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Morning Outlook

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Overnight Highlights

·         A global sell-off continued overnight with investors moving their money to the sideline. Equity and commodity markets sold off around the world on fears that the global economy is slowing, with added momentum after data released showed that a Chinese manufacturing gauge fell to its lowest level in more than six years, where previous stimulus efforts simply have not restored economic activity. China’s Shanghai Composite Index fell another 4.3% overnight. Global equities have lost more than $3.3 trillion since China devalued its currency last week.

·         The U.S. dollar slid more than 600 points overnight to its lowest level since June 30. That would normally be good for commodities, but early trade in the major commodity indices shows pressure there as well due to concerns about demand for commodities amid the slowing economy. The widely followed CRB commodity index is trading near its lowest level since January 2003 this morning.

·         Yet, corn traded to its highest level since the August 12 USDA crop report overnight, with December pushing to $3.8425 on ideas that the agency may need to reduce its production estimate in future reports. The Midwest Pro Farmer crop tour found good crops in Iowa and Minnesota Thursday, but many in the trade are starting to question whether they are good enough to offset problems from Missouri to Ohio. Yet, uncertainty remains high. There have been a lot of $4.00 calls purchased this week, but even more $3.70 puts have been bought.

·         Soybeans were modestly lower overnight, along with the rest of the broader commodity sector. Worries about China’s economy are particularly concerning for soybean traders, with China being the world’s largest importer of the oilseed. Yet, data released overnight showed that China’s soybean imports hit a record high in July, with the month’s shipments topping 9 million metric tons at 9.5 mmt (350 million bushels) for the first time on record. South America accounted for the bulk of the shipments to China in July, as they do virtually every July.

·         Chinese end users continue to snatch up cheap supplies of Ukrainian corn, importing 36.9 million bushels in July. U.S. corn shipments to China during the same period totaled just 6.4 million bushels. A local group touring Ukraine’s drought stricken crop recently pegged it at 21 mmt or 827 million bushels, down from USDA’s estimate of 27 mmt or 1.063 billion bushels. That could reduce the amount of corn available to Chinese end users, but then again China is expected to reduce its support price roughly $2 to near $7.50 per bushel in the year ahead to encourage more domestic use of surplus domestic corn.

·         China’s July imports of corn and corn substitutes such as barley, DDGS, grain sorghum, etc. hit a record monthly high, garnering the attention of regulators. Regulators are said to be tightening the way they look at these imports, which could slow shipments in the months ahead.

·         The Pro Farmer crop tour is over, removing that constant flow of fundamental information enjoyed by the market this week. That flow of information has been beneficial for corn futures, while soybeans have been impacted more by bearish Chinese economic news. Pro Farmer is scheduled to release its official production estimates after the market closes this afternoon. Look for production estimates that are below USDA’s August 12 numbers, but not low enough to be significant market movers. The flow of market-moving data then slows as we move into next week until combines begin to flow in the southern Midwest. That will leave prices vulnerable in the meantime.

·         Scattered showers were limited primarily to a few spots in the far South and northwest Iowa over the past 24 hours. A front is expected to bring thunderstorms to western areas of the Midwest tomorrow and a few eastern areas to finish the weekend. Heavy rainfall totals could be seen in wet sections of west-central Iowa, while dry areas of North Dakota should see some relief. Some eastern Midwest areas may be left dry. Limited rains in the 6- to 15-day period will further draw down moisture in southern and eastern areas of the Midwest and the Delta. Cooler trends in the forecast models need to be monitored for possible frost risks in mid-September.

·         Corn is expected to remain under stress over areas of the Former Soviet Union during the next week, with little relief expected from showers late next week in Russia. Rains are easing dryness for southern groundnuts in India, but dryness continues to threaten late season stress for the northwestern third of the belt. An active rain pattern is expected across Australian wheat areas over the next 10 days. Typhoon Goni is likely to weaken over southern Japan, limiting flood threats to corn and soybeans in northeast China.

Commodity Weather Group Forecast

In the Midwest/South, scattered showers were limited to a few spots in the Deep South and northwest IA in the past day, but a frontal passage will bring thundershowers into the western Midwest tomorrow and a few eastern parts of the belt to finish the weekend. While there is a drier risk to the forecast, the showers appear most likely in MN, central IA, ND, and near the IN/OH border.

This could include some heavier totals in recently wet sections of west-central IA, while dry corn/soy areas in ND should ease. Notable stress is currently very patchy and limited to 10% or less of the Midwest corn/soy, and additional weekend showers in the Delta will also provide further relief there. Limited rains in the 6 to 15 day will draw down moisture though in the southern/eastern Midwest and Delta, and late double-crop soy development could still be hindered by a return of some moisture stress in early September.

Otherwise, the limited showers will aid maturing crops, with parts of MN at most risk for any pockets of excess moisture. Rains increase in the 16 to 30 day for much of the Midwest, but the main concerns for notably wet weather that could hinder maturing crops focus on eastern NE, IA, and southern MN. While not showing clear signals of frost, cooler trends in the Dakotas/MN on recent guidance need to be monitored closely toward mid-September.

In the N. Plains/Canada, expanding rains in southern Canada/far N. Plains over the next 2 days slow spring wheat harvest, but showers during the balance of the 15-day period remain sporadic enough to prevent any severe slowdowns or damage threats. This should allow the N. Plains to push toward completion in early September, while the Canadian Prairies should see a fairly normal pace. Cold air tonight still poses only a marginal damage threat to northern/western Alberta canola.

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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