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John Roach's DAILY GRAIN MARKETING PLAN

Overnight Trade

Dec Corn dn 5

Nov Beans dn 9

Dec Wheat dn 1 1/2

Sell Signals

The corn, bean and wheat markets’ Sell Signals are inching their way up out of buy territory. If you need to buy feed for a livestock operation, wrap up your purchases for now. There should be at least 1 and likely 2 more times to accumulate inventory on weakness between now and November following our Sell Signal Indicator.

What should a farmer be doing about marketing right now? There is no Sell Signal in any of our grains and making sales when there is no Sell Signal is usually a mistake. In the past several years farmers have regretted the sales they made during August through November. We will likely get another Sell Signal before harvest, but I really wouldn’t plan on selling much on it.

I would rather get storage lined up for all the bushels you haven’t sold and plan on making sales during March, April, May, and June on Sell Signals. March through June sales on Sell Signals worked again last spring. We expect the spring of 2009 to be just as exciting as the spring of 2008 at least until we can be assured an adequate supply of new crop production.

Markets

Asia-Pacific stocks today closed mostly higher: Japan +0.07%, Hong Kong +0.18%, China -2.74%, Taiwan -0.65%, Australia +0.82%, Singapore +0.14%, South Korea +1.14%, Bombay +0.48%. The European DJ Stoxx 50 this morning is trading +0.69%.

Traders are getting ready for the FCStone crop estimate due out on Monday and Informa later next week. The USDA August 12 crop report data is being compiled now as field plots are being analyzed. The August 12th reports promise to be the most important in years.

Grains are acting like they might have found a bottom, but we haven’t yet seen any power to the upside. Wheat led the markets higher but each of the wheat classes bumped up against their green line 20-day moving averages. Market performance is very important around the green line and so far wheat prices have struggled to clear the resistance. The corn and bean markets should move up to at least their green line as well.

Part of the reason grain prices are having a tough time moving higher has been good weather combined with the weakness in the whole world of commodities. As you can see from the chart below, the DJ-AIG Commodity Index fell to a new low of this downward move this week before recovering. If the indexes continue to move higher it will be positive to grain prices, regardless of weather.

One of the reasons index funds have been under pressure comes from the rebalancing diversified fund managers must make when asset classes revalue. Let’s say on January 1, 2008 a $1 million pension fund had 70% ($700,000) of their assets in equities, 20% ($200,000) in bonds, 3% ($30,000) in the DJ-AIG commodity index, and the balance ($70,000) in cash.

Today the S&P 500 is down 10% ($670,000) while the DJ-AIG index is up 30% ($40,000). If the bonds and cash are the same, the total value of the fund is now $980,000. In order to keep the dollar percentage of the commodity investments at 3%, the money committed to the commodity index has to be reduced to $29,400. This requires the manager to sell over 25% of their commodity index ownership to get from $40,000 down to $29,400.

From a technical point of view, the CRB-AIG index posted record highs in July and then proceeded to fall below its June and then its May low. If the index ends the month of July below its June low, which seems likely at this point, that would be a monthly key reversal on the chart. Monthly key reversals often signal a major top on the charts.

Most of the commodity index exchange traded funds have experienced sharp losses this month, but traders are uncertain if the losses are enough to shake long-term investor confidence in the commodity markets. Will investors want to put more money into commodities now that they are “on sale” or will investors continue their orderly move out of commodities? So far, the move away from commodities has continued this week.

An example of investors’ change of heart from their attitude in June was the dismal price reaction to the CRP announcement we have all been waiting for. A few weeks ago traders thought the opening of the CRP was almost a certainty and the failure of the USDA to get some of those acres into production would have likely given us limit up trade.

Grain prices initially reacted with strength to Ag Secretary Schafer’s announcement that the USDA will not reduce or eliminate penalties for early withdrawal of ground committed to the Conservation Reserve Program (CRP). His reason was the crops are better than we thought just a few weeks ago and that the corn price is down 24% and beans down 14% from their record peaks. There was initial strength from the CRP announcement but the rally quickly failed which had to be a disappointment to the bulls.

Traders continue focused on the efforts to reduce the level of speculative trading in certain markets. Remember we alerted you in June about the problem that Index Funds were able to exceed speculative limits and that the powers in Washington would not allow that to continue.. Earlier this week the talk was that rule changes were coming. Then treasury officials indicated they see little evidence of market manipulation or excessive impact from speculation suggested there is less pressure for CFTC rule changes. Now yesterday talk that the White House might veto any type of legislation that affects speculation was heard.

South Korea’s biggest feed maker and frequent customer of U.S. corn, Nonghyup Feed, announced it will now plant corn in Indonesia to diversify its import sources. They expect to start imports from the project by 2010, buying 500,000 tons from Indonesia each year (200k tons of that from the farm initially), out of their usual 2.5 million tons yearly import amount.

Export sales for the new marketing year were very good for each of our grains. Net wheat sales of 726,400 metric tons were up 19 percent from the previous week and 10 percent from the prior 4-week average.

Net old crop corn sales of 63,100 tons-a marketing-year low-were down 81 percent from the previous week and the prior 4-week average but new crop sales of 825,800 tons for delivery in 2008/09 were quite good.

Net old soybean sales of 271,600 tons were 48 percent above the previous week and 40 percent over the prior 4-week average. Net sales of 436,000 tons for 2008/09 delivery were also reported.

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. This commentary is written as a daily marketing tool to help farmers sell the grain they raise. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. Commodity trading involves the risk of loss, and you should fully understand those risks before trading.