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Morning Outlook

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Overnight Highlights

·         U.S. stock futures firmed overnight, suggesting that they may see a  bounce today following Monday’s big losses.

·         However, crude oil made a new low of $48.47 overnight, keeping concerns high that some emerging nations will see their economies slow and struggle to service debt.

·         Ethanol prices are nearly 20 cents above gasoline prices on the board; something that is not sustainable.

·         The U.S. dollar consolidated higher overnight, but remained primarily within the previous day’s trading range near long-time highs.

·         Soybeans and corn saw additional modest gains overnight, with traders talking about dryness in northeastern Brazil. The current area of concern is not big (10 to 15% of belt), but that “could” expand if forecast showers in the 6- to 15-day period do not verify.

·         Overall production prospects remain high at this point, but one can liken it to dryness concerns in August for a portion of the Midwest that can take some of the top off a crop.

·         Malaysian palm oil supplies are at a five-month low due to  heavy monsoon rains. A drop in Malaysia’s currency also helped boost prices to two-month highs overnight.

·         This week’s gains basically  pull prices for corn and soybeans back into the range seen just prior to the end-of-the-year sell-off.

·         Wheat found support again overnight from bitter Arctic air moving through the Midwest. Ratings released by some individual states late Monday showed significant deterioration in both Illinois and Kansas from the previous month.

·         There is also chatter that China may be shopping for U.S. hard red spring wheat. China is expected to step up imports of quality protein wheat, even though total wheat imports will likely drop off sharply this year.

·         Researchers have identified a new strain of PED virus, which simply confirms speculation about why the disease continues to be a problem for hog producers. The disease appears to keep mutating.

·         Rains in southern Argentina were better than expected overnight. Argentine growing conditions overall are very good at this point.

·         Northern Brazil dries out over the next 10 days, before showers return to northwestern areas in the 11- to 15-day period.

·         Arctic cold is expected to create some scattered winterkill problems in the Midwest this week, although overnight snows will help protect much of the crop.

Commodity Weather Group Forecast

In the U.S., a band of snow fell across the Midwest yesterday (1 to 6”). The snow will protect wheat in central parts of IL/IN and southern OH but leaves wheat in northern parts of IN/OH and southern MI vulnerable to winterkill Wednesday night, as lows fall to -5 to -15°F. The cold pushes for next week are weaker, and additional winterkill threats have diminished.

Drier weather in the Delta/Southeast this week allow much of the standing water to drain. A return of showers early next week does not look heavy enough to exacerbate current wetness, but 11 to 15 day rains could lead to additional wetness in the southern Delta. Plains wheat has low winterkill risks in the next 2 weeks. 16 to 30 day cold air is more focused on that area and will need to be watched, but the outlook also gives drier southern areas better chances for needed moisture.

In South America, showers lingered in mainly Sao Paulo, southern Minas Gerais, northeast Mato Grosso do Sul, and southern Mato Grosso yesterday, but Brazil rains focus on the south for the next 10 days. Recent showers in the central/northwest have limited corn/soy stress for now to the northeast 10 to 15% of the belt. However, a projected return of showers (albeit limited confidence) just after mid-month will be needed to recharge topsoil moisture elsewhere in the north. The rains may still be insufficient to eradicate hints of building coffee/sugar stress that has begun to show up based on modest but persistent rain deficits in late 2014.

Argentine showers were better than expected in the south, favoring Buenos Aires. This helped to reduce recently drier spots, and an active storm track over the next 10 days should keep concerns limited. Low to mid 90s yesterday (low 100s in La Pampa) ease today, and similar 6 to 10 day warmth will cause little stress.

Snow Next 2 Day Key to Protecting Wheat in S. Russia from Cold Blast Later This Week. Snow accumulations of 2 to 6” are likely to put down needed snow cover in South Russia, but up to 15% of the wheat could still lack sufficient snow cover to fully protect the crop from lows of -5 to -20°F in the latter 1/2 of the week.

Morning Market Snapshot

 

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® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

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