WEEKLY GRAIN UPDATE

For week ending July 18, 2008

By

LYNN SMITH

Senior Futures Broker

ZANER GROUP

800-470-1406

lsmith@zaner.com

SOYBEANS

On Monday, July 14^th, September Beans closed at 15.68 ½, down 37 cents, as favorable weather forecasts prompted traders to remove some of the weather premium from the market. Weather models from last Friday had called for a possible heat dome to move into the Midwest, but the models from Sunday removed them from their forecast and in addition called for above normal precipitation in the 6 to 10 day outlooks. During the session, the USDA reported Bean export inspections totaled 5.7 million bushels last week vs. 10.4 m.b. the week prior and 12.5 m.b. last year at this time. It was a slightly bearish report as demand seems to have shifted back to South America now that the strike in Argentina is over, at least for now. Traders also expected an increase of 1 to 3 percent in the good/excellent category of the crop ratings to be released by the USDA after the close. Funds sold an estimated 3,000 contracts during the session. After the close, the USDA reported 59 percent of the Soybean crop was in the good/excellent category, unchanged from last week, but under the 10 year average of 62 percent. They also indicated 26 percent of the Bean crop was blooming vs. 54 percent the 10 year average at this time. The report was slightly bullish, as most traders had been looking for an increase in the good/excellent category. After opening higher on Tuesday, Sept. Beans turned South after a sharp sell off in Crude Oil spooked the market, and it closed near the lows of the day at 15.28, down 40 ½ cents for the day. Favorable weather forecasts and a lack of fresh bullish news contributed to the declines. Crude Oil was off over $9.00/barrel at one time before closing down $6.44, as downbeat testimony from Fed. Reserve Chairman Ben Bernanke prompted ideas for a demand drop-off in the U.S. market. Funds sold an estimated 4,000 contracts during the session. On

Wednesday, Sept. Beans closed at $15.58, up 30 cents, as longer range weather models calling for hot and dry conditions in the Midwest prompted short covering and technical buying as the early sell off was unable to penetrate the prior monthly low. Beans followed Crude Oil lower early in the session, but as the selling appeared to dry up, bargain hunters and short covering sparked a rather sharp rally which erased most of the previous day's losses. Funds bought an estimated 3,000 contracts during the session. On Thursday, prior to the open, the USDA reported Bean export sales for last week totaled 102,500 metric tons, which was 42 percent under the four week average. Analysts had expected a range of exports from 175,000 to 500,000 metric tons, so the report was bearish for the open. Sept. Beans opened lower and the sell off accelerated as Crude Oil plunged on a continuation of its recent correction. At session end, Sept. Beans were down 50 cents at 15.21, as a number of negative news item combined to push the market sharply lower. The negative vote in Argentina regarding the excise tax on Beans weighted on the market, as did the near and midrange weather forecasts which generally called for good growing conditions over the next 2 weeks. Funds sold an estimated 5,000 contracts during the session. On Friday, Sopt. Beans closed sharply lower at 14.58 ½, off 49 ½ cents for the session, as the cancellation of the export tax in Argentina should power exports out of that country which in return will reduce our exports. Mild weather forecasts for the next 6-10 days also were seen as beneficial for crop development and bearish to prices. September Beans have now dropped almost $1.00 in the past two sessions. Funds sold an estimated 8,000 contracts during the session. Barring any dramatic changes in short term weather forecasts, it would appear Sept. Beans are headed for next support at 14.10, and I would recommend buying the Sept. $14.00 put for 40 cents or less, risk to 30 cents, and target 60ents or higher for profit taking.

CORN

On Monday, July 14^th, September Corn closed down 27 ¼ cents at 6.63 ¾, as a change in weather patterns from hot and dry to warm and wet pushed the market sharply lower as traders extracted weather premium. Spillover weakness from Soybeans and a stronger U.S. dollar also contributed to the sell off, as well as technical selling once Sept. Corn traded below its 50 day moving average. During the session, the USDA reported Corn export inspections totaled 24.1 million bushels last week vs. 37.6 m.b. the week prior and under the four week average of 36.2 m.b. It was a bearish report, as it appears the recent high prices may have caused some of the importers to back away. Most traders also were looking for an increase of between 1 to 3 percent in the good/excellent category of the crop progress report to be released after the close by the USDA. After the close, the USDA reported 64 percent of the Corn crop was in the good/excellent category vs. 62 percent last week and 67 percent the 10 year average. They also reported 13 percent of the Corn crop was silking vs. 50 percent the 10 year average at this time. Although the drop in rating was in line with expectations, the slow progress of the crop as evidenced by the silking percentage looks to place the pollination stage in the late July to early August timeframe which traditionally has been the hottest and driest of the summer season. September Corn closed at 6.48 ¼, down 15 ½ cents on Tuesday, as a combination of spillover weakness from Crude Oil and Beans, along with moderating temperatures and good rain chances late in the week. Technical selling with Corn below its 50 day moving average for the 2^nd straight day also kept the market lower with little reason to buy unless weather forecasters predict

