Linn Group Morning Corn Comment

CHICAGO - Sep 13/06 - SNS -- Following is the morning corn futures comment from the futures commission brokerage firm Linn Group.

Corn Update:  Well, the corn market got its bear crop report and the market
reacted in typical fashion with fund selling and commercial pricing.  The
USDA report of the 2nd largest crop on record was enough to get fund
liquidation and new shorts being added to the corn market.  Volume was
pretty heavy and we saw the open interest increase significantly, inferring
new shorts.  We saw a lot of put buying and call selling in the options pit
which kept the pressure on the corn futures.  As soon as the crop report was
released, talk around the markets was that the actual yield will be
increased in the Oct. report.  With harvest right around the corner, the
bearish report compounded the pressure on the market from the harvest.  Some
bull traders will point to the variable yields we are bound to see and want
to wait until we have 40-50% of the corn harvested before we start making
yield and production predictions.  If these yield numbers stay the same or
get bigger, some analysts feel this could have implications for 2007 and
2008 crop years because this big number is raising the possibility of a
bigger increase in trend yields.  Funds sold 5,000 contracts, but might be
closer to 10,000 contracts with the trade going through eCBOT making it
harder to track who is buying and/or selling.

eCBOT overnight market was lower overnight on good volume as we saw 11,000
contracts traded.  Traders look for probable carry over from yesterday and
possible test of the lows in the Dec.  It looks like we saw new shorts come
into the market yesterday as we saw open interest increase over 16,000
contracts on a down day.  My opinion is that with the huge index fund longs,
the fund position in artificially long because these funds are never going
to sell their positions.  Traders will look to see if we have the funds back
in selling the market this morning or if we will see some short covering
along with some producer pricing to support the market.  As one veteran
analyst reported yesterday, along with the higher yields, the USDA report
showed higher usage, which makes our carryout about the same as it was
before the report.  That is important, especially if we don't get the
increase the market is pricing in for the October report or if the yield
comes in below the September number because of the highly variable yields.
Look for the December contract to find support if we get down to the $2.30
area which would be new lows, but future demand by exporters and producers
will demand they buy down at those prices.  December corn is probably in a
range trade unless we get some dramatic report that tells us the yield is
too high, but I still think the CN7/CZ7 spread.


eCBOT Overnight
Contract            Last      Net Change       High      Low
ZCU6                222^2    -1^2                  224^0    222^2
ZCZ6                 236^4    -1^2                  238^0    236^0
ZCH7                251^0    -1^4                  252^6    251^0
ZCK7                259^6    -1^2                  260^6    259^4

Early Opening Calls: mixed

Top News
-- The USDA September report came in with production numbers at or above
trade estimates while ending stocks came in at or below trade estimates. The
drums were already beating  within minutes of the reports release that
history says yields will get larger in the October report.
-- Funds all on the sell side again Tuesday.  Funds Sold 5,000 Corn, 2,700
Soybeans, 5,000 Wheat,  3,000 Meal, 3,500 Oil.
-- Corn spreads:  Man 6,000 CH/CZ, ADM 1,000 CH/CZ, JPM 500 CZ/CH, Tenco 500
CZ/CZ7
-- Volume was 222.9, with open interest up 16.7 to 1320.8
-- 6-10 day forecast showed normal to below and above normal precip
-- Outside markets:  Metals are higher, energies are higher, dollar weaker
against the Yen, steady against the Euro.

Cash Markets
-- CIF Corn  steady up 2.   Sept. +57 to +60, LH  Sept. +58 to +58, Oct. +60
to +65, Nov. +60 to +65, Dec. +61 to +66, Jan. +51 to +55, March +52 to ??.
NS Corn: Sept. -18, FH Oct. -23, LH Oct. -15, Jan/July Option. Evansville
CSX  +4Z

TREND:

The wheat market has collapsed into a 50% correction at $4.03 on Dec which
shifts this trade back to neutral. Look for problems from $4.07 to $4.09.
Expect a test of the $3.96 gap which should extend the slide to the $3.90
level. We've lost the bull momentum here and the Dec wheat/Dec corn also
suggests more weakness with a run into the $1.55 to 1.60 range on this
swing. However, KC Dec looks even more ominous if we take out the August
lows at $4.54. That would project a slide to the $4.27 level. For the
moment, look for a run at $4.55. We should find selling from $4.75 to $4.77.
The KC/Chicago spreads basis the Dec has bounced off support at 60, that's
the key to another slide. Topside resistance shows at 70.

Corn has a new low close for the move which should force a test of the
contract lows at $2.33 ½. We could see a quick drop into new lows but would
expect the $2.30 level to handle the break. Can't sell into this break in
the corn market. We could see a $2.30 to 2.45 range develop but better to
sell the Dec(07) corn with downside counts to $2.71 ¾. Expect problems on
any 2-3 cent bounce. Major resistance shows at the $2.90 level.

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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