Alaron Grains and Oilseeds Comment

CHICAGO - Mar 20/09 - SNS -- Following is the grain and oilseed futures comment from Alaron Trading Corp.

Just a Reminder:   Please join me for my live online Grain Review this Wednesday at 2p Central Time.   If you are not a client and would like a 2 week trial, plase call 800-542-1022 or click here.

Thursday's weekly export sales report showed 440 t.m.t. of corn was sold last week down 60% from the week prior and 57% under our four week average.   Key Asian business came in at 326 t.m.t. vs. the two prior weeks of 840 and 500 t.m.t.   After flirting with 4.00 corn last week with a high just over 3.90 led to some farmer selling of corn off the farm.   This had importers recognize an opportunity to possibly buy cheaper if sales off the farm continued.   It is just normal market strategies that buyer use.   Look for bigger sales numbers on next week's report as cash bids never really fell apart as importers hoped and selling by growers dried up.   Next chance for farmer selling of cash grain comes after the March 31^st planted acreage report in early April when farmers move some grain before beginning field work mid-April.   Demand remains good in the long term picture.   Our month of March is following the schedule I gave at the end of last month.   We got our rally into the March 11^th USDA crop report on fear drought in South America would have the USDA increase our exports to fill the hole in South American production and lower our ending stocks.   The results were ending stocks dropped 50 m.b. as exports and usage rose.   Corn rallied 30 cents from March 2^nd to March 11^th.   The second leg of our March bull market move was another move to new highs on the month ahead of the March 31^st planted acres report.   This week's high is 20 cents better or over the March 11^th high as a battle to secure spring acres is underway.   Now the question is to what level can we achieve?   It looks like 4.18 is our best case scenario ahead of, on, or just after, the reports release.   A lot of private forecasters have come out with their acreage estimates from 4 million acres less to 6 m.a under last year's 86 m.a. planted.   What are important are not these private forecasters but the 20 major brokerage trading houses that will be polled next week.   We could end up with a range of 6 m.a. less to 3 m.a. more but we will get an average estimate and that will tell us how the brokerage houses are trade positioned going into the report.   The fear ahead of the March 31^st report will be could less acres turn into much less and with increasing demand since January 1^st on larger cattle on feed numbers on the last cattle on feed report of 3% more cattle on feed being fattened on corn in January vs. January a year ago.   Higher ethanol production on the last USDA crop report consuming more corn and talk of Congress soon to mandate 15% ethanol to a gallon of gas vs. the current 10% that would cut on usage another 700 m.b. from our ending corn stocks.   We can not afford to lose any acres and will leave those short the market very nervous and wanting to buy them back as well as risk takers buying long.   Index Funds remain long 225 thousand contracts.   That is about half of what they had a year ago this time.   There poised to become heavy buyers off bullish especially if they feel the stock index are bottoming.   This would have them building their portfolio from grains, metals, softs to crude.   Large trading funds have followed my March advice on not being short into March's 2 key reports by cutting their short position from 67 thousand contracts at the end of February to 24 thousand as we entered this week.   This leaves more room for short covering by them.   Last week I talked about the ethanol industry and referring to my 2009 Alaron Research Report for grains where I explained the reasons why the ethanol industry would be stronger in 2009 with higher production on my projected increases in ethanol usage over 2008.   As you know at the writing of my 2009 grain outlook in December 2008 our entire industry looked for a weak industry and lower production.   We really stepped out side the industry mind set.   To date my projection for greater corn to ethanol production is occurring.   The last USDA government report projected a 100 m.b. increase of corn to ethanol from the February report.   This largely comes from our reported increase from a mandate from our government to continue its goal of yearly increases in ethanol production into 2012.   We have been correct in that the Obama mandates would far exceed the aggressive Bush campaign.   I look for further USDA adjustments upward in ethanol production in the months ahead as the Obama mandates come to pass.   Additionally we took the opposite view entering this year on the condition of our ethanol producing plants.   On January 1^st, the trade industry referred to our ethanol industries in shambles from the poor hedging practices of few leading to their collapse.   I wrote in our 2009 research outlook why the ethanol industry is now stronger in 2009 as the portion of the industry being held in weak hands now moves into the strong hands making the ethanol producers currently on line to meet expanding demand a much more healthier and productive industry vs. 2008.   This week we learned that the bankrupt ethanol producer Vera Sun energy Corporation had all its production plants purchased by Valero Energy Corporation a very successful ethanol producer.   This is just one example of how the industry is advancing into the strong hands.   I look for many of the smaller ethanol producers who came in for environmental reasons and not energy and we are ill equipped to market corn for ethanol production to sell out to the agricultural minded energy producers.   The industry will consolidate into four big producer co-op companies within 3 years.   Hopefully my 2009 research review and last week's report along with this puts you at the top of the industry in understanding the real, current and future position of the ethanol industry.   Let's clear up another false perception in the industry:   The dollar Index relationship to course grain exports.   The industry analysts out there continue to say the higher the dollar goes the lower our exports.   I believe this came on last fall's break in the dollar and grains as all markets fell as Index Fund sold their record long positions.   In fact you have seen a strong grain market at year's end December and now into early spring with grain rallies coming even as the dollar were up daily.   75% of our course grains go to Asian markets.   The reason is their proximity to the U.S. shipping ports.   We are simply the world's largest exporter and closest to them.   It is the massive savings on shipping costs that keeps us their primary port of origin for grain for decodes.   If Asia is three-quarters of our business, it is not the dollar to follow but the Yen to determine any pick up or slow down.   While the industry analysts kept saying that the dollars increase in January, February into March would cut demand, we have actually seen demand since January 1^st increase.   Charts show that as the dollar Index chart climbed since January 1^st having researchers say it is pricing our grains to high as it takes more dollars to buy our grain.   The Yen chart too has been up since January 1^st offsetting the dollars gains.   In fact the Yen has been climbing since last June, increasing their buying power.   Lose that Dollar Index to course grain export thinking and keep in tune with Asia and its currency and demand to accurately know where export demand will go.   If you have not as of yet- please go to Alaron.com and pull up the 2009 Alaron Research Report all the analyst wrote last December and read carefully my grain report as it has a wealth of understanding on these issues.

