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Morning Outlook

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Overnight Highlights

·         The currency markets settle down overnight after Chinese officials reassured traders that there was no reason for a significant devaluation and that it would intervene to stop large fluctuations. China’s Shanghai Composite Index rose 1.76% in overnight trade. The dollar is modestly higher this morning, while crude oil is slightly lower in relatively quiet trade.

·         The government releases retail sales data this morning with Wall Street looking for a rebound from last month’s disappointing data. Analysts expect the data to show that sales grew 0.5% month over month in July, up from a decline of 0.3% the previous month. Market expectations of a September rate hike have slipped back below 50%, while a good retail sales number this morning could push those expectations higher once again.

·         Grain and oilseed prices posted decent gains overnight, but they look rather modest when compared to yesterday’s sharp losses. Most of the markets could still recover from this point without much long-term damage, but additional weakness could do significant chart damage, so it’s important to start putting together some buying interest at these price levels. USDA’s weekly export sales report this morning could help shape market sentiment, while wheat traders will be watching for the results of Egypt’s latest snap tender released late Wednesday.

·         USDA shocked the trade world with yield increases for corn and soybeans in its August crop report Wednesday, even though that is the pattern it has established in wet years, before yields decline in later months as combines reveal disappointing results. However, it will be several weeks before sufficient harvest results will be available to provide hard data on the crops. In the meantime, traders will be listening closely to comments coming from next week’s Pro Farmer crop tour of the Midwest.

·         The northwestern Midwest continues to face warm temperatures with areas of moisture stress this morning. Showers remain few and far between in the Midwest, focused mostly in western areas of the Corn Belt, but generally quite light in nature. Some spotty showers will be seen in northern areas the remainder of the week, but conditions will otherwise be quiet.

·         Rains begin to increase in northwestern areas from late in the weekend into Monday, with a thunderstorm complex then tracking from South Dakota into Iowa and the Ohio Valley from Tuesday into early Thursday. A front will also scatter showers into mainly central and northwestern areas late next Thursday into early Saturday, with another event then following close behind in the northern and eastern Midwest early in the 11- to 15-day period. Confidence remains limited in the exact timing and placement of Midwest showers with these systems.

·         Warmer than normal readings are expected, with highs mostly peaking in the mid-80s to low-90s°F over the next two weeks in the Midwest. The best chance for a few mid-90s will be in the Dakotas on Friday and Saturday, reaching into Missouri next Wednesday and Thursday.

·         Rains in southeastern Europe and Ukraine corn areas next week should stall yield losses in the region, while dryness is expected to persist in South Russia. In fact, the Russian dryness may persist through wheat planting next month. Showers are more limited in western and southern Australian wheat, but stress is expected to be most pronounced in the northeastern quarter of the belt. Rains are expected to remain limited in roughly 20% of China’s corn/soybean belt over the next 10 days.

Commodity Weather Group Forecast

In the Midwest/South, showers were mostly quite light but scattered into north-central SD, central MN, central MI, and western KS in the past day. A similar pattern prevails for the rest of the week, with just spotty showers in the upper Midwest. However, rains begin to increase in the northwest Midwest from late in the weekend into Monday, with a thunderstorm complex then tracking from SD into IA and the OH Valley from Tuesday into early Thursday.

A front will also scatter showers into mainly the central/northwest Midwest late next Thursday into early Saturday, with another event following close behind in the northern/eastern Midwest early in the 11 to 15 day. While confidence remains limited in exact timing/placement of the Midwest showers, our current forecast would leave parts of southwest WI, southern MI, northern OH, southwest IN, and southern IL at most risk to see moisture supplies slip through next week (10% of Midwest soy).

While warmer than normal, highs will mostly peak in the mid-80s to low 90s over the next 2 weeks in the Midwest, with the best chance for a few mid-90s in the Dakotas on Friday/Saturday and reaching into MO next Wednesday/Thursday. Rains should aid the Southeast soy/cotton in the 11 to 15 day, but southern AR, central MS, and northern LA (1/4 of Delta soy) are still not favored for improvement.

In the N. Plains/Canada, a few showers scattered near the Canadian border into central MN and from southern MT to the ND/SD border in the past day. Weekend rain will aid late canola growth from central Alberta into northern Saskatchewan, with limited showers to the south aiding early wheat harvest.

The N. Plains wheat harvest will slow next week, but limited near-term rains aid fieldwork. The 16 to 30 day pattern is gradually reverting wetter in ND/MN and could hinder progress.

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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