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Morning Outlook

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Overnight Highlights

·         A private gauge of Chinese manufacturing activity unexpectedly fell to 15-month lows overnight, falling below any of the pre-report trade estimates and suggesting contraction in China’s economy. The data release, which helped spur a 1.3% drop  in China’s Shanghai Composite Index, is expected to spur additional stimulus from the government.

·         The euro is weaker again today as creditors travel to Athens to discuss the details of the next aid package needed to get Greece back on its feet. That, along with the possibility of a fall rate hike supported a stronger dollar overnight, with economists putting the odds of a September rate hike at 50/50 at this point. Regardless the stronger dollar creates a modest outflow of money from the broader commodity sector this morning. Wall Street discussion continues to focus on negative demand for commodities due to a contracting global economy.

·         Corn futures pulled lower once again overnight, consolidating within Thursday’s trading range, but with a weaker bias on ideas that an improved weather pattern is adding bushels back to the crop that were previously claimed by excessive rains in the southern Midwest. Dryness concerns are rising as pollinating corn in the northwestern Midwest previously seen with record high yield potential comes under stress, but traders are currently focused on “high” crop ratings. Key support for December corn is the 50% retracement of the mid-summer rally at $4.08.

·         Soybean futures added to losses from Thursday’s reversal lower after USDA’s weekly export sales report showed declining demand for soybeans and soymeal. Additional pressure comes from the fact that declining soybean ratings still remain above average for this time of year with a more favorable weather pattern in place. November soybeans face support today at the 200-day moving average at $9.75 and a 50% retracement of the mid-summer rally at $9.70.

·         Wheat prices followed the rest of the commodity sector lower overnight with 5-cent losses across the board. Both domestic and global supplies remain large, with traders largely ignoring tour reports from the Canadian Prairies this week reflecting problems with the hard red spring wheat crop there due to the worst drought in decades. Export demand has improved in recent days, but it’s largely been for hard red spring wheat, with demand remaining quite poor for hard red winter and soft red winter wheat. Even so, bottom-pickers have emerged in recent days on the hopes that the market may be finding a near-term low.

·         USDA is scheduled to release both its cattle-on-feed and cattle inventory reports this afternoon at 2 p.m. CDT. The inventory report is expected to show that all cattle and calves are up 2% from a year ago, with beef cows up 3.1% and heifers held for beef cow replacement up 6.6% from the previous year. The data is also expected to show that cattle-on-feed on June 30 were up 1.4% from the previous year.

·         Weekend thunderstorms are expected to favor parts of South Dakota, Nebraska, Iowa and northern Illinois, benefiting dry areas of the region. Showers then favor Nebraska, northern Missouri, Iowa and Wisconsin in the 6- to 15-day period. Scattered showers occasionally reach eastward into the Ohio Valley over the next 10 days, but a net drying will still occur that will ease wetness concerns.

·         Mid-90s°F readings will be limited to mainly southern Nebraska, Kansas, Missouri and areas of the South this weekend, but then expand briefly from Monday to Wednesday into the southwestern quarter of the Midwest before cooling once again.

·         Another rain event is expected early next week into the eastern and northwestern Canadian Prairies, but the rains may miss parts of western Saskatchewan and eastern Alberta, leaving at least a quarter of the wheat and canola belt under stress.

·         Eastern European heat eases this weekend, but moisture will remain lacking for corn. Heat is expected to build next week for South Russia corn. Showers improve for corn and soybeans over the next 10 days in northeastern China. Rain potential is looking more certain for dry areas of Western Australia next week, sufficient to ease developing wheat stress.

Commodity Weather Group Forecast

In the Midwest/South, thundershowers in the past day favored central/northeast ND, central/northwest MN, the NE/KS border, southwest TN, south-central MO, east-central AR, northern MS, northwest AL, eastern NC, and parts of southern GA, but a few showers also occurred in dry sections of east-central SD and southern MN.

Weekend thundershowers will favor parts of SD, NE, IA, and northern IL, benefiting corn/soy growth in the northwest Midwest. Showers then favor NE, northern MO, IA, and WI in the 6 to 15 day. Scattered showers do occasionally reach eastward into the OH Valley in the next 10 days, but a net drying will still occur that will ease wetness concerns and aid soft wheat harvest.

Mid 90s are limited to mainly southern NE/KS/MO/South this weekend but do expand briefly from Monday to Wednesday into the southwest 1/4 of the Midwest before cooling again. Given moisture supplies, yields should not be notably impacted. Dry spots in SD should ease this weekend, but moisture deficits may still persist in parts of southwest MN. The southern 1/3 of the Delta soy will also still see developing stress into August. 16 to 30 day rains favor all but the far northwest Midwest along with mild temperatures, while the Delta showers remain limited.

In the N. Plains/Canada, showers scattered across southern Manitoba, southeast Saskatchewan, and central/northern Alberta, with significant rains also in the northeast 1/2 of the U.S. spring wheat belt. Another event early next week aids late growth in the U.S. belt and into the eastern/northwest Prairies, but rains may still miss parts of western Saskatchewan/eastern Alberta and leave at least 1/4 of the wheat/canola with stress.

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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