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Morning Outlook

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Overnight Highlights

* Commodity prices have had their best week since 2012 thus far as money flows back into many of the major commodity indices after reaching an area of value at multi-year lows; in some cases their lowest prices since 2002. The dollar fell to a fresh three-week low overnight, with crude oil exceeding $50 per barrel for the first time since July 23, topping just below the 200-day moving average at $50.94 thus far this morning.

* The Thomson Reuters CRB index gapped above major chart resistance to two-month highs this morning reflecting renewed interest in the broader commodity sector. However, one of the keys today and in the days ahead will be whether crude oil can establish itself above $50 and above the 200-day moving average.

* The increased money flow into the broader commodity sector overnight provided a lift for grain and oilseed prices as well. However, the primary focus of grain and oilseed traders will be USDA’s monthly crop report. The markets are behaving as if they want to work higher from harvest lows if USDA fails to provide a sufficient bearish surprise today. Trade expectations for key numbers in the report are as follows:
U.S. New-Crop Ending Stocks

2015-16

Wheat

Corn

Soybeans

billions of bushels

USDA October 9

Average Trade Estimate

0.819

1.534

0.414

Highest Trade Estimate

0.891

1.750

0.475

Lowest Trade Estimate

0.765

1.339

0.300

Previous USDA Estimate

0.875

1.592

0.450

Water Street Solutions

0.846

1.130

0.259

U.S. Yields & Production

2015-16

2015-16

Corn

Soybeans

Corn

Soybeans

Yield in bushels per acre

Production in billions of bushels

USDA October 9

Pre-Report Estimates

Average Trade Estimate

167.100

47.200

13.504

3.908

Highest Trade Estimate

169.500

47.700

13.798

3.975

Lowest Trade Estimate

165.000

46.500

13.283

3.830

Previous USDA Estimate

167.500

47.100

13.585

3.935

Water Street Solutions

165.000

46.800

13.382

3.887

* The above Water Street estimates are my estimates for this report, with expectations that these numbers will shrink ahead of USDA’s final numbers in January.

* Ukraine may reduce winter wheat acreage by 30% this year due to ongoing drought problems in the region. That claim was made overnight by a senior weather forecaster with the government of Ukraine. Time is rapidly running out for the region to see an improvement in cold dry weather that is hampering the ability to germinate and establish the crop ahead of when the crop typically goes dormant.

* Beneficial, but limited, showers linger in southern Kansas and northern Oklahoma this morning, with expectations they will scatter into the northern Delta later today. The rest of the five-day outlook is quiet with just a few showers in the far eastern Midwest late in the period. The dry pattern continues into the 10-day period, but showers likely scatter into the Plains and southwestern Midwest late in the period. The 11- to 15-day period trended wetter for the Southern Plains, eastern Midwest and Delta, but now we need to see that wetter trend actually verify for wheat areas. Corn and soybean harvest should advance rapidly with few significant interruptions.

* Southern areas of Brazil remain favored over the next two weeks and into the 16- to 30-day period. The rains are expected to slow corn and soybean seeding at times while threatening wheat harvest, particularly in far southern areas. Farther north, weekend showers are expected to be limited for Mato Grosso soybeans, with the northern half of Brazil soybeans expected to see mounting moisture deficits this month.

* Forecast models overnight increased shower potential for moisture in the Former Soviet Union wheat belt in the 6 to 10-day period, but they may be delayed until the 11- to 15-day period. The rains would still be in time to aid growth in the southern half of the belt, allowing some needed growth prior to dormancy. Meanwhile, shower relief remains limited for Australian relief, with light 0.10 to 0.50″ rains focusing on the southeast fringes of the belt, with yields dropping in South Australia and western Victoria.

Commodity Weather Group Forecast

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In the U.S., showers (.25 to 1″) fell in southeast KS, southwest MO, central MI, central IL, and southern parts of the TX Panhandle yesterday. Beneficial but limited showers linger in southern KS and northern OK this morning and are expected to scatter into the northern Delta later today, benefiting newly seeded wheat. The rest of the 1 to 5 day is quiet, with just a few light showers in the far eastern Midwest late in the period.

The dry pattern continues into the 6 to 10 day, but showers likely scatter into the Plains/southwest Midwest late in the period. The 11 to 15 day has trended wetter for the Southern Plains, eastern Midwest, and even more so for the Delta. This would be a notable boost to moisture for soft red wheat seeding, but dry spots may linger in the western Plains hard red wheat. The rains are unlikely to impact Midwest corn/soy harvest notably. Delta rains could impact cotton quality and slow harvest, but impacts should be minor given good near-term progress.

In South America, Brazil thundershowers favored much of Rio Grande do Sul, Santa Catarina, and eastern/far southern Parana in the past day. Southern areas remain favored through the next two weeks and into the 16 to 30 day, slowing corn/soy seeding at times but more notably threatening wheat harvest problems (particularly RGDS).

Weekend showers will be limited for Mato Grosso soy, and the northern 1/2 of Brazil soy remains likely to see building moisture deficits this month. The dryness will also continue to hinder coffee flowering in 2/3 of the belt. Intermittent interruptions to sugarcane harvest in the 1 to 5 and 11 to 15 day will pose only brief interruptions to fieldwork.

Showers were very light in southern/western Argentina in the past day. Moisture supplies will slip for corn/wheat, but 16 to 30 day rain prospects are a bit better on the latest Euro guidance. Cold air in far southern wheat areas through the next two nights will bring frost but very little damage.

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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www.waterstreet.org
or 1-866-249-2528

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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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