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Morning Outlook

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Overnight Highlights

·         The rout continues in China, where its move yesterday to devalue the yuan has triggered a broader currency war. The yuan has now seen its biggest two-day sell-off since the 1998 crisis. China stepped in to intervene late in its trading day, selling dollars in order to stem the tide of losses in the yuan. The dollar is down more than 900 points to its lowest level since July 31 this morning, testing support at the 100-day moving average.

·         However, the broadening currency crisis raises concerns about the global economy, sending global equities lower. Triple-digit losses are expected when the Dow Jones Industrial Average begins trade this morning, based on trade in the futures market.

·         The International Energy Agency says that it expects the oil glut to last until the fourth quarter of 2016. Large supplies of oil are expected to weigh on the market through much of next year if sanctions against Iran are lifted, keeping a lid on prices.

·         Grain and oilseed prices opened higher last night, but then soybeans took a hit in the thin overnight trade, dropping the November contract to $9.5775, closing the gap left on Monday and with it erasing the bullish island reversal on the chart. Prices have recovered much of their losses from the overnight session, but continue to post very modest losses.

·         Traders are keeping an eye on these overnight developments, but the primary focus today is on USDA’s highly-anticipated crop report. Trade expectations are for a 2-bushel drop in the corn yield and better than a 1-bushel drop in soybeans, dropping new-crop ending stocks to 1.424 billion and 301 million bushels respectively. While we believe such a move is justified, such a move in the August report in a wet year would be highly surprising in a wet year and speak volumes about the problems that are out there.

·         There’s a lot of money in the global markets looking for an asset class with a bullish story. Investors are looking for something to put their money behind. That’s not saying that corn and soybeans will be the benefactors, but the potential impact should they see friendly fundamentals develop this fall should not be taken for granted. Such a scenario can push prices further than would otherwise be justified by the fundamentals.

·         Very spotty showers are possible in the Upper Midwest from late Thursday through early Saturday, with scattered showers building late in the weekend in the northwestern Midwest. The best chances for rain occur Monday and Tuesday, and more notably from Wednesday into Friday of next week. There are a wide variety of model solutions for the exact timing of frontal passage with these systems that gives low confidence on which areas will see rain and which will be skipped. Yet, the overall bias is toward fairly good coverage for the Midwest as a whole from these two systems. The best analysis would suggest relief for drier areas of eastern Nebraska, northern Iowa and southern South Dakota and Wisconsin.

Commodity Weather Group Forecast

In the Midwest/South, showers were limited to western KS, southeast AL, central GA, northern SC, central/southeast NC, and near the LA/MS border in the past day. Very spotty showers are possible in the upper Midwest (mainly around the Great Lakes) from late Thursday through early Saturday, with scattered showers building late in the weekend in the northwest Midwest.

However, the best chances for rain occur Monday/Tuesday and more notably Wednesday into Friday. While there are a wide variety of model solutions for exact timing of these frontal passages that leads to low confidence in specifically which regions will be gapped, there is good model agreement regarding fairly good overall coverage of the Midwest.

Our current outlook would give the best chances for relief to recently drier sections of eastern NE, northern IA, southern SD, and southern WI. Showers are expected to be less organized into ND and shallow-rooted sections of the southern Midwest, and this will leave the risk for some problem spots to linger (particularly if any adjustments in frontal timing reduce rain chances further in IL and IN). However, our current outlook would not allow the concern area to expand beyond the 10 to 15% of the belt that is currently driest.

Highs will only top out in the upper 80s to low 90s on the warmest days. Rains offered relief near the MS/LA border yesterday. While dryness will persist in southern AR/northern LA/central MS, shower potential late next week has improved for the northern Delta and Southeast.

In the N. Plains/Canada, mostly dry conditions are aiding early spring wheat harvest, and 6 to 10 day rains should only briefly slow N. Plains fieldwork. More extensive rains in Canada will help to keep late crop conditions stable, but recent rains were too late to reverse earlier losses in the west.

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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