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Bearish weather

Historical Price Trends: best odds for the week of July 14, according to
our HPT page is for CBOT Sept soybean meal and corn futures. Over the most
recent ten years, odds of 70% for lower Sept soybean meal and Sept corn
futures than where they closed on Friday of the previous week. On average
Sept soybean meal 70% of the time has closed $7.20 per ton lower. Over the
most recent ten years, odds of 70% for lower September corn futures than
where they closed on Friday of the previous week by an average amount of 13

For The Week: for the week of July 7th, September corn futures value
decreased 8.8%, September soybean futures value decreased 2% and Sept CBOT
SRWW value decreased by 6.6%.

For The Month: thus far for the month of July, Sept corn futures value down
6.4%, September soybean futures value increased 1.3% and September CBOT
SRWW value decreased by 3.5%.

Technicals: 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. A detailed technical look at the grains
and livestock are available within our Allendale Advanced Charts.

Conclusion: the #1 Moving average in corn is likely to be used as the point
for technical traders to sell against and risk to slightly above the #2
Moving average. Wheat rest precariously above immediate support of the #1
Moving average but has staunch resistance between the #2 Moving average and
the Pivot point. If neutral either stop into a long above the #2 MA and
pivot point or stop into a short on a breech of the #1 Moving Average.

Corn USDA WASDE Highlights: Allendale suggest the biggest surprise held
within Friday's USDA report was the higher than expected build in old crop
stocks. Not surprising was the decrease but the amount decreased in corn
use for ethanol both old crop and new crop. USDA did slash corn use for
both by an equal amount of 50 million bushels. USDA rational is slower than
expected start up on planned plants and reduced capacity utilization on
existing plants. The reduced capacity utilization is evident within our
Special Reports section "Ethanol Production" graphic which details the
persistent month on month shortfall in USDA's target.

Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 1.598 bil
bu vs June's 1.433 billion bushels vs 2006's 1.304 billion. For 2008/09 end
stocks are projected at 833 million bushels vs June's USDA estimate of 673
million bu. 2007/08 Stocks to use for July's estimate is 12.5% vs 11.1%
last month vs 2006's 11.6% and 2005's 17.5%. USDA's 2008/09 estimate for
end stocks to use is 6.7% vs June's estimated 5.4% with 1995 the lowest at
5% dating back to 1980.

World Stocks and Stocks to Use: 2007/08 world stocks of 125 million tonnes
vs last months 121 million tonnes vs the previous years 110 million tonnes.
USDA 2008/09 July end stocks are estimated at 105 million tonnes vs its
June estimate of 103 million tonnes. 105 million tonnes is the third
tightest on record dating back to 1980. Record high world stocks was 1986's
205 million tonnes. 2007/08 End stocks to use at 14.3% vs 13.8% last month
and compares to USDA's 2008/09 July estimate of 11.9% vs June's estimate of
11.7%. At 11.9% end stocks to use, it represents the lowest on record
dating back to 1980 with the second tightest in 2006 of 13.4%.

Season Average Farm Price: USDA's 2007/08 July estimate of $4.25 per bushel
was unchanged vs its June estimate. USDA estimates the July WASDE
2008/09 SAFP at $6.00/bushel vs its June estimate of $5.80 bushel. The SAFP
for 2006/07 was $3.04/bu.

Corn: Fundamentally bearish to corn is beneficial weather for the major
Midwest for at least the next two weeks. Private weather forecasters as of
noon Friday began to explore the potential for a heat wave moving west to
east July 20-26. This bears watching as a greater portion of the 2008 corn
crop could be at risk. Also bearish to corn is the increasing substitution
of feedwheat vs corn. International buyers not only consider the feed
values economics but are also reducing import expenses by securing supplies
closer to home base. Bullish to corn is declining end stocks from 2007/08
to 2008/09. Record low 2008/09 world stocks to use is supportive to Dec
futures. USDA did revise yield lower by half a bushel thus reducing 2008
production. It must be noted, USDA is in the midst of resurveying corn
acres planted and potential harvested in the month of July and is expected
to release results in the August 12th crop report.

Old Crop Marketing: 6370 cash corn requires 4 cents per bu per month to
store on farm. The present spread between July and Sept futures is offering
5 cents per bu per month and will cover your cost to carry if hedged in the
September futures. Make certain unhedged corn meets the criteria to offset
cost of carry. If you have not rolled July hedges to the September futures,
do so quickly. The Last Trade Day for July futures is Monday, July 14th.
Allendale has 30% of its 2007 production not priced to the cash market and
will alert when to begin to move to the cash markets.