hot

and dry weather as the crop nears the pollination stage of development. Many traders had expected a "turn-around" Tuesday until the Crude Oil sell off brought on selling in most of the futures markets. On Wednesday, Sept. Corn closed at 6.58 ½, up 10 ¼ cents, as potential for a "heat dome" to move into the Midwest 8-14 days out prompted short covering and some bargain hunting. Sept. Corn has fallen over $1.00/bushel since July 3^rd, taking out most of the weather premium, so the market will be sensitive to any stressful conditions going forward, especially once pollination begins toward the end of the month. Prior to the open on Thursday, the USDA reported Corn exports totaled 369,200 metric tons last week, up 9 percent from the week prior and up 20 percent over the 4 week average. It was a decent report, but the beneficial weather conditions and spillover weakness in Crude Oil was too much for the market to overcome. Sept. Corn closed at 6.31 ¼, down 27 ¼ cents, as traders removed weather premium from pricing with ideas the recent favorable weather forecast may bring the Corn yields back to trend line or maybe slight better. Sept. Beans closed below their 50 day moving average every day this week, which had not occurred since last March. Funds sold an estimated 12,000 contracts during the session. On Friday, Sept. Corn continued to plunge, closing at 6.09 ½, down 21 ¾ cents for the session. For the week, Sept. Corn was down 81 ½ cents, as nearly ideal weather looks to push up yields close to or perhaps over trend line average. Some traders expect a continuation of the liquidation going into the next crop report on August 12, unless the weather forecasts turn to hot and dry. Corn is fast approaching the key pollination stage in the next 1-2 weeks and will continue through the middle of August for most of the Midwest area. Next support for Sept. Corn is $6.00, than $5.80. Look to buy the Sept. Corn $5.80 put for 16 cents or less, risk to 10 cents and target 30 cents or higher for profit taking.

WHEAT

On Monday, July 14^th, September CBOT Wheat closed at 8.18, down 12 ¾ cents, as spillover pressure from Corn & Beans was too much for the Wheat market to overcome. Good dry weather during the early part of this week should speed rapid harvest progress which should also keep a lid on prices. KCBT Sept. Wheat closed down 13 ½ cents at 8.51, with MGE Sept. Wheat at 8.79 ½, down 17 cents for the session. During the session, the USDA reported Wheat export inspections totaled 11.9 million bushels last week vs. 19.9 m.b. the week prior and 16.0 m.b. the four week average. The report was slightly bearish, but importers may be waiting for the end of harvest before committing to further purchases. Funds sold an estimated 2,000 contracts during the session. After the close, the USDA reported 62 percent of the winter Wheat crop has been harvested vs. 52 percent last week and 74 percent the 10 year average. They also reported 61 percent of the spring Wheat crop was in the good/excellent category vs. 69 percent the week prior and 64 percent the 10 year average. Most traders were looking for an unchanged to down 2 percent rating in the spring Wheat rating, so the report was somewhat of a surprise, although still close to the 10 year average. September CBOT Sept. Wheat closed moderately lower at 8.11, down 7 cents on Tuesday, as harvest pressure and spillover weakness from outside markets combined to keep Wheat into negative territory, after a higher open. Sharply lower prices in Crude Oil, Soybeans and Corn pressed the market lower, although there was decent technical support around the 8.00 mark. Funds sold approximately 2,000 contracts during the session. KCBT Sept. Wheat closed down 7 cents at 8.44 as good harvest progress with nearly ideal

weather kept the market below even for most of the session. MGE Sept. Wheat closed at 8.74 ½, down 5 cents, as spillover weakness from outside markets was too much to overcome. The 8 percent drop in the good/excellent category of the spring Wheat crop as reported by the USDA yesterday after the close was seen as mildly bullish. Reports of some dry patches in the northern Plains also was constructive, especially if the hot weather moves into the region as some weather forecasters have predicted for next week. On Wednesday, Sept. CBOT Wheat closed up 23 cents at 8.34, after a lower open and brief trade below 8.00 failed to provide any follow through, and short covering and bargain hunting pushed the market to close near the highs of the session. Spillover weakness from Crude Oil pressured the market early on, but the ability of the market to hold support at $8.00 provided the spark for technical buying and short covering. KCBT Sept. Wheat closed at 8.60 ½, up 16 ½ cents, with MGE Sept. Wheat up 19 ½ cents at 8.94. Some weather models are pointing toward a possible "heat dome" moving into the northern Plains next week which could further stress the spring Wheat crop. Funds bought an estimated 3,000 contracts during the session. On Thursday, prior to the open, the USDA reported Wheat exports totaled 748,000 metric tons last week, up 21 percent over the week prior and up 29 percent over the 4 week average. It was a bullish report as analysts had predicted a range of 400,000 to 600,000 metric tons prior to the report, so the actual total was over the high of their estimates. Sept. CBOT Wheat closed at 8.09 ½, down 24 ½ cents, as the bullish demand numbers were overwhelmed by the negative outside markets, along with thoughts the 2008-09 World Wheat production keeps getting bigger. News that Strategie Grains raised their 2008-09 European Union soft Wheat production by 2.7 million tons to 131.7 m.t. added to the bearish sentiment. KCBT Sept. Wheat closed at 8.38, down 22 cents for the day, with MGE Sept. Wheat closing at 8.80, down 14 cents for the day. Beneficial rains in the Dakota this week has relieved some stress from this area, with more rain forecast for the weekend. On Friday, Sept. CBOT Wheat closed at 8.04, down 5 ½ cents, on spillover weakness from Corn and Beans along with improving yields in the winter Wheat crop. World Wheat production is expected to reach the largest crop ever for 2008-09 as producers attempted to take advantage of all time high prices in Wheat from weather reduced 2007-08 crop. However, much of the increased World supplies may have been already factored in the current price and with low stockpiles from last year's smaller crop, importers are expected to replenish their supplies to "normal" carryover. KCBT Sept. Wheat closed ¾ cents lower at 8.37 ¾, with MGE Sept. Wheat closed at 8.88, up 8 cents for the session. MGE Wheat has been supported by drier than normal conditions in parts of the northern Plains which has been reflected in a sharp drop in the good/excellent crop ratings in the last two weeks. Funds sold an estimated 2,000 contracts during the session. I would look to buy the Sept. Wheat $8.50 call for 20 cents or less, risk to 12 cents, and target 40 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.