Linn Group Morning Corn Comment

CHICAGO - Jun 16/08 - SNS -- Following is the morning corn futures comment from the futures commission brokerage firm Linn Group.

The corn market continued its assault higher on Friday as the rains and
flooding are finally convincing the market that we are going to see fewer
corn acres and the yields are going to be lower.  The July and December
closed 23 and 25 higher after flirting with the limit up 30 cents earlier in
the session and then selling off.  The corn market is finalizing punishing
traders that have not believed the hype on the excessive rain and what it
has done to prevent the corn market from producing average yields.  Flooding
has swamped many areas, causing corn to have be replanted earlier in the
season, but it is too late to replant corn anymore, so we are just talking
about lost acres.  It isn't just the flooding, it is the rain falling every
couple of days.  I was home this last weekend in NC Ohio and we aren't
flooded, but we are very wet and the corn just isn't growing and we have a
lot of ponds.  We don't have completely lost acres like IA, WI, and IL, but
we should have reduced average yields.  The fundamentals in corn haven't
changed, but then again, nobody knows the number of acres planted or what
the average yield will be until later in the season.  Good weather through
the rest of the crop year could bring in decent yields, but we can't make up
acres, those are lost.  Volume was big again on Friday at over 430,000
contracts and funds bot app. 10,000+ contracts on the day.

Overnight, the corn market continued to move higher as traders/analysts are
starting to get a better handle on the acres planted and are not getting
good numbers.  The deferred contracts, Mar09 and May09 both traded over
$8.00 overnight for the first time and the July and December both closed
almost another 20 cents higher, both about 7-9 cents off the highs.  The
corn market is rallying to new highs everyday and there doesn't seem to be
any reason that it won't continue until traders can get a good idea on the
number of lost acres.  The weather picture this week is better than it has
been in weeks, but the temps will be cooler than normal, preventing some
good drying opportunities.  The corn market is going to open in-line with
where it closed overnight and I would be surprised if we traded limit up
on/or near the opening.  The key will be if it can hold these highs or if we
see profit taking.  In talking to traders this morning, everybody wants to
talk about getting long and protecting their old sales.  It could be a big
day in corn.  Remember, crop condition reports will be released today after
the close.

Globex Overnight

Contract            Last      Net Change       High      Low      Volume

ZCN8                750^4    18^6                  757^6    736^4    4464

ZCU8                764^4    18^6                  772^0    749^4    1273

ZCZ8                 783^6    18^6                  791^4    769^0    5971

ZCH9                796^0    19^4                  802^0    790^0    130

ZCK9                795^2    14^6                  805^0    794^4    85

Early Opening Calls: 17-19c better

Top News

-- Chinese gov't import data suggest Corn imports rose only modestly in the
Jan-May period to 6,820 mt up 2.9% from same time year ago. Corn exports in
the Jan-May timeframe fell 97% to only 110,000 mt.

-- Ethanol producer, POET, Friday said it would not shut any of its plants
despite high corn prices & some plants running in the red.

-- Higher US ethanol prices has prompted a rise in Brazil ethanol. Some
Brazilian based analysts say this could be a window of opportunity to export
to the US.  However, a US based analyst for Citigroup doubts Brazil ethanol
imports could help make up any shortfall in US ethanol production to meet
mandates

-- Active Jan Dalian Corn futures contract rose 12 Yuan in overnight trade
to settle at 1,923 Yuan/mt

-- eCBOT Corn Vol: 362,720 ; Pit Vol.: 60,582 ; Open Interest change: +
6,226

-- Weather: 6-10 Day Forecast: Normal to Below Temps. Normal to Below
Precip. The Corn Belt will see chances of scattered light showers this week
off and on. Rainfall amounts and coverage will be much less than what we
have seen recently. Many areas will start to dry out and flood waters
recede.

-- Outside markets: Energy complex +0.59 at $135.45; Gold & Silver +8.8 at
$879.4 and +0.175 at $16787; US $ is trading down vs. Euro and Yen

Cash Markets

-- CIF Corn steady off 3. June +?? to +38, July +35 to +40, Aug. +32 to +36,
Sept. +36 to +40,Oct. +33 to +37, Nov. +34 to +39, Dec. +38 to +41

TREND:

My major concern continues to be the change in the bean complex that points
to a potential need to ration beans beyond what I see possible. Corn has
already started to slow ethanol production and the pressure in the Congress
for more mandatory control may be too much for the USDA to ignore. There is
also the ability to transfer a larger share of feed needs. Once the bean
market determines more rationing is needed, prices may be considerably
higher than they are today.

Based on conversations this week it appears we are already stretching some
country elevator borrowing lines of credit. If we learned anything when this
happened in wheat, it was that the selling in cash can overwhelm the markets
ability to absorb cash all at once. There is a great risk in basis
ownership.

For months you have heard us talk about the weaker dollar maintaining a
positive commodity outlook. The Current administration has talked a strong
dollar but every action has been just the opposite. That changed last week.
The chart at the right shows the turn with a close taking out last months
high. Need to build on this but it appears a turn is in place. If the turn
is confirmed, cost of imported goods would be reduced and the cost of
exports would go up for foreign consumers. The only tool at hand to ensure
this happens would be higher interest rates---higher than the foreign rates.
This may be difficult because others seem to be more genuinely concerned
about inflation than the US. But the move in the CPI up .5 pct is the
largest jump since last year. Stay tuned and be sure that borrowing cost is
fixed if at all possible.

If we are right confirmation of this pattern could be a slightly negative
input for most commodities but the weather picture on corn and beans fits
outside this arena for the coming several months. The arrows all point
higher. Corn is into an area where large corrections are possible but the
bean complex has all the signs of much higher prices coming



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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