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Central Valley Ag - ProEdge Weekly Update

July 3, 2008

Weekly Review- Following Monday’s mixed report for grains, corn ended the week lower and beans closed the week higher. After the 71-½ cent upswing, November beans closed the week at a new contract high of $16.31. Corn shrugged off Monday’s limit down day and closed this short week only 10 cents lower.

Corn- Corn values rebounding from a rough Monday with forecasts calling for warm/dry conditions through the middle of July. These forecast are in contradiction of NOAA weather maps predicting cool/wet July. The final planting number of 87.3 million was bearish as many traders were looking for an 84-86 million planted number. Harvested acres rose only 100,000 to 78.9 million. This is 90.4% of planted acres. I believe we can see this number decline to 89% or 77.7 million acres. Using the 77.7-harvested number, a yield of 148 is the minimum acceptable to keep stocks somewhat adequate. Any yield below this would require demand rationing. With a chance of yield falling below 148 the market now needs to find the level to ration feed and ethanol demand. Last week’s Hog and Pig Report showed no signs of rationing from the hog industry yet despite many stories of sow liquidation. We are coming closer to the July 25th deadline set by the EPA for a decision on Ethanol mandate waivers. This will have no fundamental impact on the market but could have a psychological effect. Sen. Lugar called for an end to the 54-cent import tariff. I believe this could be a big factor, as ethanol prices will plunge. With gasoline demand slowing, one has to think where the supply of ethanol will go??

Soybeans- Beans had a strong week and closed at contract and all-time highs. The drop in planted acres to 74.5 was expected but the market reacted strong due to questions over the amount of double crop acres that will be abandoned due to late wheat harvest. With beans over $16 I have to believe that producers will have the incentive to put them in the ground. Export sales this week were strong. USDA will be forced to raise export numbers in the July S&D. Beans will also have to find a level that rations a small amount of demand. Bean Meal has approached record highs but with corn prices 36% over previous highs I would say there is some room to move higher before an adequate amount of demand is rationed. Tight World stocks and the idea of expanding Brazilian acres by 10% will also support bean values. FcStone research finds that May ’09 futures would need to be near $18 to expand 10%. The chart above shows how we have made new highs this week and could be creating a bull flag?

Recommendation-  Have a Great Fourth of July Weekend!!