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Wheat is the market leader

Wheat Fundamentals: We begin with the leader. The investment community's
interest in the wheat futures is very strong on news of a shrinking
Australian wheat crop, Ukraine planning on curbing exports, Iraq and Egypts
renewed interest in USA supplies as represented by its purchases this week, with only a small amount of bearishness imposed by improving wheat weather
conditions in Argentina. By Monday, it was estimated the funds came into the
week long 20,000 contract of wheat vs the week before level of neutral
(neither long nor short its overall position).

Going into Monday's trade, it
was estimated the funds' overall position was 41,000 contracts long and
added an estimated 2,500 contracts during today's trade. Just how many more
longs could the funds add to its position is a commonly asked question
since the beginning of this week. We reference our custom CFTC/Price report
within our website and research shows, the funds have peaked at 50,000 net
long. The first time was in late 2003 early 2004 when world stocks to use
were tight corn, beans and wheat (presently projections are tighter for
2006-07 but only for corn and wheat) and then again this last summer when
the USA had a small crop because of bad weather. We would suggest it would
not be unreasonable for funds to add to longs into the 50 K level but if
traditional Australian wheat purchases by foreign buyers to come more
apparent by switching to USA supplies, funds could take out this double top
of 50 K net long.

When looking at the supply for Australia 'then and now', present production estimates for the 2006/07 crop range from 12 to 15 MMT,
far below present USDA estimates calling for 19.5 MMT. The harvest of 2003
yielded 10.132 MMT as a result of the worst drought in 100 years. The year
began with over 8 MMT of carry in stocks, had far less than normal exports
and exited the marketing yr with only 40% of the stocks it began the year
with. How similar 2006/07 is in appearance, beginning with 8 MMT of carry
in stocks, likely to see export potential cut in half and expected to end
the year with just over 3 MMT of end stocks and not the 4.5 MMT projected
by USDA. Of interest is the imports most years have been 75,000 tonnes with
the exception of the strain of a shorter than ave crop had on the country
and had imports of 286,000 tonnes. In summary, it is not out of the
question such a rumor could be bantered about on the trade floor. We do
believe it is important for the world to understand what potential levels
of imports could be vs random guesses.

Troubled Exports: You are well aware of the fact that the sales pace this
marketing year for wheat exports is down 23% vs last year and 27% behind
the three yr ave. As of Thursday sales have reached 387 mil bu vs 530 mil
bu 3 yr ave. In the bigger picture, first quarter wheat export sales are
down 21% vs last years first quarter sales. The weakness ties 1990-91 at
down 21%. There is hope for a comeback to finish 2006-07 strong and
actually have the ability to meet USDA export target of 900 mil bu. Dating
back to 1987 we found three unique years where sales were at or very near
this years weak beginning. In 1990-91 export sales performance was down 9%
for the 2nd through 4th quarter but still managed to sell 1.049 bil bu. Two
other specific years had 2nd through 4th quarter sales outperform yr
earlier levels by 21% and 4%, both exceeding 970 mil bu. If we use the ave
performance of the three specific years 2nd through 4th quarter performance
and apply it to 2006-07, projections suggest at the end the USA could have
enough resilience to sell 904 mil bu. USDA's 2006-07 marketing year target
for wheat sales...900 mil bu. If we use the weakest historical performance
of down 9% it suggest sales of 826 mil bu and if we use the strongest 2nd
through 4th quarter performance it suggest sales of 990 mil bu. There are
some very early preliminary signs suggesting demand is looking away from
Australia and more towards the USA. As long as weather keeps wheat
production under stress for Australia, sales of USA wheat are expected to
pick up some lost ground and help to support futures prices.

Wheat Technicals: Please pay particular attention to how close the CBOT and
KCBT wheat closing price today is to the 1st short term Moving average
value is. A close below these levels could be the catalyst for the trade to
accelerate into the second value and we see the third value as stanch
support. December CBOT SRWW futures close is 4640 vs last Friday's 4430.
Our key custom moving averages are 4580, 4460 and 4240. December KCBT HRWW
futures close is 5016 vs last Friday's 4960 (observe how close this weeks
close was to last weeks close for KCBT but a fair amount of room for the
CBOT and MGEX for the weekly technical trader). Our key custom moving
averages are 5000, 4940 and 4820. December MGEX spring wheat futures close
is 4796 vs last Friday's 4686. Our key custom moving averages are 4680,
4650 and 4610.

Wheat Spreads: Spreads are very active. The Dec March spread closed at 13
cents carry. At $3.90 cash SRWW for spot delivery, the cost of carry is 3.7
cents/bushel/mth and would require the spread to be 11.1 cents. Thus as far
as the Chicago market is viewed there is sufficient supply to meet present
demand. If the spread were to strengthen into and beyond 11 cents then it
signals a time to move the cash wheat. Dec-Mar KCBT wheat futures spread is
at 12 cents carry. With cash bids of $4.95 in the heart of Kansas wheat
growing country, the cost of carry is 4.4 cents per bu per mth or 13.2
cents, suggesting it now cost more to store than move inventory. Producers
in this situation need to move cash wheat and fill bins with corn and
soybeans. We would advise to replace inventory moved with futures on a pull
back as we suggest futures may be far from reaching its peak near the
Feb-Mar time frame. MGEX Dec-Mar spread is at 12 cents carry. At $4.95 cash
bids, the cost of carry is 4.4 cents per bu per month cost or needs 13.2
cents to store for the three months. The carry is less than your cost of
carry and suggest it is time again to move cash and store corn and
soybeans. We would advise replacing the moved cash sales inventory with
long futures but once agin on a pull back in futures. Call your Allendale
representative with entry points.

