Alaron Grains and Oilseeds Comment

CHICAGO - Oct 7/08 - SNS -- Following is the grain and oilseed futures comment from Alaron Trading Corp.

Monday's weekly export inspection report showed 33.5 million bushels of corn was inspected for near term export.   This is down from 40m.b. the week prior; and 46 a year ago.   It is not a terribly weak demand signal but shows a slowing mindset after the economic bail out package passage met a cold shoulder from the grain markets.   Buyers look to sit on their hands now and buy only as needed, until they see spiraling lower grain prices settle.   The crop condition report was left unchanged at 61% in good to excellent condition.   The one half of one percent lower for the month of September leaves the Friday USDA monthly crop production report to come in unchanged in production, and yield or a very marginal change at best.   73% of the crop is fully mature and ready for harvest but harvest will drag its feet as growers let corn sit in the fields and dry and save those drying costs now that prices are way down.   Harvest is 14% done vs. 39 last year and our five year average of 30%.   Now that we are up to-date on the fundamentals let's address the reality of what's happening:   The sell off in corn from our June high of 8.00 was expected as the last two years saw similar early growing season highs fade away into the beginning of harvest, only to see strong harvest buying of grain at cheaper levels as a long term hedge against rallies later off low ending stocks.   We expect low ending stocks again next year yet there is no buying.   The difference is the last several weeks have brought to the surface a catastrophic economic disaster.   This has funds looking at the trading platform on the exchanged holding their long positions as see it as fractured and unstable.   With major trading firms collapsing along with banks- they must wonder if a trading exchange is next to fall?   This has large index funds selling out of their massive long position in corn and beans and ignoring all basic fundamentals that normally control grain movement.   The big question is when will they stop selling and begin to re-enter long.   There is no way to know until it begins.   Consider this:   From January 1^st to mid-June, index funds bought nearly everyday and took corn and beans to levels so high they did not reflect true supply demand fundamentals.   Corn at 8.00, beans 16.00, and wheat in Minneapolis Exchange 24.00 per bushel.   They bought on days when there was no news out.   That is what 100 billion dollar trading funds can do.   Now they are selling for reasons of fear given.   We have to assume they will sell until all their positions are gone or something enters that is not there yet.   The last two weeks saw corn drop over a dollar while funds reduced their long positions to 305 thousand at the end of last week.   If they take another 100 thousand contracts off it is unthinkable of seeing corn deep into the 2.00 per bushel area and beans the low 5.00 area as they still are long 130 thousand contracts entering the week.   The only near term hope for a measurable rally is if funds stop selling and large U.S. commercial trading firms heavily short, begin to buy back those short positions.   Commercials are short 239 thousand corn and 108 thousand bean contracts.   Until the funds stop selling, all grain fundamentals are on hold.   Today was turn around Tuesday, giving us a higher open after limit down corn and bean moves Monday.   If we come in Wednesday and crude oil is down and the dollar index up, grains will begin another leg down.   If crude is up big and dollar down, then we could push to fill gaps on the charts higher with December corn back to 4.50, and November beans to 9.90.   We had hoped last Friday's bail out bill, would stabilize the markets and fears but Monday sent a negative message by the large index funds.   We hope that changes sooner than later.

Monday's weekly export inspection number showed 12.1m.b. of beans were inspected for near term export, up from 7.6 the week prior.   Our four week average of 4.3 is but under a year ago of 19.5.   Not bad but not good.   The better on week sales come as we are the sole port of origin to buy beans from as our harvest is underway.   There is corn available at every world port, but beans can only be found in quantity here until South American crops come in next March.   The crop condition report was left unchanged for the fifth consecutive week at 57% G-E condition.   This sets up Friday's crop production report to come in virtually unchanged on production and yield.   83% is fully mature with harvest 31% complete vs. 43 last year and our five year average of 41%.   They are harvesting beans first so it should go fast.

Monday's weekly export inspection report showed 25.9 million bushels of wheat was inspected for near term export vs. 23.6 the week prior and under a year ago of 33m.b.   It is a neutral number to demand at best, but with the sour full economic conditions and a higher trending U.S. dollar; we can not expect demand to become a positive driving force.   Look for demand to be a negative to neutral equation near term.   The crop progress report showed 59% of our winter crop is now planted with 48% emerged.   Next week should give us our first crop condition report.   It should be good as western grain belt rains have been good.   Resistance for December wheat lies up at 6.25.   Sell rallies with stops over resistance as 6.75 would be next stop.

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Tim Hannagan

Alaron Research Team

800.563.9510

thannagan@alaron.com

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