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Sunday Outlook

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Weekend Developments

·         Happy 2015! Trade volume should return to normal in the days ahead, testing last week’s big moves. Unfortunately, some chart damage has been accomplished.

·         The euro broke hard again this evening, leading the dollar to gap to a new nine-year high, although it is now coming off that high. Europe remains on the cusp of another recession, which has negative implications for China as well.

·         Traders anticipate an increase in farmer sales with the new tax year, but that anticipation is usually larger than reality.

·         However, traders are taking note of rising corn and soybean production estimates for South America amid favorable growing conditions, suggesting a big harvest just around the corner.

·         But first, traders are also bracing for USDA’s January 12 crop report. The January set of reports are known for their big surprises in both directions. As such, we will likely see some position squaring over the next week.

·         Index fund managers will be rebalancing their portfolios over the next couple of weeks. That should provide some support for energy prices and may provide some pressure for the equities, but it should have limited impact on grain and oilseed prices; especially corn and wheat.

·         The National Bank of Argentina began cutting off credit to farmers over the past several days who had not sold their grain/oilseeds in storage.

·         Weekend storms fell across much of northern Brazil, providing timely relief for crops.

·         An active storm track should provide good moisture through mid-month for the northeastern 75% of Argentina’s corn and soybeans.

·         We could see some winterkill risk in the Midwest winter wheat belt mid-week, but a fresh blanket of snow should limit losses.

Commodity Weather Group Weekend Summary

In the U.S., widespread rains fell in the Delta (.50 to 1.75”, locally 4.5”) and Midwest wheat (.25 to 1.75”), while snow fell in southwest/north-central KS and the TX/OK panhandles (1 to 4”) along with a wintry mix in the southeast Plains (.10 to .50”, locally 1.5”) in the past 2 days. Showers linger in the Southeast today (.25 to 1.25”) but otherwise dissipate this week, with just limited showers in the following week.

Damage due to standing water should still be isolated and mainly limited to wheat areas in northern LA, southern MS, and AL if the drier pattern holds . Snow (2 to 4”) in the northern 1/3 of Midwest wheat on Tuesday will be essential to averting widespread winterkill damage and should provide partial protection from lows that should range from -5 to -20 F in the northern 1/2 of the belt later this week. Lows of -5 F or lower in the C. Plains last night were mostly over snow-protected areas. The cold surge this week is expected to spare most Plains wheat from damage.

In South America, weekend showers were somewhat better than expected in northern Brazil, favoring parts of southeast Mato Grosso, southern Goias, central/southeast Minas Gerais, northern Sao Paulo, northeast/far northwest Mato Grosso do Sul, and central Parana. While showers will be near to below normal north over the next 2 weeks, rains will likely be adequate to keep stress limited. The northeast 10 to 15% of corn/soy and 1/4 of coffee will be driest, although occasional showers in the forecast for central Mato Grosso will be needed.

Rains return south at mid-week, but the current break is beneficial after last week’s wet weather in Rio Grande do Sul.

Argentine showers are very limited at the moment, but frequent rain chances in northern/central corn/soy areas in the next 2 weeks should keep dry spots limited to less than 1/4 of the belt in the southwest. No sustained heat is foreseen, and lows even dipped into the 30s and 40s (but above freezing) in Buenos Aires this morning.

Strong Cold Outbreak in FSU Wheat This Week, But Snow Cover Should Protect Most of Crop. Additional snow in South Russia should fill in most gaps prior to -5 to -25 F readings in eastern Ukraine/Russia in the last half of the week. Damage should be isolated in Russia and minimal in Ukraine.

 

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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