Cash Corn: A change in psychology from storing corn to be prepared to move
corn. Basis is holding firm, futures are rallying and the third and last
signal to look for is how the Dec March corn spread is narrowing or gaining
strength. From 13.4 cents on Wed to 11.2 cents at the close of business
Thursday and then back to 13 cents at the close of business on Friday.
Those producers who sell based on spread and basis mechanics are taking
advantage of theses signals. Full carry is valued at 9 cents or 3 cents per
bu per mth when using 2500 cash price. If the present spread were to trade
into 9 cents or less, we will use this signal as a sign to move cash corn.
It is the March-April time period when the National corn price average more
often than not finds its calendar year peak price dating back to 1998. For
the end user it is more often in the Oct-Nov time frame when prices reach
low levels to lock in long term needs. Unique to this year is the issue of
storage availability. Look for basis to be stronger in the west as
sufficient storage is available and keen competition between ethanol
plants, feed use and exports. When we approach the last 20% of this years
harvest in the east cornbelt, look for cash prices to relax as there is not
sufficient long term storage and just does not have the luxury of multiple
ethanol facilities that the west does.

Soybean Spread: The Nov-Mar futures spread is 22 cents carry. At an ave
price of $5.20, the cost of carry is 18 cents or nearly 4.5 cents per bu
per mth. Off Farm storage is more expensive and needs to be figured
accordingly. The market conveys it pays to store beans until the spread
narrows into the 18 cent level. At the same time we would anticipate basis
to rally along with the futures. Allendale does not see real strength in
the cash soybean market until late July-early August of 2007.

Corn Technicals: Dec futures close is 2710 vs last Friday's 2624. Our key
custom Moving Averages are 2680, 2640 and uses a 2590 bull to bear pivot
point. March futures close is 2840 vs last Friday's 2752. Our key custom
Moving Averages are 2810, 2780 and a 2690 bull to bear pivot point.

Soybean Technicals: Nov futures close is 5640 vs last Friday's 5474. Our
key custom Moving Averages are 5510, 5510, and bear to bull pivot point at
6010. January futures close is 5776 vs last Friday's 5622. Our key custom
MA's are 5680, 5650 and bear to bull pivot point at 6100.

Corn Fundamentals: Corn continues to follow the lead of the wheat action.
Issue of harvest pressure vs strong demand are a distant secondary
fundamental issue for the trade. However just as wheat has experienced its
recent explosion at the hand of shrinking world supplies, the corn harvest
and greater than average carry in stocks could be tempering the corn thrust
for a period of time. As long as sufficient storage remains available,
ethanol and export demand remains strong and feed use does not feel too
much pressure from an expanding Distillers grain supply from the ethanol
sector, its time to take center stage may not be far away. Technically we
understand there is overhead resistance at 2780 and could experience fund
driven sell off to the 2550-2570 level we continue to be long term bullish
into Feb-March of 2007. Our July 2007 futures objective is held in a range
of 3400-3600 vs tonights close of 2960.

Allendale Lean Hogs: We had looked for a two week rebound into October and
have half the move under our belt. After today's CME losses will the second
half of the rebound happen? Our target was for the December contract to
reach $63 and the February to reach $64 on this move. The reason for
today's break is on concerns packers may reduce next week's kill and break
cash hog prices based on margin concerns. The pork cutout is ending the
week up $1.81. Free market cash hog prices rose $3.96 this week through
Thursday. While we still think CME futures have another chance next week of
meeting our expectations we won't roll the dice on it, not when the market
got confirmation expansion is picking up a few days ago. With that in mind
have orders in to sell the December at $63 or if the market breaks through
the September lows at $59.30. Updated hedge recommendations will be
released next week.

Allendale Live Cattle: Cash cattle trading occurred today in Nebraska at
$140. That was down $1 to $2 from last week on a dressed basis. There is
talk some feedlots will be holding out unless prices improve. At the time
of this writing we do not have any live based trading to note. Bids of $89
are widely seen while current asking prices are $93 to $95. For the week
the cattle kill ran only 2% higher. This is not from packers reducing kill.
Feedlots are generally current by noting dressed weights are only 4 lbs
larger than last year. During the first half of this year weights were
running anywhere from 10 to 30 lbs larger. We will note there is talk next
week's kill may be reduced. Beef packers are seeing margins break a little
and could limit kills to prop up beef prices. Can we call a top in this
cattle market like some are saying? Not yet. Keep in mind cash cattle
prices went from lows of $78 back in May to peak at $92 the last week of
August. During September prices ranged from $89 to $91. To say $91 or $92
trading later today is a rejection and time to sell is not right. In the
big picture we look for cash cattle prices to remain steady to higher. The
current futures prices are implying cash cattle will be $90 at end of the
month and the December contract implies a sideways range from $88 to $90
trade in November and December.

Wheat Fundamentals: We begin with the leader. The investment community's interest in the wheat futures is very strong on news of a shrinking Australian wheat crop, Ukraine planning on curbing exports, Iraq and Egypts renewed interest in USA supplies as represented by its purchases this week, with only a small amount of bearishness imposed by improving wheat weather conditions in Argentina. By Monday, it was estimated the funds came into the week long 20,000 contract of wheat vs the week before level of neutral (neither long nor short its overall position).

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