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Morning Outlook

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Overnight Highlights

* Worse-than-expected import data released by China overnight raised global economic concerns once again, with commodity imports falling below expectations, slumping for the 11th consecutive month. However, it should be pointed out that much of the decline merely reflected a decline in prices for commodities. Even so, the yuan weakened 0.31% overnight, the most since August 12, while the Shanghai Composite Index firmed 0.2% on the strength of tech and consumer companies.

* The dollar fell to fresh three-week lows overnight, but again has rallied off its lows and is near unchanged this morning. Crude oil fell to a fresh one-week low, but is now posting small gains for the day. As such, money flow is near net neutral in regards to the broader commodity indices this morning.

* China imported 267 million bushels of soybeans in September, down from 286 million bushels imported in August, but up 73 million from the same month last year. In other words, shipments declined somewhat as they normally do while shifting from Brazilian to new-crop U.S. supplies, but they were still well above the previous year’s rate, suggesting that Chinese demand remains at historically high levels.

* Historically, the market tends to assume that it knows the size of the soybean crop after the October crop report and turns its attention to the export side of the balance sheet. USDA cut its export target 50 million bushels on Friday, but the trend is toward strengthening demand, with China aggressively buying and taking shipment of new-crop supplies as they become available. This should be supportive of soybean prices near-term. Soybean prices are trading near the top of the ascending trading range that has contained prices over the past seven weeks and in an area that has seen increased sales in the past.

* Corn prices drifted lower in a relatively tight trading range overnight, but slipped a penny below key support at $3.80 in the process. The feed grain needs to re-establish itself above $3.80 to avoid moving another leg lower. It likely needs help from the soybean and/or crude oil market to do so this week.

* Wheat prices consolidated above the previous day’s lows overnight and are currently posting modest one-cent gains. Support comes from increasing concerns about adverse weather in major-producing areas of the world. Supplies are currently large, but the pattern of increased adverse weather raises concerns about the future. Even so, the concerns do not likely have enough legs at this time to sustain a rally in wheat on its own, although they do provide support beneath the market.

* Rain prospects remain limited to the southeastern Plains winter wheat belt over the next two weeks, with other areas largely dry. Rainfall deficits have been most pronounced in Kansas and Colorado over the past month. Elsewhere, rains will be limited to South Russia this week, with shower potential fading for Ukraine next week. In fact, many dry areas of central and eastern Ukraine will likely miss out on the showers, negatively impacting over half of the wheat area. Only very light rain potential of 0.10 to 0.50″ are seen for South Australia and western Victoria in Australia.

* The Midwest corn/soybean belt should remain mostly dry the remainder of the week. Rains have also been scaled back for a front crossing the region next week. Still, there should be enough showers to improve germination for soft wheat in the southwest and eastern portions of the Midwest, as well as the western Delta.

* Mato Grosso is expected to maintain rain deficits over the next 10 days, but the region could see a few showers in the 11- to 15-day period. Rains continue to favor persistently wet areas in the southern part of Brazil where the wheat harvest is being adversely impacted. Further south, moisture deficits are expected to build once again in Argentina; most notably the central 50% of the corn area. Light frost on Saturday is not expected to pose a significant threat.

Commodity Weather Group Forecast

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In the U.S., rain (.25 to 1″) fell in southern IN, southern OH, KY, and TN yesterday, aiding soft wheat germination. Dry weather persists across Midwest/Delta harvest areas all week. A cold front crosses the Midwest/Delta later next week, but rains have been scaled back. Still, showers should improve germination for soft wheat in the southwest/eastern Midwest and western Delta. Another surge of showers into the Delta late in the 11 to 15 day further eases dryness.

Plains rain prospects remain limited to the southeast third of the wheat belt in the 6 to 15 day. This will hamper hard red wheat establishment, especially in KS/CO where rain deficits have been most pronounced over the past month. Midwest corn/soy harvest delays are expected to be limited and brief. Delta rains should be more substantial and slow harvest along with some cotton quality declines. Southeast cotton/soy harvest should gradually resume, as the two-week dry spell holds.

In South America, scattered showers were limited to southern Mato Grosso do Sul, southeast/far southwest Sao Paulo, eastern Parana, southwest Goias, and northeast Mato Grosso in Brazil yesterday. Showers remain limited for at least the northern 2/3 of the coffee belt to hinder flowering through the next two weeks, with drier Euro model guidance preferred.

An aborted bloom remains likely in key sections of Minas Gerais, where dry weather has occurred after notable rains a month ago. Mato Grosso soy will hold onto rain deficits but could see a few 11 to 15 day showers. Wet areas in the southern 1/2 of the Brazil wheat belt remain prone to harvest delays and wetness issues.

Argentina will see showers limited to western/far northeast corn/wheat in the next two weeks, allowing moisture deficits to gradually develop in central areas (about 1/2 of the corn belt) by month’s end. Light frost on Saturday morning in far southern wheat areas poses little threat.

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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