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Morning Outlook

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Overnight Highlights

* Yesterday’s emerging confidence translates into today’s fears. Fund managers were buyers of the commodity sector near multi-year lows Monday on ideas of value at current levels. However, an unexpected 1.8% decline in German factor orders for August raised global economic fears once again, leading fund managers to take a more cautious approach toward the commodities thus far today. Additional red flags were seen in Europe as Volkswagen reportedly told its employees to eliminate all nonessential expenses in the face of its emissions scandal.

* Even so, European stocks were modestly higher overnight, while U.S. stock futures are modestly lower. As such, traders are not gripped by fear this morning, but merely being a bit more cautious. The rest of the week has relatively few economic reports here in the United States, providing little guidance and few surprises. The International Monetary Fund is expected to release its updated global economic outlook at 9 a.m. CDT this morning.

* USDA’s weekly crop progress report released Monday afternoon confirmed active harvest progress, with corn and soybean ratings rising. In fact, soybean condition scores rose significantly on higher yield reports in major production states. The high crop ratings and good harvest results have traders braced for a steady to higher soybean yield when USDA releases its updated crop report on Friday morning.

* A Bloomberg survey of trade participants reveals expectations that USDA will peg the soybean crop at 47.2 bushels per acre on Friday, up from 47.1 bushels the previous month. Harvested acreage is expected to decline to 82.95 million, down nearly 600,000 from the previous month. The net result would be to drop ending stocks to 428 million bushels, in the eyes of the trade, down from 450 million the previous month.

* The trade expects USDA to lower its corn yield to 166.7 bushels per acre, down from 167.5 bushels the previous month. A very small reduction in harvested acres is anticipated by the trade, resulting in 2015-16 ending stocks of 1.546 billion bushels, down from 1.592 billion the previous month.

* December corn futures continues to consolidate just below a triple-top near $3.95 on the charts. This leaves the market vulnerable to a break to the upside, but traders may want to see Friday’s USDA report before doing so. Soybeans largely remain range-bound, but with an upward bias as well. The market behaves as if the most bearish news has already been priced in, with traders prepared to focus on the demand side of the balance sheet, but apprehension over what USDA might do with its yield on Friday has traders remaining cautious.

* Wheat prices continue to consolidate this week after an impressive September rally. Both domestic and global wheat stocks remain large, with weak demand for U.S. supplies. However, traders are focused on large short (sold) positions already held by speculative hedge fund managers amid rising concerns about dryness in the U.S. winter wheat belt, Australia, Russia and Ukraine.

* Significant dryness encompasses roughly half of the Former Soviet Union wheat belt, with little relief seen over the next 10 days. Furthermore, unseasonably cold temperatures are hampering growth ahead of the crop going dormant. Freezes in the northern half of the belt are expected to stall growth, with much of the region typically slipping into dormancy over the next several weeks. Elsewhere, light scattered showers of mostly 0.10 to 0.50″ are expected to provide limited relief for dry areas of the southeastern third of Australia next weekend. Relief is expected to be limited to half or less of the stressed area.

* In the U.S., mostly dry conditions prevailed for nearly all crop areas, with the exception of the mid-Atlantic. Scattered showers are expected to increase in the far northern and eastern Midwest Thursday and Friday, but harvest should advance rapidly elsewhere. Mid-week showers in the Plains continue to sink to the southwest, leaving the bulk of the region dry. Confidence remains low, but the 11- to 15-day outlook includes an upper air disturbance that could bring some moisture to the Plains and Midwest. An overall warmer than normal pattern remains in place for the bulk of the next two weeks.

* Rains are expected to push south to north across Brazilian wheat areas Thursday to Monday, with localized damage. Those rains expand into northwest corn and soybean areas over the weekend, improving early growth. Argentine rains were confined to the southwestern quarter of the grain belt overnight, with additional showers expected to scatter across the region today and a similar event late next week. This should keep dryness concerns limited for heading wheat and early corn growth over the next couple of weeks.

Commodity Weather Group Forecast

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In the U.S., mostly dry conditions prevailed for nearly all crop areas, with the exception of rains exiting the Carolinas. Scattered showers increase in the far northern/eastern Midwest on Thursday/Friday, but corn/soy harvest continues to otherwise progress well during the next 10 days.

Mid-week showers in the Plains continue to sink farther southwest, and this will leave 20% of the Plains winter wheat belt with significant dryness (mainly parts of southwest OK, central/southwest KS, and CO). The 11 to 15 day does include a better chance for showers in the Plains and Midwest as an upper air disturbance circles back through the Southwest U.S. and heads east. Confidence remains low, but any interruptions to Midwest harvest would still be minor regardless.

A warm pattern remains supported by the majority of guidance, further delaying chances at any notable freeze events. Midwest soft wheat areas benefit from this week’s showers, but more rain is needed along and south of the OH River to improve moisture supplies for germination. Drier conditions in the Southeast will prevent further soy/cotton losses after the very wet weekend.

In South America, rains (.25 to .75″) were confined to eastern fringes of Brazil coffee yesterday. Rains push south to north (1 to 4″, locally 7″) across wheat areas from Thursday to Monday, with localized damage. Rains expand into northwest corn/soy over the weekend, improving early growth. Dryness in the coffee belt is only interrupted by light/limited showers in the southeast 1/4 of the belt at the middle of next week.

In Argentina, rains (.25 to .50″) were confined to the southwest 1/4 of the corn/wheat overnight. Rains (.25 to .75″) scatter across the region today. Another similar event is expected late next week. This should keep dryness concerns very limited for heading wheat and early corn growth over the next 2 weeks.

Morning Market Snapshot

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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(r) | 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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