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Morning Outlook

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Overnight Highlights

* Industrial output unexpectedly fell in August, according to data released overnight, with exports to top customer China sliding. The data raises more concerns about the health of China’s economy and the resulting impact on the Eurozone, keeping alive chatter that the European Central Bank should expand its quantitative easing program.

* Crude oil prices are knocking on the door of $50 this morning on private industry data showing an unexpected decline in stocks. The Department of Energy will release its stocks data later this morning. Crude oil topped its August 31 spike high overnight, trading to its highest level since late July.

* The rise in crude oil continues to be a leader for the broader commodity sector, which is gaining momentum of its own. A weaker dollar makes the commodity funds more attractive near multi-year lows, attracting bargain-hunting buying. That in turn continues to provide support for grain and oilseed prices during a time of relatively low trade volume. Analysts are scrambling to explain this week’s strength as positioning ahead of USDA’s crop report, but much of it is simply due to these dynamics.

* USDA will release its monthly crop report with updated production estimates on Friday. A Reuters’ survey of trade participants reveals expectations that USDA will bump its soybean yield estimate by 0.1 bushel to 47.2 bushels per acre, while cutting about 600K from its harvest acreage estimate. The agency is expected to cut 0.4 bushel from the corn yield to 167.1 bushels per acre, while cutting a quarter million acres from its harvested area. The net result would drop soybean stocks to 414 million bushels and corn stocks to 1.534 billion bushels.

* Scattered showers are expected to increase in the western Texas Panhandle today, with a few showers in southern Kansas as well. However, a drier pattern is expected for much of the remainder of the 10-day period. The outlook is a bit better for portions of Oklahoma and Kansas in the 11- to 15-day period, but the driest areas could still be missed. The Midwest should see a mostly warm dry period for harvest over the next 10 days.

* Thunderstorms are expected to develop in northwestern Brazil soybean areas on Friday and Saturday, offering some slight improvement in moisture supplies for Mato Grosso. However, deficits linger given an otherwise dry and occasionally hot pattern through the rest of the two-week period. Wet weather focuses on wheat areas into the weekend and again by the 11- to 15-day period.

* Rains in North Russia yesterday favored Volga, but a cold pattern currently over the region will keep the crop from taking advantage of the moisture. Rains are expected to reach South Russia next week, but nearly half of the wheat will likely remain unfavorably dry over the next two weeks. Showers are expected to ease dryness concerns somewhat in southeastern Australia this weekend, with amounts of just 0.10 to 0.50″, but hot dry winds continue to stress crops, taking bushels off the crop by causing irreversible damage.

Commodity Weather Group Forecast

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In the U.S., mostly dry conditions persisted yesterday. Scattered showers increase in the western TX panhandle today and may pop up in southern KS as well, but a drier than normal pattern overall persists for the rest of the 10-day period. Rain chances improve for Plains wheat in the 11 to 15 day but could still miss the driest areas of northeast CO and southwest KS.

Midwest and Delta harvest progress should be nearly uninterrupted over the next 10 days, and the Southeast will gradually recover from recent wetness. Shower interruptions to Midwest harvest in the 11 to 15 day should be minor. A warm pattern remains in place until the end of the two-week period, delaying chances of any notable freeze events.

Midwest soft wheat areas should benefit from showers in the 11 to 15 day, but Delta seeding may remain delayed by persistent dryness. Pacific Northwest wheat picks up some much needed moisture over the next two days, improving germination and early growth.

In South America, Brazil thundershowers did scatter across northern Goias and northern/western Mato Grosso in the past day, and additional showers develop mainly Friday/Saturday in the northwest soy areas. This will offer some slight improvement in moisture supplies for Mato Grosso, but deficits linger given the otherwise dry and occasionally hot (low 100s) pattern through the rest of the two-week period. Wet weather will focus on wheat areas into the weekend and again by the 11 to 15 day. This will remain a threat to wheat quality and may cause localized damage in Rio Grande do Sul. Coffee areas are not favored for relief, and sugarcane harvest interruptions appear short-lived (mainly Saturday to Monday).

Argentina picked up scattered showers in southern and far northern areas yesterday, and a similar event is expected at the middle of next week. While a relatively quiet pattern overall, moisture should remain adequate for now to support corn/wheat.

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

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