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Morning Outlook

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Overnight Highlights

·         China shocked the investment world overnight when it devalued its yuan by 1.9%, the most in two decades in an effort to stimulate exports and to move its economy closer to market pricing to kick start it amid continued signs of an economic stall. The move emphasizes the seriousness of the deepest economic slowdown since 1990, raising concerns about commodity demand from the world’s most populated country. China’s stocks were modestly lower overnight.

·         The dollar hovers near Monday’s low this morning amid signs that the greenback is running out of buyers. That would normally be positive for the commodity sector, but concerns about China are thus far providing a drag to commodities, from crude oil to soybeans. Gold was one of the few commodities able to move higher amid the renewed global economic concerns.

·         Crude oil came under additional pressure overnight when data showed that Iran is pumping the most crude oil since 2012 as it ratchets up production in a world already burdened with an oversupply.

·         Greece came out of all-night talks with creditors with an agreement on the terms for its third bailout package. The package is worth 86 billion euros ($94 billion). The deal comes in time to enable Greece to make its August 20 payment to the European Central Bank.

·         Corn and soybean prices succumbed to broader commodity selling overnight, but also felt renewed selling pressure amid stable to higher crop ratings in early August. A series of private tours and crop estimates continue to argue for big crops; something we saw in 2010 as well. All of the above creates increased anxiety ahead of tomorrow morning’s USDA crop report. The trade had built in expectations for USDA to substantially cut new-crop corn and soybean stocks. In the end, we will likely see continued choppy trade until the combines start to roll to provide actual harvest data.

·         CONAB, Brazil’s equivalent of our USDA, raised its current-year corn crop to 84.3 million metric tons this morning, up from 81.81 mmt previously and up from USDA’s July estimate of 82.0 mmt. These extra bushels are expected to compete with U.S. corn on the global market. CONAB puts marketing year corn exports at 26.40 mmt (1.039 billion bushels), up from USDA’s estimate of 26.0 mmt.

·         Patchy showers will be possible Thursday to Saturday in the Upper Midwest, but most areas will remain warm/dry this week. Low to mid-90s°F readings are expected across the Dakotas late this week, peaking Thursday and Friday. However, highs otherwise top out in the 80s and low-90s over the coming two weeks. Driest areas are scattered across portions of Wisconsin, Illinois, Indiana, Iowa and North Dakota. Rains are expected to return in the 6- to 15-day period, including a frontal passage in the 6- to 10-day period, which is expected to narrow dry areas, but some eastern areas could still be short-changed.

Commodity Weather Group Forecast

In the Midwest/South, showers favored south-central MI, central OH, southern MO, central AL, west-central GA, and near the LA/MS border in the past day. Very patchy showers will be possible Thursday to Saturday in the upper Midwest, but most areas will be dry/warm. Low to mid-90s may extend across the Dakotas late this week, peaking Thursday/Friday. However, highs otherwise top out in the 80s to low 90s for the Midwest during the next 2 weeks to limit heat stress.

The driest spots currently are in southern WI, far northern IL, northwest IN, northeast IA, and northern ND (10% of Midwest), but late-month showers will be needed to help finish out soy development in the belt (particularly shallow-rooted eastern areas). Rains are expected to expand in the 6 to 15 day, including two frontal passages in the 6 to 10 day. This should narrow dry patches in the central/northwest Midwest but could still short-change far eastern parts of the belt (greatest risk in OH).

ND will also remain on the edge of the better showers, and moisture supplies could start to slip a bit in MO. The relief this morning near the LA/MS border is very limited in scope, and dry spots will persist in the southern 1/3 of the Delta soy. However, the severity of heat is easing somewhat, and the risk for late crop losses should begin to ease a bit at this point. The 16 to 30 day outlook shifted wetter in the northwest Midwest and is similar to drier in the southern Midwest/Delta.

In the N. Plains/Canada, showers were very limited yesterday, and the best rain chances in the next 2 weeks favor the northern Canadian Prairies to help finish out wheat/canola without much further stress. Interruptions to spring wheat harvest in the N. Plains should be short-lived, with both the near-term and 16 to 30 day outlooks favorably drier than yesterday for fieldwork.

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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