Early Market News - With Duane Lowry

Friday, July 28, 2006

OPENING CALL:

Corn= 1 higher, Wheat= 1-2 higher, Soybeans= 2-4 higher,

e-CBOT, night session results: Corn= 1 ¼ higher, Wheat= 1 ½ higher, Soybeans= 3 ½ higher.

*Where are we for the week? Chicago Sep Wheat= down 19 ½ cents, KC Sep Wheat= down 20 ½ cents, Dec Corn= up ¾ cents, Nov Soybeans= down 3 ½ cents, Dec Soymeal= up $0.30, Dec Soyoil= down 27 points, Dec Oats= up 8 ¼ cents.

Weather offers cooler temperature expectations for the 6-10 day period.

Wheat may see trade on both sides. At worst prices could spend more time stabilizing around this week’s lows. Both US and global fundamental foundations seem poised to provide solid support and could lead to a demand-led rally phase during the next several weeks/months. Upside potential is beyond contract highs. It may be that our past history’s molded thinking assumes there is little upside potential from $4 Chicago wheat and $5 KC wheat. With biofuel opportunities and very tight US and global stocks-to-use ratios, we may need to be willing to minimize the influence of past historical price limitations on our forward thinking.

Corn will start higher on good stabilization price action that has occurred during the past several days. It appears to me that we have not only liquidated the “weather only” longs that were established during the past few weeks, but we have also enticed a seasonal segment of the marketplace to establish short positions. For reasons stated the last few days, I think the floor price potential has been raised by developments in the overall wheat/feed-grain segments during the past several weeks. This and the market’s inevitable need to spur more US Midwest corn acres in 2007 makes me seriously doubt this market’s ability to stage its typical price weakening phase into LDP country at harvest time. The demand base for corn is huge and growing. Carryout will decline almost 1 bil bushels in the new marketing year and the 2007 crop will also face demand that exceeds production. To do so with a 2+ bil bushel carryout is one thing, to enter such a situation with just over a 1 bil bushel carryout is a completely different matter. While some will point to $3.02 Dec 2007 corn futures and say we are already buying acres, don’t forget to look at November 2007 soybean futures trading at $6.51. The corn/soybean ratio is 2.15. That ratio is not likely to buy the needed corn acres in 2007. We have a situation where wheat has a need to compete for acres and will want to minimize reduced acreage in the battle with corn. We have a situation where soybeans MAY have to battle to minimize expected soybean acreage declines in Brazil. Does all this sound like corn should just complacently slide into a late-summer/early harvest period so USDA can issue more LDP payments? I think not. When producers see cash corn bids at $1.90 or less and recall the supposed enthusiasm for ethanol and the enticing arguments last winter that they should have increased corn acreage, most will be slow to leave the friendly confines of their 50/50 rotation plans. Yes, new-crop 2007 futures are $3.02, but wide basis takes away 50 cents of that and the reality is, right or wrong, producers never forward sell/hedge their entire expected production. Consequently, the “spot” cash bid exerts a lot of influence on a farmer’s perception of what corn is worth and what he can conservatively expect. The local elevator price for the actual physical corn in my area is sub-$1.90. Somebody else can be bearish corn—not this writer.

Soybeans will start higher on overnight strength. The test/jab of last week’s low was not a surprise that it would eventually occur, but it was odd to see it happen yesterday. Downside follow-through or sustainability should not be found, but we can’t rule out the potential to spend several days down here. That said, we are in a chart area that is capable of producing a significant bottom. The always-important month of August is just ahead and we are at the bottom side of an 11-month trading range. Plus, the weather pattern has been one that has consistently produced below normal precip over a large portion of the US growing region. With many forecasters touting a dry trend during August since early in the growing season, all these factors just don’t seem to point to traders developing confident and aggressive short positions at this time. At worst, we can spend the next several days stabilizing around last week’s lows. Upside potential remains greater than most are willing to consider. While August weather and US production expectations are the most important items of interest at this time, the Brazilian soybean acreage outlook MAY soon become an important item as well. As crazy as it may sound because of excessive US and global stocks, it is not unreasonable to believe the market MAY seek to offer Brazilian producers more of a hopeful environment at their planting time than to provide them with a dismal and hopeless outlook during their decision and planting season.

In summary, all markets should have limited downside potential. Upside potential during the next few/several months is much greater than the “slide into harvest mood” that typically evolves at this time of year may suggest.

WEATHER: The Midwest/Delta Soft Red Winter Wheat/Corn areas received 20% coverage of ¼-1 ½, locally 3 ¼ inch rains. The next 5 days will produce 35% coverage of ¼-1 ¼, locally 2 inch rains. The US Delta soybean region received 35% coverage of ¼-1 inch rains. The next 5 days will produce 45% coverage of ¼-1 ¼ inch rains. The Long-Range (6-10 day) Maps suggest theMidwest will experience normal temps and normal-above precip. The Plains will experience normal-above temps. Precip will be normal-above in the central region, normal-below in the northern and southern regions. The Delta will experience normal temps. Precip will be normal-below. The Southeast will experience normal temps and normal-above precip. *The 11-15 day maps suggest the Midwest will experience normal-above temps and normal-below precip. The 11-15 day maps suggest the Plains will experience normal-above temps and normal-below precip. The 11-15 day maps suggest the Delta will experience normal temps and normal-below precip.

CORN:

	SUPPORT	RESISTANCE	BARGES
CZ	2.54	2.63-65	JULY + 45 U
OZ	1.98	2.10	AUG +47 U

PROFILE: Dec Corn>Stabilizing price action continues. Good support at current levels. We are poised for a notable rally phase that will possibly be the beginning of a long-lasting up trend. Current levels are a buying opportunity. At worst, stabilization around last week’s lows should unfold for another week.

SOYBEANS: Palm Oil futures were sharply higher, up 46. China soybean futures were lower, down 37.

	SUPPORT	RESISTANCE	BARGES
SX	5.94	6.14-17	JULY +48 Q
SMZ	171.00	178.00	AUG +48 Q
BOZ	26.75	27.80

PROFILE:November Soybeans> This jab below last week’s low will lack downside follow-through. We are poised for a rally phase. Current levels are a buying opportunity. Upside potential could be very significant. Dec Soymeal> Significant upside potential exists. Dec Soyoil> This market is poised to begin another rally phase that can exceed contract highs. IN SUMMARY, the current time/price zone should prove to be a major bottom that has significant upside potential. At worst, stabilization around last week’s lows should unfold for another week.

WHEAT:

	SUPPORT	RESISTANCE	TRACK HRW	BARGE SRW
WU	3.85	4.00	July unquoted	July -6U
KWU	4.85	5.05	Aug unquoted	Aug -1 U

PROFILE: CHICAGO> September Wheat>Major support exists at current levels. Wheat is poised for another rally phase to unfold. There may be much more upside potential here than many would suspect there to be at “$4” wheat. At worst, stabilization around this week’s lows should unfold for another week. Kansas City>

GLOBAL HIGHLIGHTS:

The “REAL” (Cash) Values:
	CORN	BEANS
Chicago	-14 U	-10 Q
Toledo	-14 U	-13 Q
Cedar Rapids, IA	-33 U	-38 Q

This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.