Linn Group Morning Corn Comment

CHICAGO - Sep 5/06 - SNS -- Following is the morning corn futures comment from the futures commission brokerage firm Linn Group.

Corn Update:  The corn futures closed very predictable on Friday, lower, as
we saw the market settle back before the long holiday weekend, vacationing
traders and seasonal harvest weakness.  With the markets closed Sunday night
and Monday, the market decided to take some profit and sell off on light to
average volume.  Harvest will again become the focus of the corn market as
many traders look for a corn crop that should be the 3rd largest on record,
even if it isn't as big as the USDA predicted back in their August crop
production report.  As we have been saying for weeks, any gains in the corn
market are going to be limited by the approaching harvest and selling in the
corn market will find commercial and ethanol producer buying because of
future demands and exports remaining strong.  So. Korea was in to buy more
US corn on Friday as we continue to see this scenario almost daily.  Some
talk on Friday that the drought in China is getting worse and that China may
be importing corn by early 2007.  This could be the reason So. Korea is
trying to get US corn bot for December delivery?  Funds were marginal on
Friday, selling 1,400 contracts.

eCBOT corn was pretty active overnight, almost 11,000 contracts, as we saw
corn close 3 ¼ higher.  Market reacting to private analysts estimates that
came in after the close on Friday and continued rhetoric out of China on
corn.  FC Stone and Allendale both released corn production estimates on
Friday afternoon and both estimates were below the USDA August estimate.
Exact estimates are listed below, but many of the analysts are backing off
their predictions from a couple of weeks ago that we would see near record
yields in the East, those lowering overall yields.  News out of China late
on Friday has the 2006 corn production lowered 1.0 MMT and their news agency
reporting the worst drought in the southwest China since 1891.  Probably
most important was more talk of the expanding corn processing business will
require China to import corn in 2007.  As we have found in other
commodities, China is such a large consumer, it can dictate which way
markets are going to go and corn in no exception.  Domestic and ethanol
demand will help eat up inventories, but exports will be a main price driver
and China is the key to any exports.  Not just the possibility of China
importing corn, but the fact that they will not export corn will propel US
corn prices.  Without China exporting corn, those consumers will have to go
somewhere else and that destination is probably the US.  Wheat was also
higher overnight and as we have seen, buying is spilling over into the corn
market.  If wheat continues to go higher, corn will follow.


eCBOT Overnight Markets

ZCZ6   high-249 ¾, low-245, open-245 ¼, close-249, up 3 ¼


Early Call: 2-3 higher


Top News
-- China's National Grain and Oils Information Center has lowered their 2006
Corn production estimate 1.0 mmt to 141 mmt. This compares with 139.3 mmt in
2005.
-- China's Xinhua news agency reports the drought in southwest China is the
worst since 1891. They also report grain output will remain the same as last
year due to good early summer crops.
-- More talk out of China Friday about the ever expanding Corn processing
industry and the thought that China will have to import Corn in 2007.
-- Exports: South Korea bought 55,000 mt. opt. org. Corn for Jan.
-- The Commitment of Traders report with Options as of August 29 shows
Funds:  Corn  Long  115,296  up  4,464
-- Fairly light Fund trade Friday. Funds   Sold 1,400 Corn, 800 Wheat, 500
Soybeans, 1,000 Oil.  Bought  300 Meal.
-- FC Stone production estimates:  Corn  yield  151  production  10.887.
Meanwhile, Allendale estimated:  Corn  yield  150.8 with production at
10.887.
-- Corn spreads: Fimat 10,000 CH/CZ , 500 CU/CZ, Tenco 700 CU/CZ, 500 CZ/CU.

-- CBOT Deliveries: Corn 2,700 thru 9/1/06  no stopper
-- 6-10 day forecast shows normal to below temps, above normal precip
-- Volume was 188.4 with open interest down 3.7 to 1313.5
-- Outside markets:  Crude down .75-1.00, metals up strong, gold $12 higher,
silver 25 cents higher, dollar mixed, higher against the Euro, lower against
Yen

Cash Markets
-- CIF Corn  steady off 1.   Sept. ?? to +54Z,LH  Sept. +58 to +61, Oct. +62
to +64, Nov. +62 to +65, Dec. +63 to +66, Jan. +51 to +55, March +51 to ??.
NS Corn       Sept. -3      FH Oct. -26  LH Oct. -20  Jan/July -2
Evansville  CSX  -11Z



TREND:

The September contract goes off the board in less than two weeks(8 trading
days), and once this happens the charts should become even friendlier. This
should take away any big downside potential in both the beans and corn, even
with harvest approaching.

If you have any questions or want to discuss specific trade recommendations,
contact me directly.

Jim Riley
Linn Group
877-787-6278
jriley@linngroup.com
www.linngroup.com/

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