggest beneficial weather in the making with the exception of South
Dakota.

Nov Soybean Five Year Ave: the most recent five yr historical ave suggest
Nov futures begin to drive higher into the middle of Sept with an ave gain
of 20 cents. From the middle of Sept futures fall into early Oct by 15 to
20 cents.

Soybean Marketing: Only move enough old crop to make room for new crop
supplies as old crop basis is weak and expected to remain weak into the end
of the year. Our new crop hedges were rolled to the July to pay for storage
on farm. Long range projections suggest when the March 31st Planting
intentions report is released, more corn and wheat acres to be planted at
the expense of fewer soybean acres and thus friendly to futures and cash.

Five Year Ave Cash Price: The five year ave cash price for soybean for the
month of August $5.81, month of Sept $5.52, month of Oct $5.53, month of
Dec $5.61.

End Stocks to Use: Projected 2005-06 end stocks are 81% higher than the
previous four year ave. Projected 2006-07 end stocks are 48% higher than
that same four year ave. Domestic end stocks to use for 2006-07 are 15% vs
2003's 4.4%. Global end stocks to use are 17.3% vs 2005-06's 18.8% vs
2004-05's 17.9% and 2003-04's 15.3%.

Soybean Technicals: Sept futures close is 5552 vs last Friday's 5820 which
represents futures losing 4.7% this week. Our key custom Moving Averages
are 5760, 5780, and 5820. Nov futures close is 5682 vs last Friday's 5970,
down 4.9% for the week. Our key custom Moving Averages are 5820, 5870 and
5950.

Trade Position: Our short soybean futures objective was reached today. We
are willing to sell the new crop futures on a correction.

Wheat Fundamentals: USDA released a spring wheat production level of 464
mil bu vs a trade ave expectation of 425 mil bu. Allendale's estimate was
462 mil bu. The wheat trade was in disbelief. Why the violent free fall in
futures at all three exchanges. #1 is winter wheat production was increased
from 1.280 bil bu to 1.283 and the fact key trend line support for MGEX
spring wheat futures broke.

Wheat 2006-07 End Stocks to Use: projected domestic end stocks to use are
21.3% vs 2005-06 26.3% and five year ave levels of 26.94%. Projected global
stocks to use is 17.7% vs 19.7% the previous year and five year ave of
22.44% and most importantly smaller than 2003's 18.9% which caused futures
to rally. If Dec 2007 futures were to follow Dec 2004 futures based on
tight global end stocks to use for wheat, futures rallied from a month of
Dec 2003 level of 3800 to a high in April 2004 of near 4400 but as the
world responded to these higher futures levels, Dec futures sold off to
2850 by expiration. Timing is expected to be extremely important to move
2006 wheat production in the March-April 2007 time frame. 2006 Dec wheat
futures hedges were rolled to the July 2007 futures this week to cover
storage cost. Spring wheat farmers may want to seriously consider moving
wheat off the combine into cash sales as futures spreads do not coverage
storage cost (tonights close is 9.25 cents or 3.08 cents per bu per month).
You will have to decide for your own individual operation. At 4250 cash
value, storage and interest are likely to run a minimum of 4.7 cents per bu
per month. Cash sales are to be replaced with March futures or options or
bull call spreads or combination of all as we anticipate a similar rally in
futures from Oct 2006 to March of 2007. From Oct 2003 into March of 2004
futures rallied nearly 90 cents then nosed dived.

Five Year Ave Cash Price: The five year ave cash price for corn for the
month of August $3.25, month of Sept $3.43, month of Oct $3.51, month of
Dec $3.51.

Wheat Technicals: Sept CBOT SRWW futures close is 3736 vs last Friday's
3960, down 5.6% for the weeks. Our key custom Moving Averages are 3830,
3900 and 3930. Sept KCBT HRWW futures close is 4542 vs last Friday's 4860,
down 6.6%. Our key custom Moving Averages are 4660, 4760 and 4850. Sept
MGEX spring wheat futures close is 4570 vs last Friday's 4822, down 5.1%.
Our key custom Moving Averages are 4750, 4790 and 4830.

Trade Position: Within our Grain Trading Strategies page you will see that
our short KCBT and CBOT futures position have had risk lowered well below
entry points to protect gains earned thus far. You will also see how we
stopped into a short MGEX wheat position based on our research which
suggest the spring wheat crop was not near as short as the futures trade
had preconceived.

Allendale Lean Hogs: While it is hard to argue this market should be up
here it is even harder to suggest standing in front of this uptrend. On the
fundamental side rising hog numbers in the next few weeks usually break
cash hog and cash pork prices. Instead it would appear fund buying and
technical factors are the key here. The problem is this market is too
strong to stand up to with short futures. That is why we would only do a
short position with a bear spread such as selling October and buying
December. Seasonally futures decline sharply from early August to late in
the month. Hedgers are encouraged to lock up these high prices while they
last.

Allendale Live Cattle: Bulls are still clearly running the show right now.
Japan is starting to buy and receive US beef and cattle numbers will be
getting a little tighter. This has helped push wholesale beef prices all
this week. Cash cattle traded sharply higher this week and are called $1 to
$2 higher next week. Having said this we can note the trade is expecting a
large placement number to be shown on next Friday's Cattle on Feed report.
July cattle placements into feedlots are expected to be 10% to 21.8% higher
than at the same period last year. Cattle placed in July will finish out
from late November through late March. The majority of placements during
July are feeders coming off grass weighing over 700 lbs. They will finish
out in November and December. That is one reason by the December and
February futures were hit today instead of the nearby's. For market
direction we have to note wholesale beef, and therefore cash cattle, are
still supportive. On the other hand typically futures contracts post a
sharp break from now into the end of the month. From that low point the
trend is generally straight up into late November/early December. This is
the normal time to start applying bear spreads (selling October/buying
December). Those spreads have not been working in recent days and we are
hesitant on getting on board just yet. For price direction we feel the low
is in. It would not be surprising to see a break in the next couple of
weeks as the market tries to fill the gap left Thursday morning. On the
October contract that would imply a move down to $90.55. Any further price
breaks in futures could be used to get long futures or sell puts by the end
of this month.

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.

Three surprises were included in Friday's WASDE Reports: The first is how aggressive USDA was with its first actual farmer survey by increasing corn yield by 3.2 bu per acre. #2 surprise was how the USDA survey found a sub 3 billion bu soybean crop and dropped yield by 1.1 bu per acre vs the July est. #3 surprise was to learn first hand on the CBOT trade floor how the locals went into the report long corn, short soybeans.

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