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Morning Outlook

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Overnight Highlights

* Global stocks were a buy overnight. China’s Shanghai Composite Index rose to an eight-week high on ideas that more stimulus will be coming soon from the government, while European stocks rose on a rising expectation that the U.S. Fed will not raise rates anytime soon. In fact, market activity now suggests that the odds of a rate hike by the March Fed meeting have now slipped below 50%, with some pushing it back beyond the 2016 elections.

* The dollar slipped briefly to its lowest level since August 26 overnight, before bouncing modestly. Crude oil is a half-dollar lower this morning as it again test trend line support off its August and October lows, providing a drag for the broader commodity sector. However, money flow is slowly improving as U.S. trading desks open.

* Corn futures extended losses overnight after slipping below key support at $3.79 for the lead December contract on Wednesday. The contract remains vulnerable to slipping another leg lower if it doesn’t soon receive support from the other markets. Once a leader, corn now finds itself the anchor of the grain complex on sluggish export demand and a surprise increase in the corn yield last week.

* Meanwhile, Asian feed millers say they may soon shift their business to the Black Sea for Ukrainian corn due to the difficulty of loading cargoes of corn in southern Brazil due to persistent rains that have pushed shipping delays beyond 40 days.

* Mostly dry conditions continue across the Midwest to facilitate harvest progress until a system cross the region the middle of next week. Harvest delays with that system should be brief, although the rains will provide relief for soft wheat in the region. Rains next week for the Plains are limited to southeastern portions of the wheat belt, with a dry 16- to 30-day outlook suggesting poor establishment for much of the hard red winter wheat crop heading into dormancy.

* Soybeans traded both sides of unchanged overnight as they re-establish themselves above $9 per bushel. The trade’s focus traditionally shifts from the supply side to the demand side of the balance sheet after the October crop report and demand is red hot right now, led by Chinese buying.

* Wheat continues to consolidate below early-October highs. Both domestic and global supplies are large, but concerns about the 2016 crop are rising, led by dryness issues with the FSU crop. Forecast models continue to call for showers in the region next week, but a cool pattern will likely hinder growth in the northern belt. Recent freezes have burned back growth and some areas may not warm for long enough to benefit from moisture as they slip into dormancy for the winter. Rains are expected to improve for wheat in South Australia next week for wheat in the grain fill stage.

* Showers were again limited to far southern Brazil yesterday. These rains are expected to persist over the next two weeks, hindering wheat harvest and spring seeding in the region, as well as loading of cargo ships. The 11- to 15-day period has shifted wetter for dry northern areas of Brazil, particularly late in the period. Disagreement among model members keeps confidence low, but the guidance is increasingly shifting toward a wetter direction for dry areas of the corn/soybean belt.

Commodity Weather Group Forecast

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In the U.S., mostly dry conditions continued yesterday, and rapid harvest remains on tap across the Midwest/Delta through early next week. Showers along a cold front at the middle of next week across much of the Midwest aid wheat germination/early growth. Corn/soy harvest delays should be brief. The main showers for the Delta hold off until late next week, with a tropical moisture surge easing dryness for wheat but slowing late soy/cotton harvest.

Plains rain prospects are mainly limited to the southeast third of the wheat belt in the 6 to 10 day. This still leaves dry spots for hard red wheat in KS that are likely to remain a problem through the dry 16 to 30 day period, leading to poor establishment as the crop heads into dormancy.

In South America, showers were limited to far southern Brazil yesterday and persist in the next two weeks (particularly RGDS). While this will hinder early spring seeding in the region, the more notable impact will remain interruptions to harvest and minor losses in the southern 1/2 of the wheat belt. However, the 11 to 15 day outlook has shifted wetter for northern Brazil, mainly late in the period.

While disagreement among ensemble members keeps confidence low, models are increasingly supportive of enhanced tropical support (MJO) that would trigger needed rains for the northern 1/2 of soy and much of coffee. Minor sugarcane harvest interruptions would also occur. The CFS 16 to 30 day guidance reverts to a drier north/wetter south pattern in Brazil, but there is the risk that the 11 to 15 day rains could also kick start a bit better shower activity into early November as well for northern areas.

Argentina rains were scattered across the belt and much more extensive than expected yesterday. Our 6 to 15 day outlook also now leans toward wetter guidance as a result, and this would help to limit corn/wheat dryness concerns. Intermittent chances of light frost in far southwest wheat areas will pose no damage risk.

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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