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Sunday Outlook

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Weekend Developments

·         Oil workers began a strike today at 9 of 200 potential sites across the U.S. today, with plans to expand the strike if necessary. The strike currently impacts about 10% of U.S. fuel production, but it could expand to as much as 64%.

·         The strike is bearish crude oil, but bullish the fuels produced, depending on the duration and scope that the strike eventually reaches.

·         The strike should also be supportive for ethanol.

·         Sources within the new Greek government say they will not make payments on Greece’s debt that are due in March. Fears are rising that we may be seeing the unraveling of the Eurozone, which is bearish the euro and therefore bullish the dollar.

·         Soaking rains fell over the weekend over previously dry areas of the central and southern Plains, while heavy snow fell from Nebraska to Pennsylvania.

·         February provides a “moment of truth” for soybeans, as traders monitor whether yield reports in Brazil are as good as anticipated.

·         February may also be pivotal for corn, as traders monitor if Brazil weather allows active planting of safrinha corn. Favorable weather could actually allow corn acres to increase in Mato Grosso and surrounding areas, as currency exchange rates make profit margins higher this year than last.

·         The tone is quite bearish in the grain and oilseed pits, but the markets are also oversold and due for a modest bounce.

·         The most telling signal may have been the bear flag that was executed on the soymeal charts Friday, suggesting lower prices ahead despite strong demand.

·         Weekend snow in the Plains and snow in the Midwest will make it tough for the bulls to argue for sustained rally near-term, although a correction of oversold conditions is possible. Spread action suggests that wheat may be near a seasonal low.

·         Forecast models call for significant rain for central and northern Brazil the next 10 days, but Commodity Weather Group believes the models will under-perform, which is actually good for harvest and safrinha corn planting.

Commodity Weather Group Weekend Summary

In the U.S., showers covered all but the northwest 1/4 of the Plains as well as the western 1/3 of the Midwest winter wheat belts (.25 to .75”, locally 1.5”). Snow accumulations have been 2 to 8” from central NE to northern IL. The snow/rain will cover the Midwest/Delta (.25 to 1.5”), and snow accumulations in the northern 2/3 of the Midwest will be 3 to 8” (locally 12”) today.

Drier, colder conditions dominate much of the rest of the two-week period. These weekend showers will enhance soil moisture for wheat after relatively dry conditions in the past month. Temperatures capable of winterkill in the Midwest will be confined to snow-protected areas, keeping damage threats minimal. Pacific Northwest wheat benefits from significant showers this week.

In South America, scattered weekend showers were slow to expand in Brazil, favoring west-central/northeast Mato Grosso, southwest Goias, central/southeast Minas Gerais, far northeast Sao Paulo, and parts of northern/eastern Mato Grosso do Sul. While hottest areas in the north mostly topped out in only the low to mid-90s, a few spots in mainly Mato Grosso and Bahia reached the upper 90s.

Guidance remains supportive of significant rains in the next 10 days for central/northern areas. Our forecast is not as wet as much of the guidance given the sluggish expansion thus far, but rains should still be sufficient to reach nearly all coffee/sugar areas and narrow the most notable dryness to only 15% of soy (parts of central Parana and patchy spots in the Mato Grossos). However, there is a drier risk to the forecast given the wet model biases, and there remains at least 1/3 of the soy that has seen the most limited rains since mid-January and need the rain.

Needed drying is occurring in Argentina, and this week’s forecast has shifted drier. However, more extensive rains return by mid-February in saturated central/northeast areas, while northwest Brazil should see a welcome break for soy harvest.

 

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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