�PitNews.com Magazine May �007 Mid-Month Review ��

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The May Crop Report and Corn By: Scott Barrie

United States and world Corn production is expected to be at record levels and record total Corn supply of 13.4 billion bushels. U.S. production is estimated at 12.5 billion bushels, up 18% from last year, based on projected plantings of 90.5 million...

04In this issue...

May �007Commodity Trader’s Almanac UpdateBy: Scott BarrieSo far in May, the Hog market has been breaking – as is the normal tendency for Hog futures in May. Slaughter rates have been steady, and the industry appears to be well prepared for the “BLT” season. Another often ignored, but fairly consistent...

07

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GENERAL DISCLAIMER: THE DATA CONTAINED HEREIN IS BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABLILITY, ACCURACY, OR COMPLETENESS; AND, AS SUCH IS SUBJECT TO CHANGE WITHOUT NO-TICE. PITNEWS.COM, ITS EMPLOYEES AND CONTRACTORS WILL NOT BE RESPONSIBLE FOR ANY-THING WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HEREIN. THE OPINIONS EXPRESSED HEREIN ARE NOT NECESARILY THOSE OF PITNEWS.COM, ITS EMPLOYEES OR AFFILIATES.

DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. SPECULATIVE VEHICLES SUCH AS FUTURES, OPTIONS, AND FOREX MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES POSITION.

SEASONAL DISCLAIMER: SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FU-TURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLY-ING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSAC-TION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE: RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRE-SENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSS-ES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PRO-GRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PRO GRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

U.S. Corn Production

The May Crop Report and

by: Scott Barrie

U nited States and world Corn production is expected to be at record levels and record total Corn supply of 13.4 billion bushels. U.S. production is estimated at 12.5 billion bushels, up 18% from last year, based on projected

plantings of 90.5 million acres planted and a yield of 150.3 bushels per acre.

Just as Corn production is at a record high, so is usage – thanks in large part to growing ethanol demand.

The supply side estimate for the 2007/08 U.S. Corn crop is slightly larger than anticipated, despite slower than normal crop progress. The USDA is estimating a yield of 150.3 bushels per acre, and harvested acres of 82.9 million is very close to anticipated values based on normal assumptions – see May 2007

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PitNews.com Magazine article The May Crop Report & Stocks to Usage for details.

The demand side of the equation, however, more than balances out record production and supply.

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In past “Very Tight” fundamental situations, December Corn futures have experienced an average rally of +21% above their May settlement price, an average break of -11% below their May settlement price, and finished the month of November +19% above their May settlement price on average. From these behaviors, traders can estimate that December ’07 Corn futures. See Figure 1.

Using Friday, May 11th’s settlement price of 374 ½ basis December ’07 Corn (C2007Z), we can estimate that prices should be in the range of 333-445 between May and November.

...traders should remember that these are “average” levels, not absolutes!

Traders should use the above ranges much like they do a Stochastics Oscilator. Above 445, December ’07 Corn futures may be deemed “expensive” while prices below 333 should be considered “cheap.” However, traders should remember that these are “average” levels, not absolutes! Prices can go above or below the projected range, just like “overbought” markets can continue higher and “oversold” markets can continue lower.

Just as Corn production is at a record high, so is usage – thanks in large part to growing ethanol demand. Total U.S. corn use in 2007/08 is estimated to increase substantially despite lower feeding and exports, as ethanol Corn use is expected to rise 58 percent. For the first time, ethanol use is projected above exports at 3.4 billion bushels, reflecting continued expansion in ethanol plant capacity and profitability for ethanol producers.

Thus, despite record production, the sharply higher use has resulted in little change in the supply to demand relationship for Corn, according to the most recent USDA estimates.

Using The May Crop ReportThe information contained in the May Crop report is important to traders, as it gives an overview of the supply and demand situation. But, this information has to be put into perspective, just like traders put price behavior into perspective through Technical Analysis.

