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Farmers, check your bins

Market Summary: Originally posted Friday

Corn: This morning's news that China was restricting monetary policy was viewed as bearish for all commodities. For the second time in a month (January 12), China ordered banks to increase their reserves by 0.5%. Large banks are now required to hold 16.5% and small banks are at 14.5%. This move was made to help slow the country's growth and the potential inflation it may cause. Their government indicated lending in January, equating to $200 billion, was 20% of the country's lending target for the entire year. Again, in one month (8% of a year), banks already had lent out 20% of the entire year's target.

Indirect Ties: Really, there will be no change in corn demand whether China's GDP grows by 9% or 6%. There is an indirect relationship though. A lower growth in China could mean lower than expected demand for commodities for their building and industrial boom. That means lower demand for crude oil and other energy products. Corn is tied directly to energies through its ethanol. We must remember, the value ethanol returns to corn changes directly with the price of unleaded gas and other energies.

Corn Sales: This morning's weekly export sales report was within expectations. Earlier this week, USDA dropped their estimate of total year sales by 50 million to 2.000 billion bushels. After compiling recent weeks of sales, it appears they will need to lower exports again next month. Year to date corn sales are down 11% from normal. USDA's export hope, at 2.000 billion bushels, is only down 4% from normal. That means, to meet USDA, we miraculously have to run 9% better than normal from here on out. The problem is, the last three weeks have run from 4% to 43% under normal. USDA will have to revise exports lower again next month.

Changing Its Tune: Last Thursday's announcement from the EPA about corn being cleaner than gasoline was important. Tuesday's supply/demand report brought US ending stocks down from 1.764 to 1.719 billion bushels. On the March supply/demand report USDA will release its re-survey of corn left in the field. We would guess they will revise corn production lower by 50 to 100 million bushels. They will offset some of that with a 25 to 50 million bushel reduction in exports, as detailed above. That means, in March, it is possible to see corn ending stocks dip into the 1.6's.

Markets Closed Monday: In observance of President's day, there will be no trading on Sunday night or Monday during the day. Trading will resume Monday night.

The Message: Today's bad China news but resulting rebound by the close was further proof bulls are taking a more active approach. It also reaffirms our neutral (not bearish) market viewpoint. While corn has stopped going down, it really has not gone up yet. It is hard for bulls to take over this market. There will be a good deal of cash corn being dumped on this market soon. Warmer temps will bring on spoilage. Also, the trade is concerned about acreage. Allendale estimates planted acreage will increase by 4.4 million in 2010. A second firm estimates they will be up 3.2 million. USDA's thinker's will give their take on acres next week, on the 18th and 19th, at their outlook conference. To get bullish, May corn needs to break this week's 376 3/4 and last week's 379 1/2 highs. We are neutral.

Producers, Check Your Bins: We are hearing more reports of corn going out of condition in just the last two weeks. Though temperatures have not moved above freezing, some producers are telling us corn that was checked two weeks ago, is taking a turn for the worse.

Trade Recommendation(s):
· (02/10) Buy May 365 1/4, risk close below 356, objective 385.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Corn traded both sides of unchanged today and in between the 10 & 20 day moving averages. This was a neutral finish to the week. We remain short from 3.68, with a stop at 3.75…Monica Moehring

Vital Technical Indicator: the next projected major turn day is February 16.

Closing Cattle Commentary

Live Cattle: A great success was enjoyed by cattle feeders this week. Yesterday afternoon and this morning Nebraska sold dressed cash cattle $3 higher at $140. Texas traded live based cattle $2.50 higher at $89.50. Kansas traded cattle $2 and $3 to $89. These are the highest prices since the last week of November of 2008! It also affirms the fact cash cattle have started their seasonal run a little sooner than normal. Typically cash cattle push higher from mid February to mid March. This year’s run started in late January. Having said this good news, the market told us clearly we should not get used to these types of cash cattle gains so soon. For trading, we view 92.00 as the higher end of the potential trading range on the April. For hedges, we will start at 92.00 and continue to work on the June and August. This little bull market typically lasts into mid March or so, let’s not get carried way.

Working Trade(s):
· (01/29) Sold April 86 put/sell April 92 call 2.30, risk to 3.20, objective 0. Closed 1.75.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Cattle closed the gap at 91.80 from last June today. This market is very overbought now and due for a correction. A close below 62% might be a sell signal, but we'll stand aside for another day…Monica Moehring

Vital Technical Indicator: Next projected major turn day for live cattle is February 19 and for feeders is February 26.

Rich Nelson
Director of Research
Allendale, Inc
4506 Prime Parkway
McHenry, IL 60050

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Market Summary: Originally posted Friday

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