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Corn is king

Bullish to corn is tight world stocks and firm domestic
and global demand. Bearish to corn is the trades concern of the number of
large speculative longs and the ever apparent possibility they could leave
the room without much forewarning.

Corn Futures open interest at the close
of Thursday registered 1,471,381 contracts while options open interest was
1,821,239 contracts. Compare corn's open interest (The total number of
futures contracts or option contracts that have not yet been exercised,
expired, or fulfilled by delivery) to soybeans futures 457,374 and Options
442,339 then wheat futures of 443,879 and its options of 248,108. As you
can see corn is king with respect to the grains. More surprising is how
corn positions itself against the heavy hitters such as 10 Year U.S.
Treasury Notes futures 2,383,490 contracts and options 2,363,891 and 5 Year
U.S. Treasury Notes futures 1,512,004 and its Options 551,417 but better
than the 30 Year U.S. Treasury Bonds futures of 877,795 and its options of
1,145,182 contacts.

These are the figures which are weighing on the trades
mind as when the non-commercials decide to exit the corn futures and
options, chaos is anticipated. Ethanol talks are on-going this week between
Brazil and the USA. Brazil initial response to the USA was if the USA wants
to get serious about ethanol cooperation, begin by reducing the 54 cent per
gallon import tariff on Brazil ethanol because all the rest of the talk is
just playing games.

WASDE: Friday's USDA World Ag Supply Demand report held two major
surprises, both from S America. They are Argentina's corn crop grew by 2
MMT vs 19 MMT in Jan and compares to 15.8 MMT a year ago. The other
surprise came from Brazil as its corn crop grew by 4 MMT to 46 MMT vs year
ago levels of 41.7 MMT. As S America begins to approach its harvest of
soybeans, be aware, corn export sales are expected to compete against USA
old crop supplies.

Domestic End Stocks: The 752 mil bu of projected 2006-07 mil bu are
unchanged from the Jan estimate and are caught in between the 1995 end
stocks of 426 mil bu and 883 mil bu in 1996. 752 mil bu are the second
lowest since 1980.

World Stocks: at 88 million metric tonnes, it is a record low dating back
to 1980. The previous record low was 89 MMT in 1983.

Seasonal Tendency: We focus on the old crop July futures 3 and 5 year
average seasonal tendencies as well as the ave national cash price and have
to remind ourselves it is the late March, very early April time frame when
peaks have been reached for corn prices.

Observations: beginning with the short corn stock years, in 1996 the
national cash corn price peaked at $4.43/bu in the month of July and in
2004 the national cash corn price peaked in April at $2.89/bu. In
average end stock years the national cash ave price peaks
in the month of March. For the average stocked years we are using national
cash average prices dating back to the year 2000 when the ethanol boon
began to get its legs underneath and we did exclude the strong cash prices
of 2004 and averaged them with the high cash prices of 1996. We contend
futures typically peak in Mar-Apr, which cash prices peak in March in
average corn end stock years but in short stocked years April was key in
2004 and July in 1996. Our conclusion would be we continue to stick with a
program to begin to move 2006 cash corn in the month of March and with the
newest data above conclude in short stocked years July corn calls could be
bought as a form of reownership but be prepared to exit in April. For those
willing to be more aggressive in the month of Feb you could buy July corn
futures and hold into the month of July but be prepared for increased risk.
Let us know your thoughts about the above data. It's time to take action
with regards to your 2006 cash corn crop in the form of reownership and in
the month of March to be prepared to move corn inventory.

Technicals: For the short term trader, Allendale uses its own 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 bullish. We also include last weeks closing
price for the weekly chartist.

Observation: Healthy for corn and likewise for the soybeans is closing
above last weeks close and ability to push back above the short term MA's
which we will now use as immediate support to buy dips against. Only MGEX
March wheat futures are able to claim the same strength but CBOT and KCBT
wheat were able to push above the short term MA's were unable to close
above its pivot point to turn bears to bulls.

Soybean Fundamentals: The biggest surprise to the trade was USDA's need to
lower soybean exports by 20 mil bu to a new level of 1.1 bil bu even though
exports sales pace is 34% above yr ago levels and at 871 mil bu compare to
a three yr ave of 774 mil bu. More curious is how USDA despite raising end
stocks to a new record level of 595 mil bu, raised the season ave farm
price average by 10 cents. This suggest USDA is aware exports are likely to
feel competition from the pending S American harvest but futures and cash
prices are likely to rise as long as soybeans continue to try and not lose
more spring planted acres in the USA to corn.

Domestic End Stocks: The 595 mil bu of projected 2006-07 mil bu are 20 mil
bu more than the Jan estimate and are a record dating back to 1980 and are
59 mil bu more than the previous 1985 record level.

World Stocks: at 57 million metric tonnes, it is a record high amount
dating back to 1980. The previous record high was last years 52 MMT.

Soybean Seasonal Tendency: We focus on the old crop July futures 5 year
average seasonal tendencies as well as the ave national cash price.

Observations: Beginning with the five year average soybean futures, you are
able to see find a nearby peak between the months of April and May. They
then correct by 25 cents down into June but rebound in July by 15 cents
over the peak of the month of May. This gives us a better sense of timing
on the futures that it is the April-May time frame when we need to prepare
to utilize the strength in the futures.

