During the course of last week announcements

INTERNATIONAL FUTURES GROUP

LET US SHOW YOU THE FUTURES

LEE A. GAUS, STEVEN D. ERDMAN, THOMAS E. FRITZ

EDITION 78

2010-07-18

UNCERTAINTY DOMINATES MARKETS

During the course of last week announcements the markets attempted to make sense of information that can only be described as inconsistent. These inconsistencies led to a Crude Oil market that closed at $79.01 only fractionally lower than the week before, a Gold market that found itself range bound and then closing $17.70 lower for the week, and the Dow-Jones Index attempting to react to the Quarterly earnings reports closing 118 lower for the week. The other two commodities that the world watches for overall direction that actually made major moves were the September U.S. Dollar that closed down 1.657 for the week and the September Euro that closed .0297 higher for the week. Even the relationship between the Euro and the U.S. Dollar narrowed late Friday as some traders returned to the dollar looking for a degree of safety.

In our view the overall results of the second quarter reporting season have not been bad considering we are coming out of a very troubled economic time. The analysts however are now focusing on the upcoming third quarter reports to see if there is a confirmation of a slowing of the economy. We find it very encouraging that the major banks reported an improvement in the repayment of consumer loans compared to last quarter which leads us to believe the U.S. consumer is doing a little better and able to better meet obligations. Analysts point out that the earnings of the major banks were disappointing because profits from the trading departments were lower. Gee, we thought they were banks.

It does appear that analysts have turned their attention away from the concern over EU sovereign debt and are now attempting to determine to what extent the U.S. recovery is slowing. This task is proving to be harder than one might expect and best summed up by a quote from Fred Rozell, retail pricing director at Oil Price Information Service who stated, "It seems that every other day there’s different data that comes out that suggests that the economy is picking up or the economy is not picking up". We agree totally with Fred and believe these inconsistencies will continue and those commodities lacking definite underlying bullish or bearish fundamentals will continue to find themselves range bound. Perhaps they will be volatile, but at the end the week range bound none the less.

CORN

CORN MARKET 2009-2010 2010-2011 Planted Acres 86.5 million 87.872 million Acres Harvested 79.6 million 81.005 million Yield per Acre 164.7 bushels 163.5 bushels Production 13.110 billion 13.245 billion Carry In 1.673 billion 1.478 billion Domestic Usage 11.365 billion (+125) 11.410 billion Exports 1.950 billion 1.950 billion Ending US Stocks 1.478 billion(-125) 1.373 billion(-200) World Ending Stocks 139.59 MMT(-3.82) 141.08 MMT(-6.24)

December corn closes 12 cents higher on the week; 33 ¾ cents higher for the month.

Weekly exports sales were 678.1KT old crop, 345.3KT new crop.

The US corn crop is rated 73% good to excellent as of 7/11 vs. 71% good to excellent one year ago

38% of the US corn crop has begun its pollination stage as of 7/11 – it is expected to see pollination at 55%-60% by early next week

US interior basis levels have eased noticeably this past week as movement has improved dramatically with the rally in the flat price.

The US export market remains relatively firm as the US exporter has still has 9.5M T. of old crop corn left to ship

Ethanol margins are back to near break even levels.

The corn rally that started June 30th was extended this past week taking its cue from surging wheat prices and fears of sharply lower global coarse grain production. The primary areas of concern are the European Union, Russia and the Former Soviet Union. On July 9th the USDA reported World coarse grain production down 10.81M T. Recent speculation has that figure coming down another 10.0 – 20.0M T. If this speculation comes to fruition corn prices will have plenty of room to move higher. When the USDA reported lower US planted acres and lower than expected Stocks data on June 30th it created a low in prices that is expected to hold until at least harvest time and that is predicated on having a good yield. US weather has become a market factor this past week as some are predicting a hot & dry pattern to grip the US Midwest as soon as late next week. There have been areas of the US Corn Belt that got off to a poor start due to excessive moisture during the month of June. If hot & dry develops it will affect the later planted corn as well as inhibiting the kernel filling of the corn that has already pollinated. It has been hot in much of the Midwest this past week; hot enough to stress corn. There is moisture being forecasted for this weekend but by midweek many are suggesting is when the hotter and drier pattern sets in. Not all agree that an extended hot & dry pattern will set in; if it doesn’t materialize prices could easily break 20-30 cents. If the stressful pattern does indeed set in prices will easily rally another 50 cents. When futures’ prices start trading weather possibilities the price action becomes volatile/erratic. Since June 30th we have seen this on a near day to day basis. When weather forecasts move to the front of corn trading the trade lives and dies nearly every forecast update and that happens three times a day. It is our idea that if the global coarse grain production slips further the US corn market will remain well supported. Until the trade gets a better handle on both US production and foreign production sharp hard weather induced breaks over the near term should be viewed as longer term buying opportunities. The trade has already started thinking about acreage need for next year and with the higher wheat prices we are already hearing plans of increased wheat acreage next year and that would come at the expense of corn.

SOYBEANS

SOYBEANS 2009-2010 2010-2011 Planted Acres 77.5 million 78.9 million Acres Harvested 76.4 million 78.0 million Yield per Acre 44.0 bushels 42.9 bushels Carry In 138 million bushels 175 million bushels Production 3.359 billion bushels 3.345 billion bushels Domestic Usage 1.745 billion bushels (+5) 1.645 billion bushels Exports 1.460 billion bushels (+5) 1.370 billion bushels Ending US Stocks 175 million bushels(-10) 360 million bushels World Ending Stocks 65.35 MMT(-0.12) 67.76 MMT(+0.77)

August Soybeans closed 26 ¼ cents higher for the week, and November Soybeans closed 31 ¾ cents higher for the week

Weekly export sales for old crop were 666,500 tonnes; sales for the new crop were at 558,500 tonnes.

