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Morning Outlook

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Overnight Highlights

·         China’s Shanghai Composite Index posted its first gains in three days, closing 2.3% higher on the day. The agency responsible for propping up the stock market is seeking another 2 trillion yuan ($322 billion) for doing so, on top of the 2 trillion yuan it has already received, according to sources familiar with the situation.

·         Keep your eye on Brazil, where its currency hit a 12-year low and President Dilma Rousseff’s approval rating slipped to just 8%. Brazil’s investment grade rating is just above junk status. These developments have a significant impact on producer planting and selling decisions within Brazil, with implications for our markets.

·         The dollar consolidated within a narrow trading range overnight as the markets wait for this morning’s monthly U.S. jobs report. Wall Street expects it to show that 212,000 jobs were created in July, down from 223,000 the previous month, with the unemployment rate unchanged at 5.3%.

·         Soybean importers located in northern China’s Shandong province suspended trading activities today amid a crackdown on the alleged illegal sale of cheap GMO varieties to food companies. Shandong serves as China’s largest distribution center for imported soybeans.

·         Be sure to take a look at our flyover crop tour if you haven’t done so yet. It is quite revealing and gives us increased confidence that yields will fall later this fall as the impact of this year’s adverse growing conditions manifest themselves.

·         Grain and oilseed prices consolidated modestly higher overnight as traders begin to look ahead to next Wednesday’s USDA crop report. A Reuters’ survey of trade participants reveals expectations that USDA will drop new-crop corn stocks to 1.424 billion bushels in the report, with soybeans dropping to 301 million bushels. The trade expects USDA to drop its corn yield to 164.5 bushels per acre, down from 166.8 previously, while soybeans drop to 44.7 bushels per acre, down from 46.0 bushels previously. While we expect USDA to eventually drop its yields to levels even lower than this, such a move in its August report would be a larger decline than it has done previously under similar conditions. It tends to be slow to recognize the yield losses in wet years.

·         Weekend showers are expected to reach Nebraska, Iowa, Illinois and Indiana, leaving driest spots primarily in Wisconsin. Some rains provided relief in the Southeast Thursday, but heat and dryness persist in the southern Delta.

·         Showers in southeastern Europe overnight buffer more corn from heat stress the next 10 days, with heat more short-lived in the Former Soviet Union. Rains will be active in Argentina over the next 10 days, keeping a flooding threat focused on the eastern third of its wheat belt. Australian dryness will be most pronounced in the northeastern third of the belt. Moisture stress is possible later in the month.

Commodity Weather Group Forecast

In the Midwest/South, rains scattered across parts of southern ND, east-central SD, central NE, MN, central/northern WI, southern IN, southern OH, central/southwest TN, central KY, northern MS, northern/eastern AL, GA, SC, NC, and near the AR/MO border in the past day. Showers remain limited to mainly the northern edge of the Midwest today, but showers increase later tomorrow into Monday and reach parts of SD/NE/IA/IL/IN.

The showers will help to fill in more recently drier spots in the central/northwest Midwest but may still miss southern WI, far northeast IA, and far northern IL (less than 10% of Midwest corn/soy). A drier break occurs in the 6 to 10 day for most of the belt, but rains return in the 11 to 15 day to keep concerns limited for filling corn/soy.

Mid 90s may briefly reach MO late in the weekend, but the balance of the 2-week period is similar to cooler. Rains favor the southern/western Midwest in the 16 to 30 day, with drier trends in the upper Midwest on the latest outlook. However, the main dryness and heat concerns will persist for late soy growth in TX, LA, southern AR, and central MS over the next 30 days (1/3 of the Delta), trimming yields. Rains provided relief to the Southeast yesterday.

In the N. Plains/Canada, showers favored central MN, Saskatchewan, and central Alberta in the past day, with a few spotty rains in the southern/western Dakotas and southern/northeast MT. Weekend showers will mainly slow early harvest in SD, and interruptions are more limited for the N. Plains in the 6 to 15 day. However, the 16 to 30 day remains fairly wet. While wetter risks remain, the 6 to 10 day is not as wet in southern Canada. However, dry spots are limited to only 10% of wheat/canola at this point given recent rains, limiting additional losses to the already troubled crop in the western belt.

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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