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Morning Outlook

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Overnight Highlights

·         China’s stock market extended losses once again overnight, although they didn’t see the collapse of some other sessions. Nonetheless, China’s Shanghai Composite Index lost another 1.1%, bringing July losses to 15% for the month. Problems with China’s economy continue to be my top concern longer-term, with implications for much of the rest of Asia, which is a major market for U.S. Ag commodities.

·         Meanwhile, the spot dollar index is up 2.6% on the month and WTI crude oil is down 19% as the commodity sell-off continues. Major commodity indices lost 7 to 10% during the past month as the dollar rallied on expectations of an interest rate hike later this year and on concerns about eroding global economic growth.

·         Grain and oilseed prices actually posted modest gains overnight; a pleasant sight after the July rout. The biggest gains came in wheat, where strong weekly export sales surprised traders on Thursday, but garnered little more than a yawn from the market. August soybeans were several cents higher as well on strong old-crop demand, but that contract is preparing to go off the board as the market focuses more on new-crop issues. Corn added a couple of cents overnight, showing the market’s first ability to extend gains from one day to another in quite some time. However, December corn was unable to take out Wednesday’s high, suggesting that traders are still worried about a big corn crop.

·         Sentiment quickly changed from fears of a short-crop to fears of a bumper crop for both corn and soybeans over the past several weeks. That’s not unusual for July in a wet year. The crops tend to mask problems created by a wet start during the month of July, with those problems not revealing themselves again until yield checks are done in late August or September. USDA’s methodology in calculating yields in early August could actually push its yield estimate higher, before dropping lower as harvest advances.

·         The bottom line is that I remain confident that this year’s crops are smaller than currently projected by USDA, suggesting considerably smaller supplies than perceived by many in the trade. However, history suggests that it may be several weeks yet before that is understood by trade participants, leaving the markets vulnerable to choppy trade as fund managers wrestle with conflicting perceptions.

·         Weekend showers are expected to scatter from the central Plains into the Great Lakes, favoring parts of eastern Nebraska, western Iowa and Michigan. Yet the showers may still not fill in across dry sections of northeastern Iowa, southwest Wisconsin and far northwest Illinois. Rains favor the southern and western Midwest in the 6- to 10-day period, recharging moisture for shallow-rooted crops in the eastern Midwest. The 11- to 15-day outlook shifts somewhat drier, but an active 16- to 30-day storm track is expected to aid late crop development.

Commodity Weather Group Forecast

In the Midwest/South, isolated showers were noted near the NE/IA border and from the Gulf Coast into southwest GA/central SC in the past day. Weekend showers scatter from the C. Plains into the Great Lakes, favoring parts of eastern NE/western IA and also aiding MI. However, the showers may still not fill in across dry sections of northeast IA/southwest WI/far northwest IL.

Rains favor the southern/western Midwest in the 6 to 10 day, recharging moisture for shallow-rooted areas in the eastern Midwest and limiting any concerns to very little of the belt. The 11 to 15 day does shift back somewhat drier, but an active 16 to 30 day storm track would return to aid late development.

The showers in the southern Delta offered limited improvement in the past 24 hours, and limited rain chances over the next 2 weeks will allow moisture deficits to expand in AR/MS/LA over the next 2 weeks and into the 16 to 30 day. This will trim soy yields lower in the southern 1/2 of the Delta, but the drier pattern is arriving too late to result in a more severe impact in many of these areas. Any mid-90s or better are limited to mainly the western Plains and Delta over the next 2 weeks, with no more than a brief expansion into MO early next week.

In the N. Plains/Canada, limited showers are aiding maturing spring wheat in the N. Plains, although an upturn in showers next week will cause minor interruptions to early harvest in the Dakotas/MT. 16 to 30 day rains may slow fieldwork but do not appear excessive.

Rain chances have shifted forward to the 6 to 10 day for Canada wheat/canola, offering another chance for beneficial moisture in particularly Saskatchewan. However, earlier losses will not be recovered.

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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