Morning Outlook

Overnight Highlights

·         The Federal Reserve released the minutes of its latest policy meeting Wednesday afternoon, holding few surprises. Federal funds futures trade since then suggests that Wall Street continues to anticipate interest rate hikes beginning in September of this year.

·         The euro continued to fall overnight, pushing the dollar to fresh 9-year highs, as investors increasingly worry about deflation in the broader euro-zone.

·         Chinese officials state that no additional stimulus is needed, but they continue to support existing programs to pump capital into its economy.

·         The Department of Labor will release its highly-anticipated December jobs report Friday morning.

·         Crude oil consolidated modestly higher overnight as traders brace for index fund portfolio rebalancing that begins today and continues for five trading sessions. The rebalancing is expected to support the energy sector, while applying some degree of pressure to grain and oilseed prices, with more significant pressure on the beef sector.

·         South Korea’s Major Feedmill Group MFG is tendering to buy 16.5 million bushels of corn for delivery in April and May.

·         Egypt is tendering to buy wheat for mid-February delivery. This tender should tell us a great deal about where U.S. prices sit on the global market, as well as whether Russian wheat will be offered. The cheap euro should help French offers in the tender.

·         Palm oil prices rise to six-month highs overnight as monsoon rains continue to threaten supplies.

·         Northern Brazil remains warm and dry the next 10 days, but late month shower potential remains in the forecast.

·         An active weather pattern continues to provide moisture and keep yield potential high in Argentina.

·         Winterkill damage likely in Midwest wheat crop last night and again on Friday night.

·         Some winterkill damage likely occurred last night in central Ukraine as well.

·         USDA will release its highly-anticipated January crop reports Monday that are known for their surprises. Trade expectations are as follows:

Commodity Weather Group Forecast

In the U.S., other than snow flurries in the northern Delta yesterday, most areas were dry. Temperatures currently range from -5 to -12°F in the northern 2/3 of the Midwest wheat, with winterkill damage focused in areas lacking adequate snow in northern parts of IN/OH, southern MI, and central IL. Similarly cold air is likely tomorrow night, adding to damage potential in those areas. Moderating temperatures next week end winterkill threats.

Delta wheat continues to be favorably dry through Saturday, and rains early next week are too light to be damaging. Excessive rains remain a threat in the 11 to 15 day. Plains wheat winterkill risks remain minimal in the next 2 weeks. There is a better chance for light showers in the 6 to 15 day that would be beneficial in the southern 1/3 of the belt. The 16 to 30 day keeps chances for needed moisture in that area as well.

In South America, showers favored Rio Grande do Sul/Santa Catarina yesterday, with scattered activity in southwest/northeast Mato Grosso, Sao Paulo, and Parana. Rains favor the south in the next 10 days, with warmer/drier weather drawing down moisture in the northern 1/2 of corn/soy and much of coffee/sugar.

Showers are projected to pick up to some extent in late January, reaching central/northwest areas in the 11 to 15 day. However, confidence is low due to a lack of model consensus. The showers would limit most stress to the northeast 10 to 15% of corn/soy in the next 2 weeks, but coffee/sugar may still struggle due to modest long-term rain deficits.

Argentine showers were limited to far northern areas yesterday, but showers in the next 5 days reach about 2/3 of corn/soy. The southern 1/4 will be driest in the next 2 weeks, but rains this week have helped to keep concerns very limited. Excess rain should be limited to the northeast 10% of the belt.

Cold in Ukraine More Extensive Overnight, Leading to Winterkill in Central 1/3 of Belt. Snow cover was too light in central Ukraine to protect wheat from lows of -2 to -7°F. Losses will be limited, but damage is likely since the crop was not well-established. Elsewhere, damage was limited to 15% of the belt in South Russia.

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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