Trade Posture: Fundamentally Allendale remains bullish to corn futures on
declining stocks from 2007/08 to 2008/09 and record low levels of world
stocks to use. Allendale is aware of potential economic rationing when corn
approaches $8 per bushel in the cash markets.

Soybean USDA Highlights: two major surprises contained within the USDA July
WASDE. The first is for old crop with unchanged level of crush vs the June
report, and no surprise a 35 million bushel increase in export demand, one
would suspect old crop stocks to decline to a level of 90 million bushels.
However USDA merely pens a -35 million bushel residual and leaves end
stocks unchanged at 125 million bushels and dare not breech the 2003 level
of 112 million bushels. The other surprise was how aggressive USDA was in
reducing new crop stocks to a new estimate of 140 million bushels vs its
previous estimate of 175 million bushels.
Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 125
million bushels vs 125 million bushels last month vs 574 million the
previous year. 2008/09 end stocks are estimated at 140 million bushels vs
the June estimate of 175 million bushels. The 125 million bushels are the
least amount since 112 million in 2003. 2007/08 Stocks to use as of the
July WASDE are 4.1% vs June's estimate of 4.1%. The June 4.1% estimate is
the lowest dating back to 1980 and less than the previous low of 2003's
4.4%. 2008/09 end stocks to use are projected at 4.7% vs June's estimate of
5.7%, still very tight. Dating back to 1980 the 4.7% end stocks to use
would represent the third tightest on record.

World Stocks and Stocks to Use: 2007/08 world stocks of 49 million tonnes
vs last months 49 million tonnes vs last years 62 million tonnes (down
23%). 49 million tonnes compare to a five year ave of 48.2 million tonnes.
End stocks to use at 15.8% vs 16% last month. The five year ave has been
17.96%. 2006 end stocks to use for world soybeans was 21.1%. USDA's world
2008/09 end stocks for soybeans for the month of July is estimated at 49
million tonnes vs 50 million tonnes the previous month. 2008/09 end stocks
to use are estimated at 15.6% vs June's 16%.

Season Average Farm Price: USDA's June estimate of $10 per bushel for
2007/08 remains was increased to $10.15 per bushel for July. USDA's
projected 2008/09 SAFP for July is projected at $12.75 per bushel vs its
June estimate of $11.75 per bushel.

Soybeans: Argentina farmers launching yet another round of "road blockades"
type strike, lasting at least through next Wednesday. This news continues
to throw fundamental support to US and Brazil to answer the call of
continued world demand. The rally in crude oil futures is also a reason for
soybean futures rally. The international bullish enthusiasm for soybeans is
based on the trades perception of as long as crude oil rallies, the world
needs to find alternative energy sources in the form of biofuels. The main
problem at hand is soybean oil as a feedstock is not economical as
represented in the decline of the monthly energy Information
Administrations data. Tight old and new crop stocks are fundamentally
bullish as well as the Argentine farm strike. Keep you eye on developing
weather. Any sign of long standing heat is likely to present the real
possibility of declining production for 2008. USDA did drop 2008 production
by 105 million bushels in its June to July crop production report. Bearish
to soybeans is immediate conducive weather and economic rationing when
soybeans reach the $17/bushel level.

Soybean Spread: declining old crop stocks as a result of the ongoing
Argentina farm strike has soybean futures inverted. The August/Nov spread
is presently at 19 prem the August vs 14 cents the previous day, has
technical based support at 10 cents and immediate resistance at 20 cents
and more concrete resistance at 30 cents. Allendale suggest a pullback to
the 10-12 cent area as a possible value to active the bull spread, risk to
even money and use an objective of 30 cents premium the August.

Old Crop Marketing: $15.95 cash soybeans requires 9.3 cents of carry per
month. If not hedged, make certain your local cash markets are offering you
sufficient carry. Contact an Allendale representative for alternative
marketing strategies for your specific operation. The present July/August
futures spread is at a fifteen cents inverse suggesting the cash market is
in need of soybeans immediately and is not willing to pay to store. This
inverse continues to strengthen and as long as demand is placed on the US
old crop vs Argentina soybeans, the inverses is expected to increase.
Within the greater Midwest cash markets are as willing to pay as much as
$1.15 per bushel premium to buy beans for July delivery vs the month of
August, once again, not enough to pay for your on farm storage. If the
present market is offering $1.15/bu for immediate delivery and the cost of
carry is 9.3 cents per bushel, the incentive to deliver now is more than 12
months worth of storage.

