WEEKLY GRAIN UPDATE

For week ending July 3, 2008

By

LYNN SMITH

Senior Futures Broker

ZANER GROUP

800-470-1406

lsmith@zaner.com

SOYBEANS

On Monday, June 30^th, 2008, September Beans closed at 15.84, up 17 ½ cents, as traders look for tightening carry-over supplies going into the end of the 2008-09 crop year. Prior to the open, the USDA reported their estimate of planted Soybean acres at 74.5 million acres vs. 74.793 m.a. forecast in their March report, but slightly over the average analysts estimate of 74.2093 m.a. They also reported Soybean storage as of June 1^st at 676 million bushels, slightly over the 669 m.b. average analysts estimate. The report was neutral to pricing, although the higher Bean stocks number was slightly negative. However, after pushing lower on the open, Sept. Beans rallied and closed at the contract high even in the face of a limit down move in Corn. During the session, the USDA reported export inspections totaled 18.4 million bushels vs. 10.8 m.b. the week prior. It was a decent number and at the current export pace with only a slight reduction in yield, the Bean carry-over could be under the 100 m.b. mark at the end of this crop year. After the close, the USDA reported 95 percent of the Bean crop has been planted vs. 91 percent last year and 98 percent the 10 year average. They also indicated 58 percent of the crop was in the good/excellent category vs. 57 percent last week and 64 percent the 10 year moving average. The report confirmed the lateness of the planting with the likelihood that yields will be reduced at harvest. Funds bought an estimated 3,000 contracts during the session. Sept. Beans posted a contract high at 16.15 and also closed at that high on Tuesday, up 31 cents for the session, in a continuation of the rally begun on Monday when the USDA reported a reduction in the Bean acres planted for the 2008-09 crop year. Traders focused on low carryover expectations for the

2008-09 crop year, even with trend line yields, with the possibility of weather problems lowering yields and carry out even more. Spillover support from Gold and Crude Oil also contributed to the bullish psychology in the market. In the USDA report released Monday the data suggests 2008-09 Bean crop production of 3 billion bushels, which is less than their projected demand of 3.06 b.b., making an already tight supply situation worse. Funds bought an estimated 3,000 contracts during the session. On Wednesday, Sept. Beans posted another record contract high at 16.36, before closing at 16.32, up 17 cents, after early consolidation gave way to technical buying going into the close. In early trade, Sept. Beans pushed down to the 16.00 level where the market found support and steady buying during the session, with a spurt at the end pushed the market to life of contract highs. Some weather forecasts calling for much hotter than normal temperatures in the Midwest after July 10^th provided good buying incentive, even though it is really early to cause much damage to the Bean crop. Looking to Thursday's trade, analysts estimate Bean weekly export sales to be in the 325,000 to 525,000 metric ton range. Funds bought an estimated 2,000 contracts during the session. Sept. Beans closed 5 ¼ cents higher on Thursday, at 16.37 ¼, as most weather forecasts call for hotter and drier conditions for the end of next week. Prior to the open, the USDA reported Soybean exports totaled 642,400 metric tons vs. a negative 268,100 m.t. in the week prior. It was a slightly bullish report as it came in over the high end of analyst's predictions of 525,000 m.t. Uncertainty regarding the farmer/government conflict in Argentina also contributed to the bullish psychology. All markets were closed Friday in honor of the 4^th of July holiday. In last week's report, I recommended selling the Sept. $20.00 call for 30 cents or more (purchased for 15 cents the week prior), but the option did not trade at my target. For next week I would continue to target 30 cents or higher, and risk to 10 cents.

CORN

On Monday, June 30^th, 2008, Sept. Corn closed at 7.37, down the 30 cent limit, on a bearish acreage forecast and ending stocks figure from the USDA. Prior to the open, the USDA reported their estimate of 87.327 million acres of Corn seeded for this crop year vs. their estimate of 86.014 m.b. in March, and over the average analyst's estimate of 85.321 m.a. They also reported ending stocks as of June 1^st came in at 4.028 billion bushels vs. analyst's average estimate of 3.925 b.b. The report was clearly a surprise as most traders had been looking for a reduction in acres planted from the March estimate. The higher carry over figure was also a surprise and it suggested a drop off in demand given the current high prices vs. historic prices. However. The report did not factor in the acreage lost due to flooding in the Midwest and that will not be fully reflected until the Aug. 12^th USDA Crop production report. (The USDA will survey 9,000 farmers vs. only 1,150 surveyed prior to Monday's report.) During the session, the USDA reported Corn inspections totaled 39.6 million bushels last week vs. 36.7 m.b. for the week prior. It was a neutral report, but the acreage and stocks report had the major impact on pricing. Fund end of month and end of quarter profit taking also contributed to the sharp declines, as did benign weather forecasts going into the weekend. After the close, the USDA reported 61 percent of the Corn crop was in the good/excellent category vs. 59 percent last week and 73 percent the 10 year average. This was clearly a bearish surprise, as most traders had been looking for a reduction in quality with the wet weather the past week. Sept. Corn closed down 5 ½ cents at 7.32 ¼, on Tuesday, as profit taking following the bearish USDA Acreage report on Monday kept the market on the defensive, although a late rally pulled Corn off its lows. Weather forecasts calling for mostly drier weather with scattered showers should be beneficial for crop development. However, some longer term forecasts calling for an extended hot & dry spell beginning toward the end of next week could reduce yield potential and push prices higher. On Wednesday, Sept. Corn briefly touched up the 30 cent limit at 7.62 ¼, before settling at 7.61, up 28 ½ cents for the day, as forecasts for much hotter than normal temperatures for the end of next week touched off a buying frenzy near the close. Corn climbed early on the strength of reversing the long Bean/short Corn spreads with spillover support from Crude Oil and