Using the Stocks to Usage ratio and our “Modified Grandmill Analysis” - as explained in the May 2007 PitNews.com Magazine article The May Crop Report & Stocks to Usage – traders can use this report to estimate the range of prices in the coming months.

The USDA estimates that 2007/08 Ending Stocks for U.S. Corn will be 947 million bushels. With estimated usage of 12,465 million bushels, a stocks to usage ratio of 7.6% can be calculated (Ending Stocks/Total Use or 947/12,465 = 0.076).

By historical standards, this is a “Very Tight” supply/demand situation. Using the following table, traders can estimate the range of prices for December ’07 Corn futures between the end of May and November.

December Corn Modified Grandmill TableDecember Corn Changes From May to November

Versus Stocks to Use Ratio<10% 10-15% 15-20% 20-25% >25%

Very Tight Tight Normal Plentiful Excessive

%Rally 21% 18% 10% 3% 1%%Break -11% -11% -20% -23% -2%%Close 19% 1% -15% -20% 6%

Figure 1

Charts courtesy of Track ‘n Trade Pro. Visit www.TracknTrade.com for a FREE Trial!

U.S. Corn Usage

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For example, last year this same methodology estimated December Corn first traded below the estimated low and then turned and rallied to above the estimated high. See Figure 2.

Traders were able to buy “cheap” Corn and sell “expensive” Corn last year. Of course, even though the supply/demand situation currently is very similar to last year, this year will be different… the past never repeats itself exactly!

But, armed with an understanding of the Supply/Demand situation, traders can make an educated guess about the direction of future prices. Despite record estimated supply, traders can readily see - using the Stocks to Use ratio (“Modified Grandmill” Method) – that the supply situation is very tight by historic standards. Couple this with slower than normal planting progress currently, and traders may well wish to look for 450 December Corn futures sooner, rather than later.

Subscribers to Scott’ Barrie’s Seasonal Strategy Newsletter in May will also receive a special report detailing the 2007/08 Grain Crop and analysis for Corn, Soybeans, Soymeal, Soyoil, and Wheat.

Scott Barrie is former Chicago Exchange floor trader, as well as a respected author and speaker. Scott is the author of the 2007 Commodity Trader’s Almanac, and the monthly Seasonal Strategies Newsletter, available at: www.CommodityAlmanac.com

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May 2007

Mid-Month Update

By: Scott Barrie

S o far in May, the Hog market has been breaking – as is the normal tendency for Hog futures in May. Slaughter rates have been

steady, and the industry appears to be well prepared for the “BLT” season.

Another often ignored, but fairly consistent, market tendency in May surrounds the Softs, a group of futures commonly called “food & fiber.” The Softs group consists of Coffee, Sugar, Cocoa, Orange Juice, Cotton, and Lumber. Though not a homogenous group – like energies, livestock, metals or grains – several members of this complex do share a tendency towards weakness in the second half of May and beginning of June. In this article we will highlight two of these: Cocoa and Orange Juice.

10PitNews.com Magazine May �007 Mid-Month Review 1010

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Mid-Crop Cocoa PressuresThe majority of the top Cocoa producing nations are in Africa – despite the fact that Cocoa is native to South America. The Ivory Coast, Ghana, and Nigeria account for over half of the world’s production.

Cocoa comes from trees. Twice a year, the Cocoa tree produces pods which are harvested for their beans. The main crop harvest

Top � Cocoa Producers

Rank Country % of Total1) Ivory Coast 38.0%2) Ghana 19.0%3) Indonesia 13.0%4) Nigeria 5.0%5) Brazil 5.0%

World Production 3440

HYPOTHETICAL PERFORMANCE RESULTSJuly Cocoa Futures Changes in $/Tonnes.

Enter Approximately May 1�th / Exit Roughly June 7thEntry Entry Exit Exit Closed Closed High LowDate Price Date Price P&L (pts) P&L ($) Price Price

5/16/2006 1553 6/7/2006 1473 80 $800.00 1560 14555/17/2005 1438 6/7/2005 1435 3 $30.00 1469 13925/18/2004 1320 6/7/2004 1333 -13 ($130.00) 1476 12995/16/2003 1746 6/6/2003 1505 241 $2,410.00 1754 14205/16/2002 1595 6/7/2002 1549 46 $460.00 1620 15415/16/2001 1092 6/7/2001 904 188 $1,880.00 1109 9025/16/2000 837 6/7/2000 817 20 $200.00 874 8065/18/1999 953 6/7/1999 1049 -96 ($960.00) 1121 8605/18/1998 1715 6/5/1998 1600 115 $1,150.00 1758 15995/16/1997 1467 6/6/1997 1413 54 $540.00 1502 14085/16/1996 1413 6/7/1996 1396 17 $170.00 1429 13375/16/1995 1313 6/7/1995 1294 19 $190.00 1369 12725/17/1994 1257 6/7/1994 1318 -61 ($610.00) 1466 12365/18/1993 883 6/7/1993 849 34 $340.00 904 8485/18/1992 921 6/5/1992 855 66 $660.00 933 850

In points In $’s In points In $’s# Trades 15 Total P&L 713 $7,130.00 Max Draw -209 ($2,090.00)

# Win 12 Avg. P&L 48 $475.33 Avg. Draw -56 ($560.67)# Loss 3 Avg. Win 74 $735.83 Min. Draw

on Win % Win 80% Avg. Loss -57 ($566.67) -56 ($560.00)

Past performance is not necessarily indicative of future results – see disclaimer. Data compliments of Gecko Software, Inc.

in Africa typically runs from September/October through March. The main crop of the Cocoa harvest accounts for 75-80% of total production. The mid-crop harvest runs from May through August, accounting for 20-25% of total production.

Cocoa prices have typically come under pressure at the beginning of the mid-crop African harvest.

Cocoa prices have typically come under pressure at the beginning of the mid-crop African harvest. Main crop supplies are still relatively new, thus the added supply tends to pressure prices. This can be seen by the fact that July Cocoa futures have declined in 12 of the last 15 years – by an average of -$48/ton – between mid May and the end of the 1st week of June (05/16 and 06/07, respectively).

11PitNews.com Magazine May �007 Mid-Month Review 1111

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Technically, the trend in Cocoa is mixed with higher highs – but below recent highs – and lower lows. This ambiguity in the trend is manifesting itself in a very large triangle pattern. The high of the pattern (upper left corner) is also part of a “double top” pattern, which could also be viewed as extremely bearish.

With the Cocoa market at or near resistance levels, traders may wish to view a break below 1900 on a settlement basis as a sign that the current price swing at 1948 (made on 05/10/07) is a major top, therefore look for prices to break out to the lower side of the current triangle pattern – or at least test it.

Should prices break out of the current triangle pattern by violating 1757 to the downside, traders should expect prices to continue lower to roughly 1566, as often markets move their distance after a pattern breakout. Chart courtesy of Track ‘n Trade Pro.

Visit www.TracknTrade.com for a FREE Trial!

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HYPOTHETICAL PERFORMANCE RESULTSJuly Orange Juice Futures Changes in Cents/Lbs

Enter Approximately May 1�th / Exit Roughly June 1�th Entry Entry Exit Exit Closed Closed High LowDate Price Date Price P&L (pts) P&L ($) Price Price

5/24/2006 152.90 6/13/2006 153.05 -0.15 ($22.50) 160.80 149.005/24/2005 95.45 6/13/2005 93.30 2.15 $322.50 97.25 92.055/24/2004 54.70 6/14/2004 54.90 -0.20 ($30.00) 57.00 54.505/23/2003 87.65 6/12/2003 83.85 3.80 $570.00 88.00 81.805/24/2002 91.50 6/13/2002 91.00 0.50 $75.00 92.20 90.105/24/2001 82.15 6/13/2001 77.05 5.10 $765.00 83.10 76.905/24/2000 83.35 6/13/2000 82.40 0.95 $142.50 84.00 80.805/24/1999 87.90 6/11/1999 90.70 -2.80 ($420.00) 95.60 85.505/22/1998 110.95 6/11/1998 105.00 5.95 $892.50 111.80 101.205/23/1997 81.60 6/12/1997 77.00 4.60 $690.00 82.90 76.005/24/1996 121.95 6/13/1996 120.15 1.80 $270.00 124.90 118.505/24/1995 107.55 6/13/1995 101.45 6.10 $915.00 110.70 97.755/24/1994 96.85 6/13/1994 95.25 1.60 $240.00 102.00 93.005/24/1993 112.10 6/11/1993 106.00 6.10 $915.00 116.85 105.755/22/1992 133.70 6/11/1992 131.10 2.60 $390.00 135.00 130.00

