Sunday Outlook

Weekend Developments

·         Bloomberg reports that European Central Bank staff have presented policy makers with a proposal to initiate a 500 billion euro ($590 billion) asset purchase program to try to avert a deflationary spiral for the euro-zone region.

·         Such a program would be expected to add pressure to the euro on the global currency market, while supporting strength in the U.S. dollar.

·         A survey of large U.S. bankers reveals expectations that the Federal Reserve will boost interest rates at least two times this year, with the first possibly as early as June, further adding strength to the dollar.

·         Speculative fund money has been moving out of the broader commodity complex as the dollar gains value, although it is currently consolidating just above support on the major commodity index charts.

·         The models continue to disagree, but rains are still favored over all but the far northeastern portion of Brazil’s crop belt late-month to avert major crop stress.

·         Widespread weekend rains favored the heart of Argentina’s grain belt.

·         Snow early this week should protect Midwest week from another surge of mid-week cold.

·         Traders are primarily focused on final positioning for tomorrow morning’s 11 a.m. CST USDA crop report, which probably has more uncertainty surrounding it than any report in many years.

·         Keep in mind that the computers will be the first to react to the numbers as they read headlines, followed by the human response as 200 some pages of data are digested. Pre-report trade expectations are as follows:

Commodity Weather Group Weekend Summary

In the U.S., showers are spreading across the Delta and continue through tonight, producing (.25 to .75”). A mixture of snow/sleet/freezing rain will cover much of the Midwest wheat through early tomorrow. Ice accumulations should be mainly 1/4” or less, with minimal damage threats. Snow accumulations of 2 to 4” in the northern Midwest should protect most of the crop from subzero readings on Tuesday night. The northern Midwest did dip down to -5 to -8 F on Friday night to cause minor damage, mainly in northwest OH.

The Delta will dry again after today, keeping wetness concerns low. Rains in LA/southern MS in the 6 to 15 day should only lead to isolated standing water. Plains wheat will be free of cold threats. However, rain chances have diminished, and soil moisture deficits will remain (especially in OK). Pacific Northwest wheat sees beneficial showers in the next 10 days.

In South America, weekend rains in Brazil favored Rio Grande do Sul, Santa Catarina, central/far southern Parana, northern Mato Grosso do Sul, and northern/far southeast Mato Grosso and were at or slightly above expectations. Rains will favor the south over the next 10 days, and warm conditions continue (although only low to a few mid-90s in the hottest areas).

Late-month guidance is still not in agreement and keeps confidence limited. While the northeast did shift slightly drier from Friday, rains from the end of the 6 to 10 into the 11 to 15 day could reach better than 1/2 of coffee, most sugarcane, and all but 15% of corn/soy. However, the upturn in showers for northern Brazil remains unlikely to be a prolonged one into February, which could still hinder coffee/sugar.

Notable Argentine rains favored northern/central Cordoba, central Santa Fe, and northern/western Entre Rios. While the southwest 1/4 will see moisture decline, rains were received last week. Flooding risks remain limited to the northeast 10 to 15% of the belt in the next 10 days, with stable conditions elsewhere.

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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