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Morning Outlook

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Overnight Highlights

·         The outside markets were relatively quiet overnight amid a slow news cycle for once, with the euro bouncing modestly and the dollar posting small losses. Crude oil slipped modestly to fresh three-month lows on worries that Iranian oil will soon be dumped on a world swimming in supplies.

·         China offered 210 million bushels of reserve corn on the auction block overnight, but a calendar-year low of 2.6 million bushels were taken. Reserve supplies are simply too expensive, with end users preferring alternative imported supplies. This leaves Chinese supplies large going into this year’s harvest, with government officials trying to figure out new ways to block those imports. End users have been depending on Black Sea corn and U.S. grain sorghum for their needs, but recently they’ve been quietly buying up supplies of U.S. corn as well, one cargo at a time.

·         Bloomberg reports that China’s economy may be worse off than is being reported by its government. A deeper look at the formula that China uses to calculate its gross domestic product growth reveals that it may be miscalculating price changes. Using nominal GDP that factors in price changes the data suggests that China’s economy may be growing as much as 2 percentage points slower than year ago levels, with significant implications for commodity demand.

·         Near-term, China’s Shanghai Composite Index rallied 3.5% overnight after a state-backed agency that provides finance and liquidity to the market revealed that it has 2.5 to 3 trillion yuan ($483 billion) available to support stocks.

·         Germany’s parliament votes on whether to accept the Greek bailout package. Opposition is growing within Germany for further support for Greece, but passage is still anticipated.

·         Grain and oilseed prices extended losses overnight as traders focus on a generally improved weather outlook, with the wettest areas trending drier and drier areas seeing timely rains.

·         Midwest heat is expected to fade quickly this weekend, with a brief return next weekend. Showers linger in the eastern quarter of the Midwest today with the main rains along a cold front crossing the belt from northwest to southeast this weekend. Showers scatter across the Midwest in the 6- to 10-day period, favoring northwestern areas of the belt. More limited showers in the 6- to 15-day period ease problems in eastern areas.

·         Showers favored northern and eastern quarters of the Canadian Prairies Thursday. Remaining dry areas in southern Alberta should see rains in the next week. Showers should also benefit Northern Plains spring wheat filling over the next 10 days before tapering off again.

·         Heat is expected to ease in western European corn areas along with weekend showers, but eastern European corn areas are expected to see stress build over the coming week.

·         Showers are expected to aid wheat in drier areas of the eastern third of Australia’s belt next week, while showers are expected to remain too light to provide relief in the western third.

·         Persistent heavy rains are expected to finally ease corn harvest delays in southern Brazil in the 6- to 15-day period, limiting additional damage to wheat as well.

Commodity Weather Group Forecast

In the Midwest/South, rains favored IA, WI, N. MN, E. ND, N. IL, N. IN, and MI yesterday. The rains benefit pollinating corn and blooming soy in the W. Midwest but slowed soft red wheat harvest in the NE 1/4 of the Midwest belt. Showers linger in the E. 1/4 of Midwest today with the main rains along a cold front crossing the belt from NW to SE this weekend.

Showers still scatter across the Midwest in the 6-10 day favoring the NW Midwest, keeping dryness risks isolated. More limited showers in the E. in the 6-15 day should ease soft red wheat harvest delays. Heat (mid-90s to lower 100s) the next 1-2 days is limited to KS/NE with milder weather much of next week aids pollination. Another surge of heat is likely in the W. 1/4 of the Midwest the following weekend but favored models keep it short lived with main risk for corn pollination stress in NE/SD.

The Southeast is likely to see showers pick up the latter half of next week keeping most soy/cotton stable. Rains still graze the N. Delta later next week but the majority of the belt is still likely to be dry. Increasing heat should draw down moisture supplies enough for the onset of stress on cotton/soy areas by early August as dryness should persist in the 16-30 day.

In the Plains/Canada, rains were minimal in the wheat harvest areas of the C. Plains and remain limited enough in the next 2 weeks to allow most of the remaining harvest to finish. Can. Prairies rains favored N. & E. quarters of the belt yesterday, The main remaining dry area in S. Alberta should see rains in the next week ease stress for spring wheat filling and canola pod development.

Showers benefit N. Plains spring wheat filling over next 10 days, then taper off aiding maturity.

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

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