In points In $’s In points In $’s# Trades 15 Total P&L 38.10 $5,715.00 Max Draw -7.90 ($1,185.00)

# Win 12 Avg. P&L 2.54 $381.00 Avg. Draw -2.79 ($418.00)# Loss 3 Avg. Win 3.44 $515.63 Min. Draw

on Win % Win 80% Avg. Loss -1.05 ($157.50) -5.15 ($772.50)

Past performance is not necessarily indicative of future results – see disclaimer. Data compliments of Gecko Software, Inc.

With fresh supplies coming in, typical slow demand this time of the year and technical indications of lower prices on the horizon, traders may wish to take a second look at the Cocoa market.

Lack of Crop Risk Pressures O.J. PricesAs we have seen in recent years, the Gulf Coast of Florida can be a dangerous place. Battered by hurricanes, the areas of Orange groves have been stressed by major winds, flooding, and the full force of several hurricanes. Luckily for Orange producers, the hurricane season ( June through October) tends to occur after the trees have bloomed.

During blooming, Orange trees are extremely susceptible to damage. The U.S. Orange crop blooms in February and March; hence, the big risk is not hurricanes, but frost.

However, by May the weather has warmed sufficiently and the trees are maturing their fruit. As such, the risk to the crop has decreased, and future supply becomes more certain. This certainty of supply tends to be priced into the market through

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lower prices. In 12 of the last 15 years, July Orange Juice futures have declined between mid-May and mid-June (05/16 and 06/16, respectively). On average, prices have declined by -2.54 cents/lb on average.

O.J. futures were hit hard in April, and now are attempting to rebound somewhat.

O.J. futures were hit hard in April, and now are attempting to rebound somewhat. Prices have retraced over 50% of the April slide, but are starting to look extremely

Chart courtesy of Track ‘n Trade Pro. Visit www.TracknTrade.com for a FREE Trial!

overbought.The entire rally since bottoming on

April 19th at 146.00 has been contained in a narrow ascending range. If O.J. breaks out of this range to the downside, it could be a signal that prices may well go back down and test the mid-April lows once again.

Given the technical picture, traders should view a downside breakout of the current ascending range as confirmation for the seasonal tendency.

ConclusionMany traders exist in a vacuum, only using one source of information (often technical or fundamental). However, most would be much better of if they simply opened their eyes to the plethora of information

and techniques available to them, and how many of these are reinforcing to one another.

Look at Orange Juice, for example. Traders may consider short positions with much more confidence on a technical breakout, knowing that the crop is blooming, not extremely vulnerable to hurricanes, and that prices have fallen over the next 4 weeks 80% of the time between 1992 and 2006. Each of these facts reinforces the other, and as such may well lead to an informed speculative decision by the trader.

Of course, having all the facts line up does not guarantee that one will be correct in their prediction of the market’s next move. But, as the old adage says…”chance favors the informed mind” and if trading is important to you, it may pay to be informed about historical trends and tendencies as well as the current technical/fundamental situation.

Scott Barrie is the author of the Commodity Almanac’s Seasonal Strategies Newsletter as well as the 2007 Commodity Trader’s Almanac. Scott’s background is diverse within the industry, having not only traded/worked on the floors of the major Chicago Futures/Options Exchanges but also having managed a private fund, done risk management for several large banks and clearing firms. For more information on the seasonal nature of the markets visit: CommodityAlmanac.com