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Morning Outlook

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Overnight Highlights

* It was a good night in the Asian markets overnight, with the Shanghai Composite Index up 3.3%. The European market was mixed, while U.S. stock futures are modestly higher this morning. Gold prices rose to their highest level in seven weeks, with the other metals rising as well on ideas that the Fed will not be raising rates any time soon. Fed Vice Chair Stanley Fischer spoke at the IMF meeting over the weekend stating that the U.S. economy may be strong enough for a rate hike, but the markets are doubtful.

* The dollar is modestly lower this morning after slipping to a new three-week low. Crude oil is modestly higher after probing above $50 overnight on data showing that the U.S. rig count fell for the sixth week in a row. However, the 200-day moving average at $50.91 continues to be a significant area of resistance, as does the 100-day moving average at $50.28 per barrel.

* Saudi Arabia bought 27.2 million bushels of optional origin hard wheat over the weekend in a tender that closed on Friday. Traders are increasingly focusing on dryness in the U.S. winter wheat belt, Australia, Russia and Ukraine. Meanwhile, China decided to keep its state wheat purchase price unchanged at $10.12 per bushel for 2016 to support its rural economy. U.S. wheat prices are 2 to 3 cents lower this morning, although Kansas City continues to slowly gain on Chicago.

* Showers are limited to South Russia this week, with light showers expected to provide limited relief in Ukraine next week. Trends to lighter rains next week could still leave spotty growth problems, but most areas could see some improvement. Eastern areas of Australia saw some light shower relief, but the southern quarter of the belt is still moisture stressed. Light rains of 0.25 to 0.75″ provided relief for Victoria and New South Wales, but dryness persists in South Australia and western Victoria.

* Corn prices bounced off support at $3.80 overnight, rising to a high of $3.8525 per bushel. However, prices are now fractionally lower as U.S. desks turn on the lights, consolidating while waiting for direction from the other markets, including crude oil. USDA surprised the market with a yield of 168 bushels per acre on Friday. The agency dropped its corn yield by 9.6 bushels after the October report in 1993, but it was steadily dropping yields through the fall that year. Otherwise, it has never reduced yields by more than 4.4 bushels following the October report. However, corn acts like it still wants to build a base and go higher if crude oil is able to push through resistance and sustain its rally.

* Soybean prices pushed a nickel higher overnight, trading toward the top of its recent upward trending range after USDA slashed roughly 900K acres from its projected harvested area on Friday amid just a modest yield increase. Demand is strong, with China being very aggressive in recent weeks.

* This week is expected to be dry for the bulk of the Midwest to continue with harvest progress. However, the 6- to 10-day period turned wetter in this morning’s forecast, stretching from the eastern Southern Plains across Missouri, Illinois, southeastern Iowa and portions of Michigan. The rains would shift a bit to the southeast in the 11- to 15-day period. Northwestern areas of the Midwest are expected to be mostly dry through the two-week period.

* Thunderstorms benefited soybean areas in northern and eastern Mato Grosso and were widespread in much of southern Brazil over the weekend. The 6- to 10-day period trended drier for Center-South Brazil and guidance is split for rain chances in the 11- to 15-day period. The wettest weather will focus on the southern wheat belt the next two weeks, creating problems for the harvest. Mato Grosso soybeans will hold onto moisture deficits, but did benefit from the weekend showers. Frost in far southern Argentine wheat areas did little damage over the weekend, with another round of similar conditions possible next weekend. Conditions now trend drier in Argentina over the coming month.

Commodity Weather Group Forecast

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In the U.S., rains (.25 to 1.5″, locally 3.5″) fell in the Southeast over the weekend, extending harvest delays and causing more damage in SC. Beneficial but limited showers also fell in the eastern Delta. This week is dry across much of the country, aiding Midwest/Delta harvest but hampering germination/early growth of winter wheat in drier spots (CO/KS, the western Midwest, and the western Delta).

However, a wetter trend is expected to develop in the Midwest/Delta late in the 6 to 10 day and early in the 11 to 15 day. This would be a timely boost to moisture for soft red wheat, but dry spots may linger in KS/CO hard red wheat areas. The rains will slow Midwest corn/soy harvest but are not expected to be damaging, as they should be short-lived.

Delta rains could impact cotton quality and slow harvest, with the potential for more prolonged delays there due to a wet 16 to 30 day outlook. The Southeast sees a much needed two-week dry spell, allowing harvest to slowly recover.

In South America, thundershowers benefit soy areas in northern/eastern Mato Grosso and were widespread in much of southern Brazil, with isolated lodging for wheat in Parana. The 6 to 10 day trended drier for Center-South Brazil, and guidance is split on rain chances in the 11 to 15 day (drier solutions preferred). This would keep coffee flowering concerns in place for at least the northern 2/3 of the belt but will also ensure only brief delays to sugar harvest.

The wettest weather will focus on southern wheat areas in the next two weeks, hindering harvest and threatening additional localized lodging. Mato Grosso soy will hold onto rain deficits but did benefit from the weekend showers.

Frost in far southern Argentine wheat areas caused little damage over the weekend, with similar conditions possible next weekend. Moisture supplies are adequate but slip in the central 1/2 of corn/wheat areas over the next two weeks, and the 16 to 30 day is also trending drier.

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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