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It's all about grain weather

This week is expected to be hot. How
long will the heat stay? The range of estimates are, by the middle of the week to this weekend.

Two of the several public and private
forecasters we follow which have thus far have had good success suggest
both are in agreement the heat is reduced by Wed of next week and then
paves the way for notable rain the last full week of July. If they succeed
then look for the present shifting weather focus beginning to sway from
corn to beans to apply pressure to soybean futures. And wouldn't you know
well after when spring wheat needed the rains, are expected to receive rain
also beginning July 23rd. Friday's National Weather Service maps, released
after the close are viewed as bearish to corn, beans, wheat and cotton

USDA Crop Report Highlights: From Wednesday's USDA crop
production supply demand report, the high points are as follows. The biggest
surprise domestically is how USDA increased export potential for corn and
soybeans, even though our research suggest the USDA may have been correct
in increasing the sales section, the inspections and inspections suggest
USDA should have reduced both. As we only 7 weeks remaining in the
marketing year, shipments for both corn and soybeans are not likely to make
the department. And if the grain is not officially shipped by the end of
August, the physical grain is moved into next marketing year. For corn our
latest estimates suggest 70-80 million bushels may not be shipped with
soybeans at 26 mil bu. The other key highlight of the USDA report was how
projected global end stocks to use remain tighter than 2003 even though
world end stocks of wheat did show stocks building. If history should
happen to repeat itself, we look for futures to top near the March 2007
time frame. As it is then world wheat and corn producers are expected to
show plenty of signals they are ready to answer the production call as a
result of the higher than ave futures levels.

The Very Latest on Corn for Ethanol: interesting to not how USDA is
changing its tune regarding the corn demand balance. USDA has been of the
position where in order to meet the growing need for corn for ethanol, the
path of least resistance is to shift soybean acres to corn. Most recently
USDA is suggesting other possibilities include reducing corn for export and
allow other countries such as Canada, Mexico, Egypt (yes that Egypt)
increase its own corn production and place less dependency on USA supplies.

Other measures include increased competition from other products (corn
stalks in particular) to step up research and production to achieve the
Energy Departments 7.5 billion gallon target by the year 2012. Allendale
does estimate present and facilities under construction and expansion have
the ability to meet all but 1 billion gallons of the renewable target. Also
of interest is how attention is also given to increased production of
distillers dried grains as a competitive to soybean meal, protein feed

Corn Special Report: We have identified nine years dating back to 1975 when
corn acres increased a minimum of 500,000 but less than 2.5 million from
the March Planting Intention report to the June Planted Acreage report.

This year the adjustment was an increase 1.347 million. Our intention is to
discover what happens to Dec corn futures from the June acreage report into
Nov 1. We seek the high and low futures price level for Dec futures
spanning this time frame and what percent corn futures increased or
decreased from the June Planted Acreage report to Nov 1. We then can use
June 30, 2006 as the starting point and get more of a idea what the odds
are and by how much Dec corn futures could rally or lose by the time we
step onto Nov 1.

We were able to identify nine years when corn met the criteria
established above. Four of the nine years did occur from 1975 to 1980. Here
is what we have found; in seven of the nine years, Dec corn futures did
drop from June to Nov 1. Five of the nine years Dec futures did rally and
peak from July 1 to July 13th. The ave rally for all nine years from June
was 33 cents with a max rally of 81 cents and min rally of 1 cent. Tack the
ave 33 cent rally onto this recent June 30th Dec futures and it points to
2930. This years post June 30th rally high thus far was Wednesday's 2844.

Five of the nine years found the Dec low before Nov occurring in late
Sept-early Nov. Specifically in a range of Sept 20th to Oct 29th. Of all
years the ave low suggested a sell off of 41 cents with a max sell off of
77 cents and a minimum sell off of a quarter cent.

Specifically from the acreage and quarterly stocks report Dec futures
close jumping to Nov 1 suggest an ave reduction of 6.7% or projected to
$2.42. The projected % low before Nov 1 has been 13.6% suggested a Dec
futures low of 2240 and the percent rally between June and Nov 1 has been
11.9% projecting to 2910. Could Wednesday's rally high of 2844 been the
high for the parameters set above? Given the strong odds mentioned above of
55% of the highs occurring in the first half of July we would have to lean
towards yes.

