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Morning Outlook

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Overnight Highlights

·         An Iranian nuclear deal was reached overnight, opening the door for a return of Iran to global trade, including increased oil flow into a world market struggling to overcome a glut of supplies. Congress has 60 days to review the deal, but President Obama could veto any rejection of it.

·         The deal is being hailed as an historic breakthrough, while others consider it the beginning of a nuclear arms race in the Middle East. Regardless, the dollar was lower, but is rallying to erase its losses this morning. Crude oil was lower, but is rallying to erase its losses as well after holding recent lows on the charts.

·         Saudi Arabia opened the spigot in June, pumping a record high 10.56 barrels per day during the month. The world’s top crude oil exporter reaffirmed its commitment to defend market share by pumping lots of oil onto the world market.

·         An Egyptian tender to buy wheat for late August delivery looks to be filled by Russia and Romania once again, with low offers from both coming in at $5.44 per bushel, well below U.S. prices.

·         USDA’s weekly crop progress report late on Monday left corn condition scores unchanged at 373 (500=perfect crop) after rising slightly the previous week. Illinois, Indiana and Ohio continue to see significant losses that are offset by gains in other states. The 10-year average for the week is a score of 356.

·         The steady to slow increase in crop ratings at a time when they seasonally tend to trend lower pushes crop yield models upward, which tends to make it difficult for fund managers who don’t understand agronomics to believe that there is a problem with the crop. For example, the wet year of 2010 saw even higher ratings at this time of year, with USDA actually boosting its yield estimate from 163.5 up to 165.0 in its August crop report, but the final yield that year came in at 152.8 bushels per acre.

·         The soybean condition index score dropped 3 points to 360 on Monday afternoon, but remains above the 10-year average of 356. Again, big losses in Illinois, Indiana and Ohio were partially offset by gains in other states. The garden spot of the Midwest continues to be in the northwestern third of the Midwest for both corn and soybeans.

·         My seasonally adjusted yield model dropped to 44.2 bushels per acre, down from 44.5 bushels the previous week and below USDA’s estimate of 46 bushels per acre. If realized, it would likely project ending new-crop soybean stocks of 300 million bushels or lower. USDA raised its soybean yield estimate from 42.9 up to 44.0 bushels per acre in August 2010, with a final yield that year of 43.5 bushels per acre.

·         Corn futures rose to new highs for the move overnight, before reversing back to modest losses this morning. The market is in over-bought territory and past due for a pull-back, but has thus far been resistant to such a move.

·         November soybeans surged to $10.45 per bushel in thin overnight trade, finally taking out the July 1 high of $10.40 on the charts. However, it is now nearly a dime off its high and trying to decide whether it will make another attempt higher or give in to selling pressure and post a larger correction lower.

·         Rains concentrated on the eastern Midwest Monday. The next even the latter half of this week should provide beneficial moisture to Nebraska and Iowa for pollination. That system is expected to pull wetness in the eastern Midwest northward, relieving stress somewhat in the near-term. In fact, the outlook for the next two weeks is much drier for saturated areas of the eastern Midwest, especially beyond the 10-day period.

·         High temperatures in the mid-90s to mid-100-s covered areas of the southwestern Midwest Monday, but should fade away the next three days before resurging again next weekend in the western quarter of the belt. Kansas and Nebraska corn pollination will likely be impacted by the heat, but other areas are not expected to see damaging heat levels.

·         Rains are expected to continue favoring northern and eastern areas of the Canadian Prairies, with the southwestern third of the wheat/canola belt remaining under yield-reducing stress. Showers later this week should benefit much of the Northern Plains spring wheat belt.

·         A heat surge over the next 10 days over Europe is expected to stress pollinating corn, especially in France and Hungary.

·         Northern oilseed areas of India have a better chance of showers next week to avert crop stress.

·         Rains continue to benefit southern and eastern areas of Australia wheat belt this week. Light showers in the western third of the belt will likely hold off crop stress.

Commodity Weather Group Forecast

In the Midwest/South, rains concentrated in N. IL, much of IN, OH and MI yesterday with heavier amounts in E. IN and W. OH exacerbating wetness problems. The next shower event the latter half of this week provides a beneficial boost to moisture in NE/IA which will benefit corn pollination. That shower system should pull north of most of the wetter eastern Midwest areas, easing excess moisture.

Much of the Midwest should see showers along a cold front pushing across the belt in the 6-10 day which keeps moisture adequate in most areas with the possible exception of SD. Rains in the east should not be heavy enough to add to wetness problems, especially given a drier 11-15 day outlook there.

Highs in the mid-90s to mid-100s covered KS, S. NE, and W. MO but will fade away the next 3 days and then resurge again next weekend in the W. ¼ of the Midwest. KS/NE corn pollination will be most likely to see yields shaved back by the heat but other areas remain unlikely to see enough heat for damage. Rains in the Southeast are beginning to pick up and remain active enough in the next 2 weeks to avert yield loss for most soy/cotton. Delta dryness over next 2 weeks is likely to begin to stress cotton/soy crops.

In the Plains/Canada, rains were limited to W. KS in the C. Plains and will remain limited enough for winter wheat harvest to push to completion in next 2 weeks. Can. Prairies rains were noted in C. Alberta and N. & E. Saskatchewan yesterday. Rains favor N. & E. areas this week, but SW 1/3 of belt is likely to remain too dry and lose further yields for wheat/canola. Showers later this week should benefit much of the N. Plains spring wheat filling and will keep dry spots isolated.

Morning Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

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.

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