Trade Posture: Allendale remains bullish to soybeans as ending stocks are
continue to decline for 2008/09. Allendale is aware of the potential
bearish ramifications of an end to the Argentina farm strike and potential
CFTC action on speculation. Allendale stopped into a long position in Nov
soybeans and Dec soybean meal on Thursday, long soybean oil on Friday.

Wheat USDA WASDE Highlights: two big surprises contained within the Friday
July WASDE report. They are the greater than anticipated soft red wheat and
white winter wheat production. USDA did cut against the grain and INCREASED
Australia wheat production by 1 million tonnes to a level of 25 million
tonnes vs the majority of private Australian estimates nearer 23.5 million
Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 306
million bushels vs 254 million bushels last month vs 456 million last year.
At 306 million bushels, 2007/08 ending stocks are the lowest dating back to
1980. 2008/09 end stocks are projected at 537 mil bu via the July WASDE vs
483 million bushels estimates in the June WASDE, an increase of 11%.
2008/09 end stocks to use projections are 23.1% for the July WASDE report
vs 21.2% in June up 9.9% year on year. You would have to venture back to
1989 to 1990 to find a bigger year on year increase of 11.6%

World Stocks and Stocks to Use: 2008/09 world end stocks are projected at
133 million tonnes vs the June WASDE estimate of 132 million tonnes, up 17
MMT yr on yr. This compares to the 1995/96 year on year increase of 8 MMT.
2008/09 world end stocks to use for July is estimated at 17.3% vs 17.3%
estimated in the month of June vs 15.8% for the 2007/08 marketing year. At
17.3% end stocks to use, it represents the second tightest level dating
back to 1980.

Season Average Farm Price: The SAFP for 2008/09 at $7.50 per bushel July
estimate and is unchanged vs June's estimate of $7.50 per bushel.

Wheat: Bearish to wheat futures is a large world wheat crop expected to
increase world stocks by as much as 17 million tonnes over year ago levels.
Also bearish to wheat futures is the recent liquidation of corn futures.
Bullish to wheat is renewed export demand for milling purposes and domestic
and world feed use.

Wheat Crop Marketing: $6.15 cash wheat requires 4.5 cents of carry per
month. If not hedged, make certain your local cash markets are offering you
sufficient carry. The present July-Dec wheat futures spread is offering 35
cents carry (actual cost is 24 cents) Allendale recently rolled its July
hedges directly to the Dec to cover the cost of carry and added the
remaining balance to its merchandizing ledger. We see no reason to hedge
new crop above the 65% level we have on for now. If you have not rolled
July hedges to the Dec, Allendale recommends to do so immediately.

Cash Peak: Dating back to 2000, odds favor a national cash wheat peak for
the month of December. Of the most recent eight years, dating back to the
year 2000, the national cash peaked has hit the month of December 50% of
the time with various other months such as Oct and Nov, April and May only
once. We will monitor cash and futures spreads and the history stated above
to make our decision to make initial 2008 cash sales.

Trade Posture: Technicals have turned from neutral to bearish. Fundamentals
are mainly neutral to slightly bearish.

World Grain Stocks to Use: world grains are composed of wheat, coarse
grains (Corn, sorghum, barley, oats, rye, millet and mixed grains and
milled rice. It may provide a more complete picture of the all grains in
general the world demand has access to use and various combinations of feed
and food alternatives rather than an individual line item. Allendale's
research finds present end stocks to use of total world grains at 16% which
is at a record level low dating back to 1990. The previous low was 17% in
2006, with the record level high in 1998 and 1999 at 32%. Alarming is
despite high global prices as an incentive to increase total 2008/09 grain
production to 2,509 million tonnes vs 2,455 million tonnes, 2008/09
end stocks to use are expected to remain unchanged at 16%.
Even though there is expected to be an end stock increase of 3.39 million
tonnes from 2007/08 to 2008/09, stocks to use remain historically tight.
Please view our "Of Interest" page to view the total world stocks of grain.
Dramatic is the slide from 1999 levels of 585 million end stocks has been
occurring. From 1999 to projected 2008 the end stock reduction has been
41%. Can the world continue to maintain such a steep slide?

Lean Hogs: This has been a good week for the hog markets. Nearby contracts
have posted good gains on a resurgence in interest in wholesale pork and
cash hogs. Being realistic supplies are not tightening very much. The past
four weeks have averaged 8% more pork than last year. This week's estimate
was 10% higher. Being clear hog numbers have not tightened up. They are
expected to do so soon but so far they are not. We are supportive to cash
hogs and the August futures contract. Speculators following our recommended
August/October spread will note it finished at a $3.40 premium to the
August. The entry was around $1.50 and the objective is $4.50.