Thursday's weekly export sales showed 143 t.mt. Of beans were sold last week down 83% from the week prior and 76% under our four week average.   Key player China was in for 25 t.m.t. vs. 406 last week.   Like corn, beans too saw a big rally last week leaving importers to take step back and hope for prices to pull back before re-entering.   There were rumors this week China was in buying again and that will show up on next Thursday's report.   It is our low time of year for exports as South American crops over take us for sales but long term demand for U.S. beans remains strong on many fronts.   Like corn, beans too have followed my script for March to the letter.   We called for a rally into the March 11^th USDA Crop Report on expectations the drought in South America would leave exports up here and lower ending stocks.   We rallied 55 cents from the March 2^nd low to the March 11^th report high.   The government increased exports 35 m.b. and cut ending stocks 25 m.b. to 185 m.b.   Then we called for a rally into the March 31^st planted acres report as beans tight stocks demands we plant more beans and traders who are short will buy out and risk traders enter long on fear the report might not show farmers intend to plant more.   Currently we are up 50 cents from the March 11^th report and essentially Thursday filled the chart gap between 9.30 and 9.55 we said would be filled before March 31^st.   Private forecasters have suggested we will plant from 1 m.a. less to 6 m.a. more than last year's 75.7 m.a.   We will get a poll of the 20 major brokerage houses and their estimates late next week.   I expect the ranges to be wide creating much uncertainty, especially with recent talk that corn's recent price gains maybe stealing acres from beans.   Funds have cut their short positions by 25% this month, leaving room for more short covering while Index Funds are long 96 thousand contracts about half of what they had a year ago leaving room for more buying by them if bullish acreage news pops up and stocks stabilize having them more comfortable adding to their commodity portfolio across the board.   We still look for another high of some sort prior the March 31^st report, but early April we will correct back about 30% of the March rally as farmers sell cash grain before they begin their pre-planting field work.   Then we will buy the early April low and look for a late April into May weather premium rally as WXRISK.COM sees another very wet spring in the Midwest and this will bring good buying interest as traders remember last year's wet spring and late planting of corn and beans and rally.   The market never forgets.   Demand remains strong long term as Asian markets continue to buy and build stocks of high protein vegetable oil crops.   China will fall 13 million tons short of its edible oil goals in 2009 on production.   Everyone's buying and building inventories or using protectionism to insure their not caught short again like last year when prices of all grains hit record highs.

Thursday's weekly export sales report showed 213 t.m.t. of wheat was sold last week off 41% from the week prior and 45% under our four week average; Same old- same old.   Demand remains weak but only four week's remain in what's traditionally our weak demand season.   Okay!   The crop rating on our early emerging winter wheat crop came in poor as lack of efficient rains have come.   Texas was the worst at only 12% of the crop in good to excellent condition and 57% very poor to poor.   Oklahoma was 25% G-E and 39% v-poor to poor.   Kansas was 42% G-E down 3% from the week prior.   These came out Monday and no rain fell to improve conditions this week.   However, after a forty cent rally from last Friday's close to Tuesday's high we had a 20 cent drop Wednesday when forecasts suggested a chance for rain could occur next Monday and Tuesday in those dry areas.   Thursday saw wheat gain all back as some forecasters turned dry again.   The point here is while corn and beans are in a price battle for spring planting acres, wheat is in a weather market and each day is subject to a sharp move either way if weather turns.   If those rains occur from .50 to 1.00 inches of 70% coverage or more- we could drop back to 5.10 but if they fail to arise we are on track to push up to 5.90 bases May.

Tim Hannagan

Alaron Research Team

800.563.9510

thannagan@alaron.com

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