Linn Group Morning Corn Comment

CHICAGO - Jan 16/07 - SNS -- Following is the morning corn futures comment from the futures commission brokerage firm Linn Group.

WOW!  That is really the only way to explain the market reaction to the
release of the USDA report on Friday as we saw corn trade to decade old
highs and close limit higher, 20 cents, all the way out to July08.  March,
May, and July opened limit and never traded less than 20 higher.  Traders
estimated there were 90,000 contracts limit bid in the March with the
synthetics pointing to the market being 22 cents higher from the limit or
418 ½.  The USDA report really caught a lot of traders off guard and no more
than the shorts who were caught.  The decrease in the bpa and the reduction
acres contributed to a much lower production number and lower ending stocks
and the increase in ethanol demand and an increase in exports.  Some traders
estimating that with this reduction in ending stocks, corn has to buy
another 1 million acres of corn.  The margin of error in corn this spring
will be magnified with the ending stocks we have today.  Fund activity was
even on the day, but that is deceiving because the limit up move wouldn’t
allow anybody to buy corn futures and forced some traders into the bean and
wheat market.  Options remained very busy as many attempted to trade the
synthetic higher futures via options.  Farmers sales were strong, as
expected the mover higher, but the farmer has already sold a lot of his corn
this year, so even higher prices probably won’t bring a lot of farmer
selling.

eCBOT market closed limit higher in the March contract after opening limit
higher, trading lower, then going back up and staying there around midnight.
Pools I saw on the screen this morning when it closed was around 3,000
contracts.  As expected with the futures being locked limit on Friday,
volume was huge last night, almost 85,000 contracts.  Commitment of Traders
report reflected what everybody thought last week, as the funds sold close
to 15,000 contracts to rebalance their positions.  The big picture for the
corn market points to a very tight world corn supply and very little room
for error in acres planted and yield.  The weather and crop conditions in
So. America remains excellent and that will keep some pressure on the corn
market, but not enough.  Today should be a very interesting day as we saw
the March corn trade last night, but close limit up.  Traders seem to think
we will see corn open limit higher this morning, but should trade off limit
sometime today.  These markets are very explosive and margin calls will
raise the stakes as many traders will have difficulty meeting margin calls
and many traders will be chased out of the market because of margin calls.

eCBOT Overnight

Contract            Last      Net Change       High      Low

ZCH7                416^4    20^0                  416^4    411^0

ZCK7                427^4    20^0                  427^4    421^2

ZCN7                434^4    20^0                  434^4    428^0

ZCU7                420^4    18^0                  421^4    407^4

Early Opening Calls: limit bid; follows strong eCBOT.

Top News

-- Corn spreads: 2,000 CN/CZ, Rand 1,000 CZ/CH, Fimat 700 CZ/CH, Man 800
CH/CN

-- The preliminary volume and open interest report shows Corn volume Friday
at 56,369 eCBOT, 127,536 pit. The largest volume of trade was in the CZ7 in
the pit at 54,962 contracts.  The open interest in CZ7 was up 10,656 with
all contracts up 16,355.

-- U.S. government forecasts a 3-week supply of corn - 752 mln bu. in August
2007, lowest level since 1996/97 crop.

-- Average corn prices expected to be $4.03 in 2007, compared $2.51 in 2006
according to JP Morgan analysis report.

-- European grain markets up sharply Monday, responding to gains in US ag
commodities - Euronext wheat +2.3%, corn posting strong gains as well

-- The Buenos Grain Exchange reports the 2006/07 Argentine Corn crop is 96%
planted and is in excellent conditions thanks to ideal soil moisture.

-- China and the Philippines signed a multi billion dollar agreement to
develop Philippine farm land and develop five Ethanol projects.

-- Chinese government officials stopped approval of new corn-based ethanol
plants in December,  in an attempt to ensure domestic availability.

-- Indonesian hospitals see dramatic influx of patients suffering from bird
flu symptoms, acc. to sources, as the virus continues to appear to spread in
Vietnam/Indonesia

-- The Commitment of Traders report with Options as of January 8 shows
Funds: Corn Long  246,335  off  35,490. Meanwhile, the supplemental report
shows Index Funds as of January 9: Corn Long 405,639 off 15,940.

-- OPEC Saudi member said there is no need for an immediate emergency
meeting of the cartel

-- Outside markets:  energies lower, metals mixed, dollar lower against most
currencies.

Cash Markets

-- CIF Corn:  Jan. +?? to +31, LH Jan. +?? to +34,Feb. +36 to +39, Mar. +42
to +44, Apr. +37 to +40, May +37 to +40, June +37 to +40

TREND:

The move in corn to 4.20 today does not show on the chart but we got a lot
of corn sold at 40 to 42 cents higher in H, K and N for customers
today---the farmer is still not bashful about what $4.00 a corn does for his
bank account. We can certainly keep going given a reason but as mentioned to
many over the last week---I am not able to see how this market ends the bull
run. We will have lots of signals that take the longs out of the market but
unlike other bull markets, I do not see a retracement. The breaks will find
huge support on trades to 3.50 and lower for years ahead. The growth in use
of row crops to replace petroleum supplies is just too big a story.



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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