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Morning Outlook

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Overnight Highlights

·         Caution was the name of the game overnight. China’s markets quieted, although confidence remains low that the structural issues have been addressed. The Federal Reserve will release its updated monetary policy statement at 1 p.m. CDT today, with possible significant implications for the dollar and for the commodities. Pending home sales data comes out later this morning, but Wall Street is also bracing for tomorrow morning’s measure of second quarter economic growth, with expectations that the data will show GDP growth of 2.9%.

·         The commodity complex has a slight negative bias this morning, but that’s more reflective of caution than any driving forces as this point. Grain and oilseed prices are weaker. Soymeal bounced off key chart support Tuesday, giving modest strength to August soybeans on good demand. However, new-crop contracts are under modest pressure on perceptions of “near-perfect weather.”

·         That talk of “near-perfect weather” proved to be a greater problem for corn. The feed grain posted an impressive upside reversal late on Tuesday, but essentially negated that with action in the thinly traded overnight market. That suggests that corn prices remain vulnerable to greater weakness on ideas that problems created by excessive rains early in the first half of the growing season have been healed or are in the process of such. That’s not an unusual assumption for the market to make in wet years at this time of year.

·         Wheat prices bounced off key support Tuesday, but are back down retesting that support today. This market is trying to carve out a bottom, but isn’t getting much support from the other markets at this point. Additional pressure came from Day One of the industry tour of the hard red spring wheat crop tour. The first day average yield was 51.1 bushels per acre, which was a record for the tour going back to 1994.

·         Today’s weather models are slightly wetter for the Ohio River Valley next week. Tuesday’s model runs raised the risk of a flash drought across much of the eastern Midwest should early August rains falter. Meanwhile, southern Delta dryness continues to build. The South will be hotter next week, but the Midwest should see mostly 80s°F.

Commodity Weather Group Forecast

In the Midwest/South, locally heavy rains favored parts of southern/eastern IA, far southeast MN, south-central WI, northern IL, northern MO, northeast KS, far southeast NE, western KY, and north-central TN in the past day. Showers diminish in the central Midwest today, with a few widely scattered storms redeveloping in the east later in the day and in the north on Friday night. However, the best shower chance is late in the weekend with a disturbance that scatters storms into the central/northwest and favors spots from the NE/SD border into IA/IL.

Rains expand in the central/southeast Midwest in the 6 to 10 day and lift into the northwest in the 11 to 15 day. While a few gaps in coverage could still occur in MI, far northern IN, and far northern OH, the outlook for next week is wetter in the OH Valley overall compared to yesterday. Mid to upper 90s only extended as far north as central MO/far southern IL yesterday. While not quite as cool in the 6 to 15 day, notable heat should be limited to the Delta/Southeast and KS over the next 2 weeks, with mostly 80s in the Midwest.

Showers should still be sufficient to limit stress for soy in the Southeast, but better than 1/3 of the Delta will see stress build due to heat/dryness in AR/LA/MS. Concerns remain mainly focused on the Delta during the 16 to 30 day as well.

In the N. Plains/Canada, rains favored west-central Manitoba and much of Saskatchewan yesterday, and recent rains have likely trimmed further stress back to only 10 or 15% of the Canadian wheat/canola. Showers focus on the north in Canada in the next 2 weeks, while limited U.S. showers aid harvest. However, the 16 to 30 day trended wetter in MT/SD and could slow harvest.

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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