2008 Hog Pricing: While we feel the near term pricing structure is
undervalued we are bearish the fourth quarter picture. December futures at
$75 have a 36% price premium to the $55 December 14 cash hog price posted
last year. Our supply models suggest pork production will be around equal
to previous year levels in December then switch to below last year levels
around January. The main point is pork production may be equal to last year
yet futures are holding a 36% price premium. We will certainly agree the
demand is much better than last year but cannot justify that much premium.
Our downside target for December is $65. We remain 100% hedged through the
end of the year and are happy with that position.

The Liquidation Story: From late March into mid-May producers got serious
about liquidation. Sow slaughter, except for one week during that period,
ranged from 11% to 19% higher than previous year levels. We call successful
liquidation as a period of sow slaughter over 10% higher from two to five
months long. Liquidation slowed down dramatically in May though. Producers
noted their recent marketings were being done at +$80 on a lean hog price
and they were breaking even if not making a little money for a couple
weeks. Liquidation had made a second resurgence though. Once December corn
futures broke that $7 mark producers began to get serious about it again.

While we do not delight in other's misery
we have to say the resurgence in liquidation is good news for the long term
health of pork producers. There is one concern we have though. With the
severe drop in corn prices this week will producers once again get lax and
slow liquidation?

2009 Hog Pricing: We have stated clearly we have more questions than
answers regarding 2009 pricing. Our supply forecast indicates 1st quarter
pork production will only be down 3% from last year. The 2nd quarter
forecast, which is still being determined by sow slaughter, may be down
something like 5% or so. Those declines are not nearly enough to support
the tremendous premiums in futures.

Keep in mind the 2008 numbers
listed are before the big jump in domestic demand really hit hard. That
happened in mid to late April and especially in May. We are still enjoying
that accelerated demand pace. Will it last into 2009? On the export front
Jan through Apr figures are up 52%! On the bull end you have a university
economist noting the cheap dollar makes US pork very cheap and there will
be no bottom in our exports. Being more realistic we have to note most of
the increase this year is from China. What happens after the Olympics in
August are over? What happens in 2009 when their herd rebuilding program
really begins to bear fruit? Will they need the US product as much then?
The main point here is though these 2009 futures are likely at overvalued
levels the trade truly does not know where to price these contracts. More
questions than answers, and a rising futures market, keeps us from actively
hedging for now. We only have 25% of marketings locked up in the February

Live Cattle: From April through June this market was relatively easy to
trade. "Commodity Bulls" were buying and showing no signs of letting up. So
far July has been the opposite. We expected these long-only groups to come
right back in and support the trade this week but it just did not happen.

Long Liquidation Continues: The daily changes in open interest from Monday
through Thursday showed declines of 1,864, 5,760, 2,538, and 2,001
contracts. We will not have CME information for today's trading at this
time. The main point here is longs continue to liquidate. This is
especially troubling for the "Commodity Bull" story which has worked for
the past three months. Crude and live cattle had mirrored each other during
this time. However, today crude oil hit brand new highs. Live cattle have
failed to see a resurgence in buying interest though.

Live Cattle Pricing: Cash cattle traded at $100 today in the plains. That
was down from the $101 and $102 action posted last week. Here's what
futures are implying cash cattle will be...end of August - $100, end of
October - $108, end of December - $110. While the market is showing higher
cash cattle prices are coming, as they should be, they are not implying the
wild numbers they were last week.
Is the Cattle Market Returning to Reason?: After putting our fundamental
pricing models aside for the past three months is it time to shake the dust
off them? In other words will this market get realistic and go back to true
value? Models are implying true value for futures...August could be at
$100, October - $106, and December - $108. For now we will shift our "buy
this market at any break" focus and go back to traditional trading. If the
"Commodity Bulls" return we will be happy to play their game. However, the
market has changed its mentality and we must adjust. If we see higher
prices supported by high volume and increasing open interest we have our
sign they are back in the ball game. For feedlots we will start some very
light hedging and add 25% of expected marketings using the October and
December contracts.

Historical Price Trends: best odds for the week of July 14, according to our HPT page is for CBOT Sept soybean meal and corn futures. Over the most recent ten years, odds of 70% for lower Sept soybean meal and Sept corn futures than where they closed on Friday of the previous week. On average Sept soybean meal 70% of the time has closed $7.20 per ton lower. Over the most recent ten years, odds of 70% for lower September corn futures than where they closed on Friday of the previous week by an average amount of 13 cents.

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