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Morning Outlook

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Overnight Highlights

·         Stocks surged higher in China overnight, shaking off negative economic data. Traders pushed the Shanghai Composite Index 4.9% higher on hopes/expectations that the government will speed up mergers of state-owned enterprises to bolster economic growth.

·         Crude oil traded to a four-1/2 low overnight as a rebound in U.S. drilling activity suggests that production will not drop off in the weeks and months ahead, although prices are bouncing again to modest gains this morning. The dollar is posting modest gains this morning while consolidating just below 3-1/2 month highs on expectations of a rate hike later this year.

·         Commodity prices overall are bouncing modestly this morning. There’s some sense that the commodity complex has reached an area of value, with the equities not performing as well over the past several months. Even so, traders remain cautious, as the major commodity indices have not confirmed a bottom at this point.

·         The focus in the grain and oilseed markets is Wednesday’s USDA crop report. The trade is building in expectations that USDA will cut corn yields by a couple bushels, cut soybeans by 1-1/4 bushel and slash soybean area by more than 1 million acres. The end result would be to cut new-crop corn and soybean stocks to 1.424 billion and 301 million bushels respectively. We believe the cuts are justified, but USDA’s track record in wet years suggests that the agency may not be as quick to make the cuts as the trade anticipates, leaving the market vulnerable to some volatility on Wednesday.

·         Soybeans are likely the key indicator of the grain complex this week. November soybeans had a good week last week, finishing Friday strong and then gapping higher in overnight trade. Disease reports are increasing and production estimates are slipping lower. The question at this point would appear to be one of timing for USDA. The longer-term bias is higher, particularly if disease reports continue to rise over the next couple of weeks, but Wednesday could see some big price swings, depending on wheat USDA does with its numbers.

·         Wheat is once again trying to carve out a bottom, garnering support from firming corn and soybean prices. End user buying is picking up on the recent price break, supporting firmer prices. Saudi Arabia bought 18.6 million bushels of optional origin wheat with 12.5% or better protein over the weekend.

·         Record high prices were seen once again in Europe over the weekend, trimming corn yields amid the ongoing drought there.

·         Drier weather is expected to prevail for the rest of this week across the Midwest except for a few showers in the Upper Midwest on Friday. Temperatures will rise occasionally into the upper 80s to lower 90s in the region, but there are no notable heat outbreaks expected. Drought in the southern Delta continues to trim soybean yields there.

·         Trade expectations for key numbers ahead of USDA’s crop report on Wednesday are as follows:

U.S. Yields & Production

2015-16

2015-16

Corn

Soybeans

Corn

Soybeans

Yield in bushels per acre

Production in billions of bushels

USDA August 12

    Pre-Report Estimates

Average Trade Estimate

164.500

44.700

13.327

3.724

Highest Trade Estimate

167.500

45.700

13.763

3.806

Lowest Trade Estimate

160.400

43.200

13.009

3.570

Previous USDA Estimate

166.800

46.000

13.530

3.885

Water Street Solutions

161.500

44.400

13.098

3.730

 

U.S. New-Crop Ending Stocks

2015-16

Wheat

Corn

Soybeans

billions of bushels

USDA August 12 Report

Average Trade Estimate

0.858

1.424

0.301

Highest Trade Estimate

0.913

1.634

0.402

Lowest Trade Estimate

0.742

1.178

0.210

Previous USDA Estimate

0.842

1.599

0.425

Water Street Solutions

0.913

1.178

0.241

Commodity Weather Group Forecast

In the Midwest/South, weekend rains were near expectations in the Midwest and better than expected in the northern Delta, favoring southern NE, northern/far southern KS, southern/far northern MO, central/far southern IL, central WI, central/far southwest MN, northern/east-central SD, parts of central/southern IA, western KY, western TN, northwest MS, and northeast AR.

While spotty thundershowers will occur in the next day across the northern/eastern Midwest, the best chance for showers will occur from the northern Delta into the Southeast. Drier weather prevails for the rest of the week, except for a few showers in the upper Midwest on Friday. The driest areas are in southern WI, northern IL, far northeast IA, and northwest IN (10% of Midwest soy) currently, but a return of rain will be needed in northern IN, northern OH, and MI (additional 10 to 15% of Midwest) in the 11 to 15 day to recharge moisture unless showers outperform expectations today.

While occasional upper 80s to low 90s occur on the warmest days in the Midwest, there are no threats of notable heat. Rains are aiding northern Delta soy, but southern AR/central MS/northern LA/eastern TX (1/3 of Delta) remain unfavorably dry with occasional heat (particularly early this week). 16 to 30 day showers favor the central/western Midwest and far northern Delta.

In the N. Plains/Canada, weekend showers favored central MN, SD, and the northwest/northeast corners of Saskatchewan. The best chance for delays to N. Plains spring wheat harvest will be in the 6 to 10 day, and 16 to 30 day conditions are not as wet today. Canadian rains will regularly favor the northwest 1/3 of the wheat/canola to aid late growth, and stress is limited to about 10% of the belt. However, earlier losses are not being 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

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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