Gold. Late fund buying pushed the market up the 30 cent limit just prior to the close. Funds bought an estimated 13,000 contracts during the session, 5,000 of that total in the last five minutes of trade. September Corn closed down 3 ¼ cents on Thursday, at 7.57 ¾, as pre weekend profit taking and an absence of bullish news kept the market in negative territory. Prior to the open, the USDA reported exports totaled 628,400 metric tons vs. 231,300 m.t. the week prior and 20 percent under the four week average. Although on the high end of analyst predictions of a range of 300,000 to 700,000 m.t., old crop sales of 325,900 was seen as disappointing and perhaps an early sign that the higher prices are leading importers to back off for now. The market was closed on Friday to honor the 4^th of July holiday. In last week's report, I recommended selling the Sept. $9.00 call for 24 cents or more (purchased for 12 cents the week prior) however the market did not reach our target. I would continue to target 24 cents or higher for next week, while risking to 6 cents.

WHEAT

On Monday, June 30^th, 2008, Sept. Wheat closed at 8.58 ¾, down 53 ¼ cents, as a bearish USDA report along with spillover weakness in Corn, pushed Wheat sharply lower. Prior to the open, the USDA reported ending stocks as of June 1^st came in at 305.6 million bushels, which was about 40 to 45 m.b. higher than most analyst's estimates. The limit down move in Corn clearly influenced Wheat, along with end of month and end of quarter profit taking by the funds. During the session, the USDA reported Wheat export inspections totaled 15.0 million bushels vs. 17.7 m.b. the week prior. It was a neutral report, but had little impact on pricing. KCBT Sept. Wheat closed at 8.96 ¼, down 48 ¾ cents, as drier weather should accelerate winter Wheat harvesting and keep pressure on prices. MGE Sept. Wheat closed at 9.50 ½, down 51 ¾ cents, following CBOT Wheat and Corn lower. The USDA reported their estimate of spring planted Wheat at 14.197 million acres, off from their March estimate of 14.333 m.a. and under the average analysts estimate of 14.321 m.a. The report was friendly, but expected. After the close, the USDA reported 36 percent of the winter Wheat crop ahs been harvested vs. 22 percent last week and 50 percent the 10 year average. They also rated the spring Wheat crop at 74 percent in the good/excellent category vs. 72 percent last week and 67 percent the 10 year average. No real surprises here, although the winter Wheat harvest still is behind schedule. Sept CBOT Wheat closed at 8.64 ¾, up 6 cents on Tuesday, as bargain hunting and short covering pushed the market higher after a 80 cent drop the two previous sessions. Concerns regarding the slow harvest progress also provided support, although there was little fresh news to generate any real buying

enthusiasm. Funds bought an estimated 2,000 contracts during the session. KCBT Sept. Wheat closed at 8.94 ¼, off 2 cents, as heavier than anticipated deliveries against the July contract (1,484 contracts) pressured the front months lower. MGE Sept. Wheat closed at 9.41, down 9 ½ cents, as the USDA crop progress report after Monday's close raised the good/excellent category by 2 percentage points to 74 percent, as compared to the 10 year average of 67 percent. On Wednesday, Sept CBOT Wheat closed at 8.80 ¼, up 15 ½ cents, on short covering and spillover strength in the Corn, Soybean, Crude Oil and Gold markets. Traders evened positions going into the three day holiday on Friday when all U.S. markets will by closed for the July 4^th holiday. Iraq issued a new tender offer for 50,000 metric tons of optional-origin Wheat, although it did not seem to have much of an impact on pricing. KCBT Sept. Wheat closed at 9.04 3.4, up 10 ½ cents, with MGE Sept. Wheat at 9.35 ½ at the close, off 5 ½ cents for the session. Sept. CBOT Wheat closed 7 ¼ cents higher on Thursday, at 8.87 ½, as traders bought the September Wheat/sold September Corn spread as the spread closed at 1.29 ¾ on Wednesday. Some traders look at buying the spread when it trades at 1.30 or under premium the Sept. Wheat, while other traders consider the spread to be a buy when the ratio drops to 1.2 to 1 or lower. However with the winter Wheat harvest approaching 50 percent complete, there could be addition harvest pressure depending on the direction of Corn because Wheat is a substitute for Corn in feed grains if the price is right. KCBT Sept. Wheat closed 7 ½ cents higher, at 9.12 ¼, with MGE Sept. Wheat closing at 9.38, up 2 ½ cents for the session. The market was closed on Friday to honor the 4^th of July holiday. I had no recommendations for Wheat trades in last week's report, because of the USDA report on Monday. For next week, I would look to buy the Sept. $9.50 call for 25 cents or less, risk to 15 cents, and target 50 cents or higher for profit taking.

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Opinions are subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. The information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness.