[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

SHORT-TERM OUTLOOK [09 April 2007]

Bonds could be quiet for most of this week, as most of the economic events for this week are of low importance, and few surprising events.

Monday contains some Treasury Auctions which only rarely surprise the bond markets.

On Tuesday the bond market opens with the UBS Store Sales, and the Redbook Retail Survey.

Wednesday has a very powerful event; the FOMC Minutes. The FED is not convinced that inflation is whipped. The commentary from FED official will be of concern for rates. We need to consider that when the FOMC minutes are released on 11 April 2007.

The majority of economists seem to see the FED on hold for the next few months. That could be good given that the bond market has a desire to keep long term rates below the FED-Funds rates.

Friday is also an important day and does contain the report on inflation at the wholesale level; called the Producer Price Index.

MID-TERM OUTLOOK [09 April 2007]

There may be a problem for rates for this quarter. IF homeowners start to see a rebound in housing – it appears that there is some small turn around – their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.

In February we wrote:

We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. That will impact not just corn flakes, but pop/soda, beef, and pig, just about anything we eat.

Some in the Main Stream Media are starting to figure this out. A few weeks back CNN said this:

“Corn: The inflation crop

“The U.S. is set to report a jump in acreage planted as farmers feed the ethanol machine. One byproduct: rising food prices.

By Jeff Cox, CNNMoney.com contributing writer

March 28 2007: 7:20 AM EDT “NEW YORK (CNNMoney.com) -- It's no secret that the rush to ethanol and other alternative fuels has made corn the rock star of the Farm Belt.

“That newfound prominence has big implications for the nation's economy, experts say. Soaring corn prices are pushing up the tab for everything from candy to corn flakes, moribund land values have jumped in many Midwestern farming communities and the crop has become the lynchpin for the budding $40 billion ethanol industry.

“With corn farmers now getting $4 a bushel for their crops - double the price just two years ago - corn's become the crop of choice for farmers. And with the government's release Friday of a key report likely to show a jump of 11 percent or more in the amount of acreage farmers plant with corn this year, the 7,000-year-old crop will remain front and center in the eyes of economists and millions of other Americans.

Mark Schultz, an analyst at Northstar Commodity Investment Co. in Minneapolis, believes that excessive rainfall is the only thing that can slow down the corn market. "The demand continues to get stronger for ethanol and that's going to continue on. We don't see anything slowing that down at the present time," Schultz said.

“But he's also watching other effects of corn's growth, and notes that the increase in corn prices has meant less feed for livestock. Cattle weights have dropped 10 to 20 pounds during the past year, he said. Experts disagree on whether the falling cattle weights will lead to higher beef prices.

William Plummer, a commodities trading adviser at Wextrust Capital based in Chicago, said he is bullish long-term on corn prices.

“‘I don't think we can ramp up production of agricultural products fast enough to compensate for the growth of ethanol facilities in the U.S.," he said.

“‘This price level that we're looking at right now is going to be on the low side or certainly the medium-low side of where we're going to be. We're not going to see corn under three bucks unless there's some sort of catastrophe.’ "

Commentary: Let’s eat food and burn oil.

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com