Soybean Meal Export sales were large at 61,000 tonnes, new crop sales at 28,300 tonnes

Soybean Oil Sales were minimal at 13,000 tonnes for old crop, new crop sales at 40,000 tonnes (all of new crop sales to China)

Continued talk of hot dry conditions during critical growing period

South American origins reach export limits

Domestic basis steady in the eastern belt, western U.S. processors are lower

Continued concern regarding the overall condition of the Soybean crop, talk of a La Nina created hot and dry period continued to fuel rallies in the Soybeans. August Soybeans closed at $10.19½ after making new highs for the move and higher highs since April. November Soybeans benefiting from the forecast of the possible hot dry period coming in late July, early August closed at $9.85 after making new highs for the move and higher highs since April. The nearby export market remains strong as export demand has returned to the gulf. We think that the old crop export demand will remain strong as there is solid interest for September through November.

Weather continues to be the main story in the markets as weather forecasters continue to disagree as to the either the extremes of the possible temperatures and the length of the extremes. The U.S. crop is not the only oilseed crop of concern as the flax seed crop in Europe is actually suffering losses and there is a reduction of canola acres in Canada. Should the forecasts of an extreme hot, dry and prolonged prove accurate the impact on soybean prices and products will be forced to higher levels. We want to be cautious here, the forecast for the possible hot and dry period is still a week away if not more. Between now and then there are rains in the forecast for the corn-belt. We remember what Ned Cook, of former Cook Grain once said, "Cook Grain spent two million dollars to determine there is no one that can predict the weather the day after tomorrow". We will be mindful of the weather and the forecasts and look for levels to buy soybeans but we will be guarded in our approach.

WHEAT

WHEAT MARKET 2009-2010 2010-2011 Planted Acres 59.1 million 54.3 million Acres Harvested 49.9 million 48.26 million Yield per Acre 44.4 bu. 45.9 bushels (+2.0) Production 2.216 billion bu. 2.216 billion bu. (+149) Carry In 657 million bu. 973 million bu. (+43) Domestic Usage 1.173 billion bu. 1.196 billion bu.(-20)) Exports 865 million bu. 1.000 billion bu. Ending US Stocks 973 million bu. (+43) 1.093 billion bu.(+102) World Ending Stocks 193.02 MMT(0.12) 187.05 MMT(-6.88)

Chicago September Wheat finishes the week 49 ¼ cents higher, $1.07 higher for the month

Weekly export sales were 309.4KT, sales for the new crop marketing year are running 1.723MT greater compared to 2009 for the same time period

63% of the US winter wheat has been harvested as of July 11 compared to the 5 year average of 65%

US spring wheat is rated 83% (unchanged) good to excellent as of July 11 compared to 71% good to excellent one year ago

Nearby Chicago wheat futures reached levels not seen since June 2009. The European wheat markets are looking at price levels not seen since 2008. Fears are running rampant over the probability of further crop losses in the European Union as well as Russia and the Former Soviet Union. Last week the USDA reported that total foreign wheat production was down 11.5MT; the thinking now is that figure could get closer to a 20.0MT loss. US wheat production is expected to rise again on the next production update on August 12th but most think no where near to the extent that would offset decreases elsewhere in the World. The Australian crop is still considered to be good shape.

The Argentine crop is just starting to get planted. It has turned dry down there as a La Nina weather pattern is settling in. The feeling is that there is enough subsoil moisture to get the crop started but if the dryness persists yield loss will occur. Given the fears that have already gripped the World wheat markets Argentina cannot afford to have a short crop.

Given the rallies of the foreign wheat markets US wheat has become price competitive in the World’s export markets. If the foreign crop losses continue to get worse this will enable the US to regain a larger share of the World export market. Some of the futures’ spreads have been trying to suggest this during the past week’s rally. The sharp rally has prompted some of the best movement of cash in many months. Those that had elected to store wheat months ago in hopes of better prices are now beginning to move that wheat out of storage. The rally that we have seen recently has prompted talk of increased acreage for next year; possibly as much as 3.0 million acres.

Until a better handle can be established on total Global production/foreign losses wheat prices will be prone to still move higher. Token resistance is now at the $6.00 level for September Chicago futures. We say token because the extent of foreign losses are not yet fully known. Given the emotion we saw this past week a move to $7.00 can not be ruled out. The first support level is not until $5.40. Volatility has jumped considerable this past week. That suggests daily trading can and will become very erratic. This past week the US markets took their cue from the European wheat futures. This will continue until more is known about wheat production in the aforementioned areas of concern. The US is not the leader in the higher price action as supplies in this country are more than ample. If the US does garner a greater share of world export business the projected carryout can easily fall to the 900 million bushel level and that is still more than sufficient.

A word to the Wise

Seasonal Risk Disclosure--Seasonal demand & News are always factored into all Commodity markets price at any given time. There are no advantages being implied in the news & information contained in our material.

Material Statements of Opinion --All statements of opinion are based on information are based on information that is beleived to be accurate but is not gauranteed. There are no advantages being implied in the news & information contained in our material.

Past performance is not indicative of future results.　 The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time.　 This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed.　 There is no warranty, expressed or implied, in regards to this information for any particular purpose.　 There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors.　 Investors should consider these RISKS 　 and evaluate their suitability based on their financial conditions.　 No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL.　 This information is provided freely and is NOT in the capacity of a trading advisor.　 NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information.　 Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.