The corn market continued to fall on Tuesday as traders look at the near perfect weather for crop development, a decrease in demand, and the fall in crude prices as the reasons to sell the market. Most traders are now trading the corn market from the short side as the market was probably over done to the upside and when we find a bottom, will probably be over done to the downside. The September and December contracts closed down around 16 cents breaking into new lows on the close and closing down through a big support area that many technicians have been looking at as support. Traders continue to talk about how the crop is in very good condition, but very late and there is a lot of areas that got corn planted that will be in danger if there is an early frost, but that is a long time away. The USDA will release a crop report on the morning of August 12th that will give us updated supply/demand, acreage, and yield numbers. These numbers will be revised after the USDA re-interviewed many farmers in July. The volume was moderate/strong at 280,000 contracts and funds sold 7,000+ contracts. Technicians say that corn looks “horrible” and is very oversold, but on the other hand, corn is at historically high prices and could continue to drop if the weather for crop conditioning remains excellent and the crude oil keeps dropping. In outside news, the EPA delayed taking action on Texas’s request for a waiver on ethanol production which was viewed as bearish because the market believed the EPA would rule against Texas. If they grant the waiver, this would be viewed as an indication that the gov’t was ready to curb ethanol usage.

Overnight, the corn market continued the sell off after closing through key technical support yesterday afternoon. The corn market opened unchanged/slightly higher last night, but after the opening, it continued to sell off the rest of the night before closing down over 20 cents in most months. The corn market is in a free fall and there is no other way to phrase it. Trading the corn market from the short side seems to be the only way right now until the market can prove we have put into some type of bottom and you will probably see that when we can get corn to close higher 2 days in a row. The bottom line is that corn is at historically high levels and a further correction may continue. The outside markets are also bearish with crude down another $2 today, the US$ is higher, and the stock market continues to go higher. With a higher stock market, there continues to be talk about money coming out of commodities and into stocks. The USDA did announce this morning export sales to Japan of app. 245,000 tones of corn. It will be interesting to see if demand picks up now with the big break in the corn prices. The corn market is called 20 lower this morning but don’t be surprised to see it to go limit down on the opening. The corn market is negative and there is no reason to be a hero and try and pick a bottom. We will probably see a bottom when it spikes much lower and closes higher or much higher on the day or we see corn close up on the day for a couple of days in a row.

Globex Overnight

Contract Last Net Change High Low Volume

ZCU8 552^0 -21^4 574^2 551^2 2880 ZCZ8 571^0 -21^2 593^4 570^0 11867 ZCH9 590^0 -21^2 612^2 590^0 1091 ZCK9 604^4 -19^2 623^6 604^4 99 ZCN9 613^0 -20^2 633^6 613^0 226

Early Opening Calls: down 18-20c

Top News

-- Exports of Corn from Thailand are expected to fall by 10%, if as analysts expect, India resumes some Corn exports also. -- Aug 6th is deadline for Japan's SBS tender for 57,000 mt of feed Wheat & 335,000 mt of feed Barley. Delivery is expected from Aug to end of Nov. -- Some analysts are suggesting markets are facing an announcement from CFTC soon on limiting speculative trade, either likely in the form of position limits or an increased margin -- Russian ag ministry data shows through July 23, 24.3 mln mt of grain has been harvested, that figure stands 758,300 mt above last year's harvest. Harvest so far has covered 6.5 mln ha, about 14% of the total area expected for harvest. -- With July 24th deadline looming US EPA says it will not have taken a decision on whether to grant Texas an exemption reducing the amount of ethanol blended into gasoline this year by 50%. -- SemGroup Energy Partners filed for bankruptcy Tuesday following significant trading losses - $2.6 billion in debt -- Corn futures were mostly higher on the Dalian Exchange, Jan rose 2 yuan to 1,882 yuan/mt -- eCBOT Corn Vol. 242,939 ; Pit Vol. 28,408 ; Open Interest change: - 7,308 -- Weather: 6-10 Day Forecast: Below Temps East, Above West. Normal to below Precip. The western Corn Belt will see showers and thunderstorms today. Thursday into Sunday will see chances of showers and thunderstorms in all areas of the Corn Belt. Temps near normal. -- Outside markets. Energy -3.09 at $127.95; Gold & Silver: -9.0 at $939.6 and -0.280 at $17.729 ; US $ trading better vs. Euro and Yen.

Cash Markets

-- CIF Corn steady up 2 . July +?? to +26, Aug. +?? to +30, Sept. +39 to +42,Oct. +32 to +34, Nov. +35 to +37, Dec. +35 to +40, Jan. +32 to +34

TREND:

It is very interesting that I am getting a lot of crop reports from peripheral acres that are not so good. Southern Tex feed grain harvest in non-irrigated areas is not good at all with many acres under 50 bpa. Now hearing reduced yields in harvest in Louisiana. A good part of the corn planted in No Carolina died before the rains came. While not big areas or areas with big yields, one has to question the growing total corn yields being tossed around---but corn is in a free fall and could not even bounce today when the wheat and beans turned on over sold conditions. Down side counts to 5.77 are 4th counts and may be only used as an "about". There continues some consumer pricing in corn on a daily basis. This has firmed domestic corn basis slightly in all parts of the market. Exports are not so lucky with offers up but bids not following? May be the increase of feed wheat developing in FSU countries and it rains on harvest?

Keeping in mind the increased cost of growing corn this year---and next, the market is in jeopardy of losing some badly needed acres next year if this continues into the fall? Can wheat buy back acres again? Never before been able to sell these prices prior to planting---does that sound familiar? USDA has apparently one more time decided inaction on CRP acres is okay?

I looked at corn open interest on July 1---by July 10 it was reduced 43 thou contracts. From July 10 to today the open interest is back up 30 thou contracts. Long liquidation for 10 days and then new shorts for the following 10 days.

What does this mean---corn will have more buying for a day or two when the market confirms a bottom. But the buying will be on short covering and most likely take two days and then be done.

If you have any questions, or if you would like to discuss specific trade recommendations on any markets, contact me directly.

Jim Riley Linn Group 877-787-6278 jriley@linngroup.com

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