PRICE VOLATILITY FRIEND OR FOE

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----PRICE VOLATILITY----FRIEND OR FOE?

• VOLATILITY EQUALS OPPORTUNITY
• OPPORTUNITY FOR SELLER
• PRICES RISING ABOVE FUNDAMENTAL VALUE
• OPPORTUNITY FOR BUYER
• PRICES DROPPING BELOW FUNDAMENTAL VALUE
• PRICE VOLATILITY WIDE SWINGS IN GROSS
  INCOME/ACRE

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Factors Affecting Price Volatility

• Significant Change In A Fundamental
• Sudden Unexpected Demand Shock Jan 12 Report
• Weather Always An Uncertainty
• Weather Price Premiums
• The Funds
• Conventional Large Spec Funds
• Index Fund--- Newcomer with Billion
• Black Box Funds--- Chartists-- Technicians

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HISTORICAL PRECIDENCE FOR CORN
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HISTORICAL PRECIDENCE FOR SOYBEANS
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Large Spec Index FundsOur 2nd Harvest

• Large Specs---OpportunistsPro-Active
• Index Funds--- Position TradersWall St Guys
• In it for the long haul
• Want a non-equity correlation investments
• Spread risk---dont care if they make money
• Often keep rolling till they make money
• Black Box Traders--- Technicians

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CORN 11 bil-bu X 2 22 bil SOYBEANS 3 bil-bu X
6 18 bil WHEAT 2.0 bil-bu X 3.5 7 bil
TOTAL 47 bil ENDING STOCKS Control 20 9
bil just 12 o
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• Crude Oil - 12.7
• Natural Gas - 12.3
• Unleaded Gas -4.0
• Heating Oil - 3.8
• Live Cattle - 6.1
• Lean Hogs - 4.3
• Wheat - 4.7
• Corn - 5.9
• Soybeans - 7.7

• Aluminum 6.8
• Copper - 5.9
• Zinc - 2.7
• Soy Oil - 2.7
• Nickel - 2.6
• Gold - 6.2
• Silver - 2.0
• Sugar - 2.9
• Cotton - 3.1
• Coffee - 2.9

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8,500 contracts in soybeans, 6,100 in soyoil and
28,000 contracts in corn to be added due to
increase in limits in Jan 2006
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Dec 27, 2005
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CORN FUTURES PRICEVS NET FUTURES POSITION
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LARGE SPEC POSITIONSAS OF TOTAL OPEN INTEREST
Dec 27
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SOYBEAN FUTURES PRICEVS NET FUTURES POSITION
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1st 3rd Marketing Year Quarters Key to Export
Estimates
Too Late Now
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L.T. price suggests 2.25 resistance in the lead
contract futures when carryover exceeds 2.0
bil-bu.
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CAPTURE THE MARKET CARRY----STORAGE GAINS
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Carry from Jan to Oct 35 cents Hedging makes
more sense than cash contract due to wide
basis Buy bidding up Oct bid to source
grain---Interesting
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IS THERE GOOD NEWS?On Average, China has been
using more than it produces, and exporting old
surpluses
Net Corn Imports Buy China May Not
Be Far Away
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Corn Price Outlook Driest yr since
1988---11th driest in history

• March CBOT 2.00 still possible---
• Then May, July, Sept, Dec?
• Price Range 2.52--1.90 for Dec 2006
• It is all about Supply and Demand
• What price to disappear surplus stocks?
• Huge LDP means large free stocks
• Ethanol Supportive
• Farmer Holding---When will he sell?
• China? Exports when how much?
• 4-6mmt available long term net importer?

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CORN 2005/06 OUTLOOK CONCLUSIONS

• Corn will find it difficult to earn the carry
  without a significant production problem
• Even Commercial Storage Pays in some areas
• Assume 1.52 mil-ac reduction 2006
• Marginal land comes out first
• Expect 2535 cent LDP fall 2006
• China weather factor--- less than 18 mmt?
• Low prices buys more demandlong term

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SOY COMPLEXWORLD DOMESTIC FUNDAMENTALS

• A tale of two-markets
• The World the US a paradigm shift
• If shortage in US---freight is an issue
• World could be awash in beans but shortage in US
  creates huge dilemma for N S American
  producers.
• Huge N S American Stocks
• What price curbs production?
• Sub 5 Soybeans Possible Fall 2006

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WHEAT OUTLOOK

• Higher prices affecting exports
• Canadian weather helping their exports
• Egypt passed again on US wheat
• US will need to reduce export projections
• 10 more US SRW Wheat planted
• L.T. competition from Australia, Canada, EU-25
• Bulk of export demand will favor HRW and HRS
• Spread Opportunity KC/Chicago (long KWZ/short WZ

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US WHEAT BALANCE TABLE
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Spec Volatility Creates Opportunity