In conclusion when looking at years when corn acres were added from
March to June odds suggest the rally more often occurs in the first half of
July with this years Dec futures projected to 2910. The odds of Dec futures
feeling pressure into late Sept-Oct when using the criteria stated above
are 77% with prices pointing to 2240, However by Nov 1, when looking at all
years the Dec 2006 futures may be destined more closely to 2420. Tonights
research could provide you with stepping stones into harvest as based on
the criteria set above does imply price pressure is likely leading from
summer into fall but by Nov 1 we do expect to see a Dec futures price of
near 2420. It is time to set this research into action. Please take the
time to contact your Allendale Representative to prepare old and new crop
marketings by calling 800 551 4626.

For the Week: winners from last Fridays close as they held weekly chart
support are both Sept and Dec corn futures. Sept gained 3.8%, Dec gained an
impressive 4.1%. Losers for the week include the wheat and soybeans as they
fell though last Fridays weekly closing price. Sept and Nov soybeans lost a
half a percent along with Minneapolis Sept wheat, Sept CBOT wheat futures
lost a quarter of a percent while Kansas City futures lost 2.3%.

It's all weather from here as corn is pollinating and
soybean pods will begin to fill in the first half of August. With stocks to
use this, futures and options action is expected to remain volitile and
with this volitility brings opprtunity as long as money is managed

No major reports for the grains other than the regularly scheduled
grain inspections on Monday along with crop conditions and progress report
and export sales and shipments on Thursday. Both the inspections and sales
and shiopment reports are expected to feel continued downward interest in
USA grains and oilseeds and foreign buyers are looking harder at new crop
supplies rather than old. The new crop wheat continues to perform poorly as
futures remain high and according to condition reports these poor hard red
winter wheat and spring wheat crops are viewed risky. Five year corn
pollination is typically at 41%, percent dough at 6%. Percent bloom for
soybeans is typically at 50%, setting pod at 13%. Winter wheat has a five
year average of 77%, spring wheat percent headed is 88%. The five year ave
for corn conditions according to our special reports section of our
internet site is 64% and soybeans at 61%. Weather is expected to be the key
driver for futures and the persistant link between energy prices to corn
and soybean oil futures. Both are expected to offer support as Middle East
and N Korean tyensions continue to underpin the crude oil and gasoline
futures markets.

Allendale Lean Hogs: This week the pork cutout, a measure of wholesale pork
prices, closed down 78 cents. Thursday the trade felt marketings would be
impacted due to the high temperatures forecasted. The mind set was packers
would have to chase some hogs to fill kill schedules. Today however, cash
hog prices were steady to lower. Last week's kill was up 1%. This weeks
kill was up 4.5%. The kill was not larger from packers chasing hogs and
running a big kill. It was larger simply because the supplies are there.
Based on current forecasts we continue to feel the heat will hurt pork
demand more than it will impact marketings. If the high temps last longer
than currently forecast, only then do we look for problems to develop. For
speculative trading we recommend selling August futures or selling August
calls with a risk in place. Our downside target for August futures is $66.
Hedgers are encouraged to lock up these high prices while they last.

Allendale Live Cattle: Live based cash cattle traded a big $2 lower this
afternoon at $81 and $81.50 in Kansas. We assume Texas is also following
suit. This is certainly a blow to the trade which was looking for steady to
$1 lower. CME futures, with a normal $1.01 basis for the week, were only
pricing in $83 trade! There is some talk basis over the next few weeks
could be wider than normal. Even if you make it a $2 basis CME futures are
still at least $1 overpriced. On the dressed end Nebraska moved its
supplies at $128 which is down $3 to $4. While the temperature forecasts
for six days out are changing every day the near term forecast still shows
very high temps through Monday or Tuesday depending on the location. While
this can be a big problem, if it lasts, for plains based feedlots we still
feel it is a bigger problem for outdoor grilling demand. The wholesale beef
trade shares our opinion and closed down every day this week.

Also negative, a shipment of US turkey and pork to Japan
mistakenly held beef material as well. Further details were released
throughout the day. The shipment was for around 1,200 boxes. One of them
was a 15 lb box of roast beef. It is small and a simple mistake but still
makes the US meat industry look a little foolish. With the sharp drop in
cash cattle noted above we still feel August futures are overpriced. Our
price objective for that contract is $80. Speculators are urged to sell
futures or calls, of course with a risk in place. On the deferreds our
models suggest the remaining 2006 contracts are fairly priced and the 2007
contracts may actually be underpriced. If given the chance to we would like
to buy these far deferreds at discounted prices such as the February at

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.

This week is expected to be hot. How long will the heat stay? The range of estimates are, by the middle of the week to this weekend.

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