Alaron Grains and Oilseeds Comment

CHICAGO - Feb 2/07 - SNS -- Following is the grain and oilseed futures comment from Alaron Trading Corp.

Corn:

Thursday's weekly export sales report showed 797 t.m.t. of corn was sold last week off 20% from the week prior, 23% under a strong four week average and well under a year ago of 1.3 m.m.t. Sales to Asian markets were 375 t.m.t. versus 513 the week prior. Asian sales account for 70% of our exportable feed grains, so those sales watched closely. The softer week on week sales look to be the result of some caution due to recent outbreaks of bird flu in Asian markets. The view as temporary as corn for fuel looks to more than average out feed demand aberrations. We aw large trading funds taking month end profits by selling some of their massive long positions Monday into Tuesday's open, then again off Wednesday's end of month high. February into March looks to put a heavy weight on the shoulders of March corn. Though there is much talk of 5.00 plus corn eventually in 2007 we have to consider corn's mind set into February and march. Large trading funds are holding a record long corn position with much of it in march futures. to avoid getting a delivery notice, March longs need to sell out before Feb. 28th, and of course March carries the threat that the March 30th planted acreage report will show from 5 to 11 million more acres will be planted. The new crop to be planted is delivered against the Dec. futures contract, so we can not expect everyone to rush to sell March futures and buy December. It appears March sells will turn into buys for Nov. beans which I will discuss on my bean commentary. Though this theory has a negative pricing mind set to it, we have to stay long term bullish overall in 2007. Even with considerably more acres and production it is only to keep up with our government's mandate to expand our bio-fuel production and move away from fossil fuels. Ignore those who attempt to use cost efficiency theories to discourage renewable fuel crop sources as their math falls short of what a real barrel of oil costs. When determining crude oil to fuel the biggest multiplier is the cost of our military input in protecting and securing oils flow. This is billions times billions of dollars. Real value is often disguised. Expansion of ethanol plants will continue through 2007 before leveling in 2008. In the near term May corn has support at the bottom of the Jan. crop report gap at 3.90 and resistance at 4.34 and minor resistance at 4.20. Any dips into the gap between at 3.90 area should be bought, especially Dec. futures at 3.74 to 3.80 area. Conservative long term option players can buy the Dec. 4.00 call and sell a Dec. 5.00 call for 20 cents or $1,000 with $5,000 potential.

Bean:

Thursday's weekly export sales report showed 677 t.m.t. of beans were sold last week up 10% from the week prior, 3% over our four week average and over a year ago of 446 t.m.t. Not bad, but I am concerned about key player, China, in for only 177 t.m.t. versus the two preceding weeks of 260 and 454. Seasonally demand slows into May as South America's crop comes to harvest flooding export lanes with what appears to be record production this year. Slowing export out of Brazil, could be their governments talk of holding back beans to satisfy their appetite for bio-diesel fuel production, where they lead the world in effect. This would require more beans held back to be crushed for the oil for the fuel. I still like beans as the grain of the year leader. Where 2006 saw corn going up on talk of 2007 unveiling sharply lower ending stocks due to ethanol demand and beans going up with it in hopes of not losing acres to corn's need, 2007 will hear nothing but how dramatically lower soy bean ending stocks will be come 2008 as a result of sharply lower planted acres and world record demand for high protein vegetable oil crops and of course corn will follow beans as corn looks not to lose the badly needed acres they found this year at beans expense. Once corn and beans settle in on gardening as many US acres as our land here can yield, the rest will be made up by production of US owned acres in Brazil. Large commercial US exporters continue to clear land for planting in Brazil at a record pace and with over 480 m.a. available to clear its supply of production. Our bio-genetic seeds will do well on yields in what is generally considered a low yielding sandy soil. I look for much of the long March corn liquidation ahead of Feb. 28th deliveries and our March 30th planted acres report to show 4 to 8 million less acres of beans to be planted to roll into Nov. new crop futures. One other issue of concern will be the proposed Feb. 15th nation wide truck strike in Argentina in protest of frozen rates. Needless to say, a lengthy strike would slow movement of a grain from field to shipping ports as rails are almost non-existent. These types of strikes show up every year it seems, by truckers and shipping port workers, but generally end quickly as those jobs are the best paying and sought after by their labor force. Keep it in mind. Near term May beans have support at 7.34 then 7.10 with resistance at 7.44. November new crop has support at 7.70 then 7.58 with 7.82 resistance. I still like buying a Nov. 800 call, selling a 10.00 call and selling a 7.00 put. The put margin is about $900.

Wheat:

Thursday's weekly export sales report showed 560 t.m.t. of wheat was sold last week up from a low 246 the week prior and 55% over a weak four week average. As I have noted before, wheat has one good weekly sale every third or fourth week then a fall off. The better weekly sales came from Asian feed quality wheat purchase and three week lows on wheat prices. also pulling us off our Monday lows were the talk of an incredible cold blast sweeping across the Midwest dormant wheat field this week end through most of next week. Hats off to wxrisk.com the weather site who saw this first and warned us to it coming in early last week. Nothing has changed for wheat. Planted acres here and abroad suggest record crops if weather cooperates. Even Australia seems to be turning wetter now that El-Nino is fading. Wheat has lethargic demand at best. It is only hope for a near term rally is in a follower's roll to corn if it rallies. Wheat's at its weed stage while dormant so winter's chill and storms can not hurt it while limited to only fear rallies that will fade. Wheat captures its own mindset next month in March when dormancy begins to break in TX and OK.

Tim Hannagan

Alaron Research Team

800.563.9510

thannagan@alaron.com

www.alaron.com

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