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Morning Outlook

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Overnight Highlights

·         Money continued to flow out of the broader commodity and equity sectors into the relative safety of government bonds overnight after the World Bank cut its economic growth forecast. The grains had been moving higher against the tide of this broader sell-off until Monday’s USDA crop report.

·         March corn futures broke below trend line support off the November and December lows overnight as traders increasingly focus on good yield prospects in South America and the broader commodity sell-off.

·         March soybeans broke below psychological support at $10 overnight as traders brace for a huge South American crop and on bearish chart signals.

·         Wheat futures saw follow-through selling as U.S. wheat remains too high priced relative to the global market considering the strength of the U.S. dollar.

·         Rains are expected to largely remain outside the wettest areas of Argentina the next 10 days.

·         The GFS model is slower to move rains into drier areas of central and northern Brazil this morning, but the euro model continues to show good shower activity and it has been more consistent and thus is favored. Dryness is expected to be limited to 15% of the corn/soybean belt.

Commodity Weather Group Forecast

In the U.S., only the Carolinas had lingering showers (<.25”) yesterday. Midwest wheat only saw lows of -5 to -10°F in far northern IL and MI overnight, and damage was minimal due to snow cover of 4” or more. Milder conditions otherwise end winterkill concerns this week. Colder trends in the 6 to 15 day are not strong enough for winterkill, but ongoing cold in the 16 to 30 day will keep risks higher than normal.

Rain potential for the Delta has diminished notably in the 6 to 15 day as well, and this will eliminate wetness concerns. Plains wheat still has a chance for some light showers next week. However, amounts are too light to improve low soil moisture supplies in TX/OK, and the 11 to 30 day continues to trend drier as well.

In South America, scattered showers occurred in Parana, Santa Catarina, Rio Grande do Sul, southern Sao Paulo, and southwest Mato Grosso in Brazil yesterday. The GFS is slower to allow a northward advance of showers, but the more consistent Euro is preferred and supports showers in the latter 1/2 of the 6 to 10 day. This would still limit significant dryness risks in the northeast to 15% of corn/soy/sugar and 1/3 or more of coffee.

The CFS guidance does still show additional 16 to 30 day rain in the north, but a return of a warm/drier pattern is favored in our February outlook as support from the tropical Pacific wanes. This would aid soy harvest and safrinha corn seeding but could still hinder softs (particularly coffee).

Argentina showers were limited to northern/eastern edges of the belt yesterday. Scattered showers favor the south Thursday night/Friday and Sunday night/Monday and may narrow already limited dry spots. Recent wet areas in the northern 2/3 of the belt miss most rains in the next 10 days to ease concerns, although the GFS does show a wetter 6 to 10 day risk.

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

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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