Linn Group Morning Corn Comment

CHICAGO - Jan 9/07 - SNS -- Following is the morning corn futures comment from the futures commission brokerage firm Linn Group.

The corn market closed lower on Monday as the market continues to see
stories about fund re-allocation happening sooner rather than later and the
specs trying to get in front of that re-allocation by selling the market.
Exports were poor last week and weather in So. America continues to be
excellent.  All this negative news continues to weigh on the corn market and
even though users are buying these breaks, the funds are still the 800 lb.
gorilla in the room.  The funds are record long and even though a lot of
those longs are Index funds that won't sell out their positions, the huge
fund long position, possibly 50% of the open interest will make traders
nervous about buying the futures.  Traders also await the release of the
final 2006 crop production report, which shouldn't have too many surprises,
but will still have many traders squaring their positions this week in
anticipation.  Funds sold app. 5,000 contracts yesterday and 22.0 mil bu.
were inspected for export, well below the estimate of 35-40 mil.  The
Midwest continues to receive excellent moisture in the form of rain and/or
snow, replenishing many areas that we dry last summer and fall and improving
planting conditions this spring.

eCBOT market continued lower overnight after the release of the new
Commitment of Traders report after the close showed the combination of the
regular funds and index funds are 50% of the open interest.  In the past
when the market has seen that type of report, the market has been assumed to
be over bot and due a break.  The big difference today is the index funds
may re-allocate, but they will not be selling out of their positions anytime
soon, so you need to look at the regular funds which are still big.  Corn
traded below last weeks lows overnight and will probably find sell stops
today below that level, which could propel the corn market even lower and
with these big markets, breaks could be bigger than normal.  Look for the
market to open lower and probably get uglier from there until the market
finds a bottom, maybe trying to close the gap in the March around $3.50?
Technicians will point to a possible trend change and with that, we will see
more fund selling, initiating shorts positions.  I would be careful buying
breaks in the corn and would recommend buying Mar calls or call spreads if
you are looking to buy the corn market.  You can also look at the Feb
options as they are a lot cheaper, but have limited time left, but may be a
good play into the crop report on Friday.

eCBOT Overnight

Contract            Last      Net Change       High      Low

ZCH7                357^6    -5^6                  363^0    357^0

ZCK7                367^4    -5^6                  372^2    366^6

ZCN7                374^4    -5^4                  379^2    373^6

ZCU7                365^6    -3^4                  369^0    365^0

Early Opening Calls: 2 to 3c lower

Top News

-- An American Farm Bureau economist released estimates for the 2007/08 and
2008/09 Corn crops.  American Farm Bureau sees 2007 harvested acres at 79.2
million acres (86.5 planted), 2008 acres at 83.0 mil acres (91.0 planted)
For 2007/08 they forecast production at 12.1 bil.bu. and ending stocks at
699 mil.bu.  Meanwhile 2008/09 production seen at 12.9, ending stocks 637.

-- Export News: South Korea bought 20,000 mt. US Corn for May.

-- Export News: South Korea tendering for 110,000 mt. opt. org. Corn for
June/July

-- Taiwan trade officials say China has given them a verbal commitment to
sell Taiwan 300,000 mt. of Corn but also noted nothing is final. Taiwan had
been seeking 500,000 mt.

-- New 18-month highs in Asian freight rates - analyst cite increased
bookings ahead of Brazil's grain season.

-- Canada challenges US farm subsidies in WTO court, insisting the billions
paid to US farmers cause harm to other producers around the globe

-- Indonesian, Taiwanese, and Chinese firms reach near record $5.5 billion
biofuel compact to build new facilities in Indonesia

-- Funds all on the sell side Monday as re-allocation talk continued. Funds
sold 5,000 Corn.

-- The Commitment of Traders report with Options as of January 3rd shows
Funds: Corn  Long  281,825 off  15,573

-- Crude Oil trading lower  $55.07  off  $1.01

-- The Dollar is trading lower vs. the Euro , steady vs. the Yen.

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

-- Corn spreads: UBS 300 CH/CZ, Rand 300 CN/CZ, 200 CZ/CK, FCS 200 CZ/CH

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

Cash Markets

-- CIF Corn:  Jan. +28 to +32, LH Jan. +31 to +34,Feb. +38 to +40, Mar. +43
to +45, Apr. +37 to +40, May +37 to +42, June +38 to +42

TREND:

The Comm. of Traders has set a very negative bias to the trade overnight.
Some are calling corn 10 cents lower taking that much protection in cash
bids or have basis only bids for cash. The market is set up for a lower
trade again and one can expect the trend following systems will be selling
corn two fisted if we take out last weeks lows---so they may end up right
but it will not be because the index funds start selling corn because
everyone knows how long they are now?

Wheat/corn into new lows and wheat has no friends. Starting to see more cash
demand in hard with basis gains small so far.

Same in corn with some domestic values 5 to 10 higher than last week. I see
this as a reason to come back to the bull spreads in corn. They may have
widened enough for a time---buy H/N at 16 for a trade back to the
highs---maybe further



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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