In short stock years, in 1996, 1997 and 2004 the cash price has been
significantly better than in average stock years. These three years on
average find its peak in the May June time frame before falling in the
month of July. In the average stock years the national cash price continues
to find strength as it works into the month of July and suggest a 62 cent
carry from Feb to July which could actually be more than what a full years
of carry could be worth.
Allendale July 2007 Price Projection: our July price projection release Jan
20th of this year does suggest July soybean to reach $8 before the March
30th planting intention report, correct by 50 to 75 cents as we enter the
fields and make one last push to $8.50 before correcting one last time into
futures expiration by nearly a dollar. The conclusion for old crop soybeans
based on the cash price history suggest the month of May into June is
attractive and based on our price projections would coincide with the same
time period. If you would like to discuss the cash marketing alternatives
for your specific operation, please feel free to contact your Allendale

Wheat Fundamentals: No surprises here. USDA's WASDE report did not hold any
surprises that the trade was not prepared for. The major news for the wheat
is the strengthening technicals mentioned above and news out of India how
its wheat crop is becoming smaller and may have to import wheat. Levels to
be determined as the crop may have a shot of some beneficial rains by the
middle of next week. India suggest wheat imports may be needed regardless
of consumption exceeding production as inflation is on the rise.

Domestic End Stocks: The 472 mil bu of projected 2006-07 are unchanged from
the Jan WASDE and are 100 mil bu less than yr ago levels. You would
have to venture back to 2001 to find close levels of 491 mil bu.

World Stocks: At 120 million metric tonnes, they are 1 MMT less than the
Jan estimate. Only in 1980 and 1981 would you find fewer stocks of 113 MMT.
One yr ago, world end stocks were 147 MMT.

First you sell the grain (released on Thursday USDA weekly export sales and
shipments report), then you inspect the grain (released on Monday's) and
then you ship the grain (released on Thursday USDA weekly export sales and
shipments report). Inspections do not have to mirror sales. What Thursday's
report reveals is after the recent price break in wheat and small pullback
in cash corn prices, foreign buyers took advantage and rang the dinner
bell. These results are supportive to futures.

Sales Historical Tendency: From this point forward the historical tendency
for weekly export sales are as follows in million bushels:

Feb Mar Apr May June
Corn 38-42 30-45 35-40 35-45 28-40
Soybeans 12-15 8-14 8-15 8-9 6-8
Wheat 16-18 14-20 10-12 2-9 0-2

The trade likes to use the weekly export sales as a barometer of demand
when other key fresh fundamentals are lacking. The table above does show
how corn export sales from Feb through May have remained historically
strong enough to meet the minimum needed on a per week basis to meet this
years final export estimate. The same is true for wheat until we hit the
month of May and a reason why it will be important to move old crop off
farm before the month of May and April for soybeans.

Allendale Lean Hogs: With the light kill posted all this week and
Saturday's small 9,000 head planned run this week will run 3.4% smaller
than last year. We should be running steady to 2% more hogs overall. Cash
hog prices were mostly steady today as packers note a good sized early week
kill is expected next week but no one is reporting an avalanche of
supplies. Also keep in mind on the 19th Smithfield is planning on
temporarily ending the second kill shift at the Sioux City Iowa plant.
Total daily capacity for both shifts is 15,000 head. As noted this morning
the USDA report did not make many changes for livestock. A small reduction
in 2006 production figures pushed their 2007 pork production to 3.1% higher
from 3.0%. In other news recently released slaughter statistics are not
pointing to liquidation happening yet. The most recent six weeks of data
available averages sow slaughter to 4%. That's not implying the big push is
happening yet. Keep in mind producers are sitting on a good chest of
profits and could take a few months of losses before taking action. Overall
we are interested in working on very light hedges mostly for spring
marketings right now. We still feel that April contract is overvalued.

Allendale Live Cattle: As of this writing we have not been able to confirm
cash cattle trading on a live basis in the central and southern plains.
Action was seen in Nebraska over the last two days with Thursday's ending
price at $145 which is much better than the $138's sold last week. Live
basis trade in the north was reported at $91. The question right now is
whether Kansas through Texas will be able to trade there. We would assume
$90 is in the bag. Last week traded mostly at $88 though the last trades
were $89. In other news there was no market reaction from today's USDA
reports. 2007 beef production is seen 2.2% larger than 2006 which is
probably within most analysts expectations. Also of interest to the trade
is weather. Starting on Sunday and continuing through Wednesday most areas
in the plains have changes for precip of some sort. Whether it is snow,
rain, or sleet appears to be the main question. In other news US and South
Korean negotiators failed to agree on any changes needed on beef trade.
That should not have surprised anyone. Overall we feel the current rally
will note last too long. If you want to be bullish focus on the back months
rather than the February or April. This week we have started hedges but
only focused on marketings through spring.

Beginning Monday Feb 12th: Allendale's 18th annual "Farmers Prospective
Planted Acreage Survey" will focus on farmer's planting intentions for
corn, beans, wheat, and spring wheat this year. Farmers participating will
receive the results of the survey on March 2nd at 7:30 am via our "Early
Morning Call" page. USDA will release its prospective planted acreage
report estimates, March 30th at 7:30 am. The survey will span from Feb 12th
through Feb 23rd. Those wishing to participate may do so by filling out the
simple form

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.

Bullish to corn is tight world stocks and firm domestic and global demand. Bearish to corn is the trades concern of the number of large speculative longs and the ever apparent possibility they could leave the room without much forewarning.

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