Linn Group Morning Corn Comment

CHICAGO - Jan 4/07 - SNS -- Following is the morning corn futures comment from the futures commission brokerage firm Linn Group.

The corn market finally had the selling that many traders had been
predicting going into the New Year, with the March contract touching limit
down at the end of the day, shedding over 5%.  Traders said the funds were
in selling the market starting on Tuesday night and didn’t let up until the
final bell rang at the end of the day.  At the end of the day, funds sold
close to 15,000 contracts, with open interest was up over 7,000 contracts.
New shorts may be the answer to the increased open interest.  With the open
interest at near record levels and $4.00 corn, these types of breaks are
going to happen, it is just part of big markets, but I don’t think most
people expected it to happen in one day.  The talk on the floor was the
funds rebalancing both their corn and wheat positions, coming out of some of
their grain positions for 2007.  In fact, almost all commodities took
significant hits yesterday, with talk of funds selling many commodity
positions to put the money into the equity market.  Positive moisture in the
central plains helped push wheat lower, and the weather and forecast in So.
America is excellent.  As one trader said, it is tough for corn bulls to
find any good news except demand for corn.  Technicians talking about all
the moving averages that were blown through with yesterday’s sell off, but
we are approaching the 50 day moving average in March and we haven’t closed
below the 50 MA since September 20th.

The eCBOT market continued the sell off that started on Tuesday night with
the March closing down another 4 ½ cents.  Volume was pretty good overnight.
The USDA announced corn sales to Mexico and China this morning, but weekly
export sales are delayed until tomorrow morning because of the holiday.
Traders seem to think the market will find support on a lower opening today,
but the outside markets are all down again today so that may hamper the
grain markets.  The sales to Mexico and Egypt this morning further point to
corn being a demand market and the activity bumps up on any break.
Remember, we were down some 20 cents yesterday, but the market is still only
20 cents off the highs.  More talk this morning that one of the big index
funds is going to be shifting its position out of the corn market helping to
push the corn market lower as some traders try and jump in front of this
position shift.  Calls this morning will be inline with last night close of
4-6 lower, but many traders expect the market to find buying down there as
many traders were afraid to buy yesterday until they saw why type of trade
was coming into the market.

eCBOT Overnight

Contract            Last      Net Change       High      Low

ZCH7                366^0    -4^4                  371^6    365^0

ZCK7                375^0    -5^0                  380^4    375^0

ZCN7                381^2    -4^0                  386^6    380^0

ZCU7                369^4    -2^0                  371^0    369^4

Early Opening Calls: 4-6 lower

Top News

**Reminder:  Weekly Export Sales delayed until Friday @ 7:30 am due to
Holiday week

-- The preliminary report shows a big trade in Corn yesterday with
electronic volume reported at 128,793 contracts along with the pit at
109,578. Corn open interest was up 7,204(new selling).

-- Chinese Soybean, Meal, Oil and Corn futures closed sharply lower.

-- The cash price of Corn in China continued to firm in southern and
northeastern areas.

-- Funds hit the sell button to start 2007 Selling 15,000 contracts of Corn.

-- Analysts:  Brazil may export 5 million tons of corn this year, most since
2004 - Iran expected to be major buyer

-- Renewable Fuels Association: Plants under construction make up 66.4% of
ethanol facilities; 83 mil bu of additional corn needed each month to meet
rising demand from this sector

-- Farmers in Kansas/Colorado mount a rescue effort for cattle stranded by
bad weather, dropping hay and other feedstuff from the air, acc. to
producers - too late for many as livestock deaths continue to climb

-- The Japan Federation of Commodity Exchanges announced today that TOCOM
volume was down 49% Y/Y, and volume on all exchanges fell 18% for the year.

-- Britain’s Meteorological Office is forecasting 2007 to be the hottest
year on record worldwide.  They look for worldwide average temperatures to
push above the record set in 1998.

-- Corn spreads: JPM 2,300 CH/CK, Rand 1,000 CN/CH

-- Volume was 249.4, with open interest up 7.2 to 1411.6

-- 6-10 day forecast shows normal to below temps, normal to above precip

-- Outside markets:  metals slightly higher, energies lower, dollar stronger
against major currencies

Cash Markets

--CIF Corn:  Jan. +28 to +30, LH Jan. +33 to +35,Feb. +39 to +43, Mar. +42
to +44, Apr. +38 to +42, May +38 to +42, June +38 to +42

TREND:

Lot of questions about why we did this today. Over bot and needing a
correction in corn is the best answer. All last week the feeling that
farmers have planed to expand corn acres enough to take away some weather
risk is the driving force for the weakness in corn. Chi wheat remains my
favorite short leg and see no reason to change this.

Late last week I suggested selling corn straddles or strangles against
buying beans. That trade is still good this week but take the strike lower
in corn. Selling CZ 260 puts and 270 calls for 72 cents vs. buying beans 13
to 14 cents lower than Fri trade still fits with my concern that the loss of
bean acres will hold the bean complex better than corn.

Wanted to be more aggressive selling CZ7 but still did not get to my targets
last week. The spot corn market is already down into levels the commercial
will use for pricing. Remember a demand driven market will always give the
user buying opportunities—he just has to take advantage. Corn can go another
10 cents lower but use this break to extend coverage past next summer. Take
note the bull spreads in corn continue to weaken. Firming cash on lower
futures could support the spread some at this level. If you are still there,
has to be a long term trade. Our bear spreads in wheat continue to race
ahead of the corn spreads keeping equity from falling as much as corn
spreads alone would imply.



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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