Alaron Grains and Oilseeds Comment

CHICAGO - Aug 8/08 - SNS -- Following is the grain and oilseed futures comment from Alaron Trading Corp.

 This report is the most anxiously awaited report of the year.   It is the last real chance to appreciably change the eventual production numbers for corn and beans.   Here is what led up to this report:   Each year the USDA comes up with its March 30^th planted acreage “Intensionâ€� Report.   This report is an estimate of how many corn and bean acres farmers “intendâ€� to plant based on USDA extension surveys.   The report suggested farmers “intendâ€� to plant based on USDA Extension Surveys.   The report suggested farmers would plant 86 m.a. down 7 m.a. from the year prior.   If you plugged the current supply demand outlook for 2008/09 in and apply the trend line yield of 154 b.p.a., it would leave ending stocks next year at a dangerously low 620 m.b. from 1.6 b.b. this year; leaving no room for growing season problems.   Soybean acreage was estimated to be 74.7 m.a. vs. 63.6 the year prior or about 11 m.a. more to insure with this year's low ending stocks, we would not run out in 2009, yet record world supply demand tables suggest ending stocks would only improve 40 m.b. in 2009 vs. this year.   Next came the yearly June 30^th final planted acreage report, traditionally being the USDA's final numbers as usually is finished with final farmer polls in.   Corn was pegged at 87.3 m.a. up about 1 m.a. from the March report and beans at 74.5 m.a. almost unchanged.   This shocked the trade as expectations were that we would see a decline from March 30^th- after record rains the first two weeks of June lent thought that flooding left acres either unplanted, or not re-planted.   Here's the controversy:   The government survey for the June 30^th report was believed to have been completed by June 10^th.   The first two weeks of June saw record rain totals in the western grain belt of Iowa and Nebraska as well as Southern Wisconsin and most of Illinois.   Each night on the national news we saw pictures of endless flooded farm fields in Iowa, Southern Wisconsin, and Central Illinois.   As the rains subsided the after flow into the Mississippi the following ten to twelve days.   This saw a three hundred mile stretch along the Illinois/Missouri border seeing many levees breaking with more valuable farm land looking like oceans and only barn roofs above the water.   This left traders wondering how the USDA on its June 30^th report could be correct.   The USDA did a quick survey again into early July but admitted getting hold of farmers removed from flooded farms to find out if they eventually re-planted was impossible.   The trade believed the June 30^th report numbers were just a review of planting intensions from the March 30^th report.   The USDA did not want to guess, so they set up the August 12^th Monthly Crop Report to give its final number as surely that would allow time for an accurate survey.   Regardless of what the report says, the market always trades fear before fact.   The fear is that all those fields that were heavily under water in parts of Iowa, Wisconsin and Illinois declaring towns and areas a natural disaster, the fear is they could not have dried up before it was too late to plant.   Also, there is a chance the report could cut corn and bean planted production 1 to 3 m.a. or more from the June 30^th report.   This could lead to corn ending stock for 2009 at 300 m.b. or lower and beans at 60 mb. or lower worse case scenario.   Needless to say, that would send both markets into supply side price rationing possibly pushing us to new highs on the year “if acres are low enoughâ€�.   There is a downside to this report.   When spring planting began corn and beans saw measurable delays in field work.   Even as the rain totals mounted, farmers seemed to get into fields getting work done when it seemed impossible.   The high prices for both corn and beans at planting seemed to have farmers planting between the rain drops, knowing this was going to be the most profitable crop in history.   This makes us think maybe the June 30 report is not far off as growers may have simply planted previously flooded land even though traditional planting psychology said it was too late to plant.   Yields would be miserable.   The math does show that half a yield at 14.00 per bushels is equal to a full yield at 7.00 per bushel.   Additionally, the USDA Secretary of Agriculture Ed Schafer may have tipped us to the August 12^th report when on July 29^th he said the June flooding did not do as much damage to crops as feared and it will not be necessary to free up land from the conservation reserve program that farmers are paid to not plant on.   This is land considered environmentally sensitive.   Surely he must have come to such an important dissipation only after review of the recent farmer's poll on acres planted to be released next Tuesday.   If farmers were indeed diligent in planting previously flooded lands, regardless of potential yields, we could see an increase in corn's ending stocks from current estimates of 833 m.b. to 1 b.b. or more and beans to safer levels as well.   This could lead to a sharp supply side break before cash harvest demand re-enters.

The September corn options expire August 22^nd.   It will give you about nine trading days to profit from “Upon the August 12^th Report releaseâ€�.   Buy the September 5.35 call.   It settled at thirteen cents $650. today.   If there is a bullish surprise on the report we could easily see a move back to 6.10 or much higher depending on the level of the surprise.   If you do not have a lot of money invested and more than ample time to price in a bullish report and with the low level of pricing were at now, it would not take much of a surprise to get there.   I am looking at this price as a beginning price to reach, on a bullish report, not a maximum- if the report is bearish.   Meaning an increase over the June 30^th report of 87.3 m.a. planted.   We could see 4.25 tested, especially with the current weather outlook of wetter and cooler temperatures through mid August.   A neutral report or unchanged acres “tooâ€� could give us a similar low within the nine trading days after the report, especially if index funds continue to reduce what was a record long position, currently at about 350 thousand long positions.   Consider buying the September 5.00 put currently at eleven cents $550.   With a thirty cent limit moves everyday in the futures, the call and put strategy makes sense.  

Like the September corn options, the September bean options too expire August 22^nd giving us more than enough time to profit, especially considering that a report like the August 12^th planting report almost always gives a sharp move one way or the other.   The June 30^th report pegged acres at 74.5 m.a. anything over is bearish and under bullish.   Consider buying the 13.00 September call it settled today at seventeen cents $850.   Even a mildly bullish surprise on the report would push September futures back up to fill the gap at 13.50.   A larger degree to a bullish report and 14.10 is reasonable or beyond.   The main thing is a sharp move would occur quickly. ‘If the worm turns and the report is Bearish'.   The September futures could push to 10.90 to 11.00 quickly.   Consider buying the 11.50 put currently at seventeen cents $850.   Needless to say, I would much rather see a bullish surprise as the call has more profit potential over the put in terms of probability.

End.

Tim Hannagan

Alaron Research Team

800.563.9510

thannagan@alaron.com

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