Alaron Grains and Oilseeds Comment

CHICAGO - May 11/07 - SNS -- Following is the grain and oilseed futures comment from Alaron Trading Corp.

Corn:

Thursday's weekly export sales report showed 524 t.m.t. of corn was sold last week down 15% from the week prior with regular Asian customers in for 340 t.m.t. No surprise that importers backed off a little as they always slow purchased ahead of monthly USDA crop reports, such as this Friday as they use the carryover changed to adjust their near to long term purchasing strategies. Friday's USDA crop production supply demand report adjusted our carry over or ending stocks number for 2007 and our first look at 2008. Our carry over stocks are the amount of grain expected to be left over at the start of the new grain marketing year. September 1st and also comes at the start of a new harvest. Our September 1, 2007, carry over was put at 937 million bushels, up from pre-report average guesses of 878 and 877 on last month's report. Now, the interesting number came with the 2008 September 1st ending stocks at 947 m.b. only 10 m.b. more than this year and the second lowest ending stocks since 1975. Ethanol demand was the primary reason of consumption but let's put it in perspective and read between the lines. The USDA said we will plant 12 million more acres this year. Produce the largest corn crop in US history but the projected demand will consume all but 10 m.b. all of it is sold for feed, food or energy. Meaning if its too dry here or not, enough rain there, we are off to the races. large trading funds will ignore the acres and production number which is based on normal yields and trade weather's impact on yields and it is applied math to our 2008 ending stocks. Any weather problems and you can expect sharp rallies. Any weather problems at key yield development time and they will subtract production from our 2008 ending stocks while buying futures. Corn rallied in 2006 to steal acres from other crops and now needs to find a price high enough to find more acres to increase ending stocks for 2009 or high enough not to lose acres. price rations commodity. Get positioned on breaks for what could be a wild and volatile summer trading market.

Beans

Thursday's weekly export sales report showed 204 t.m.t. of beans were sold last week up from the negative reductions last week leaving us with no sales do to china switching shipping dates on previous purchases. China was in for 116 t.m.t. We are still seasonally slow but it is not bearish. Friday's USDA crop report put our 2007 ending stocks at 610 m.b. up 3 from pre-report guesses and down 5 m.b. from last month. with expectations to plant 8 m.a. less beans this year, they put our 2008 September 1 ending stocks at 320 m.b. That is a substantial drop but still a big ending stocks number. A low number historically is 120 to 150 m.b., but it is far from bearish, in fact it could not be more bullish. Beans have a mission in 2007 into 2008. First, beans need to find a price high enough to steal away or back acres to increase production to meet demand. If we plant this year's acres next year with the same demand our 2009 ending stocks will be only 30 m.b. If prices do not move high enough to find acres, then the price needs to be high enough to discourage over consumption and ration the crop. Either way, higher prices are certain and weather if bad will be a explosive element. Buy breaks.

Wheat

Before we move on to our latest reports and their meaning to the market, we need to address the confused state wheat seems to be in after the Easter week end freeze attached the winter crop. It is not uncommon that after a frost or freeze occurs the market over reacts with a surge up in prices. On talk of winter kill to the wheat only to find not so bad crop condition ratings in the following weeks leading to lower prices. Wheat's history is to end up always being better off than the initial reaction, but this time could be different. Here is what we know: about 60% of number one winter wheat producing state Kansas had temperatures below freezing for 12 hours and much of that in the teens. Oklahoma 25% and Nebraska 75%. The extremely low temperatures and length of time may have confused crop inspectors as we have not seen these numbers in such a broad area in modern times. You can not tell the true damage effect until the head is developed and this is where the question lies. At the time of the freeze, Oklahoma had only 13% with head development and Nebraska and Kansas at 0. Talking with some growers and insurance crop inspectors they noted that the freeze was so long, that the stalk or shoot may have been frozen and damaged. Not to allow the shoot to develop the head with grain and only time now will tell.... Since the Easter week end freeze we have seen the head develop further in Oklahoma by 75% suggesting, that crop portion hit is surviving, but Nebraska is still at 0 and Kansas only a 19% improvement to head development. If the next two weeks show little to no increase in head emergence, those crops are finished and an appreciable price rally will occur as traders subtract production numbers from government estimates. A hedge trade to do might be buying the July K.C. Wheat Futures 4.80 call on a dip to 12 cents or $60.. The winter wheat to come to harvest in June is delivered against K.C. Futures Exchange and the hard red wheat delivered on our Kansas City Exchange at 1.028 b.b. versus 682 m.b. a year ago. All winter wheat was put at 1.616 b.b. versus 1.298 last year. Here is what the government did. They lowered the soft red winter wheat off the Easter week end freeze damage as growers from Illinois east to Ohio either reported the acres damaged abandoned or plowed under. They will not wait to see if a miracle recovery occurs because there was just enough time to re-seed in corn or beans as they are right in the middle of the corn and bean belt. They left the western plains hard red winter wheat states alone with their higher production numbers based on normal yields. Even though Nebraska and Kansas were hardest hit by the freeze. Reason no adjustment lower. Growers at the advice of insurance inspectors are leaving damaged wheat in the fields in hope of a recovery, there fore the government can not subtract acres or production on a yet maturing crop. Two weeks from now, the insurance adjustors will begin paying out if the crop does not develop and then growers will either plow under and re-plant spring wheat or other crops or graze out to livestock producers and then the government will lower production on the next report. The next two Monday crop condition reports will tell the true story on this crop.

Tim Hannagan

Alaron Research Team

800.563.9510

thannagan@alaron.com

www.alaron.com

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