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Sunday Outlook

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Weekend Developments

·         The Wall Street Journal reports today that the United States and Iran have indicated that they will continue with nuclear talks beyond the June 30 deadline.

·         Greece officials announced at midnight Friday night that they would put the latest offer from its creditors before Greek voters on July 5, five days after the current aid package expires, and perhaps after the offer from creditors has any  validity.

·         Greek citizens have been withdrawing money from banks at a record pace in recent days.

·         The European Central Bank announced over the weekend that it would freeze emergence aid to Greek banks at current levels and not increase it at this time, leaving banks vulnerable to running out of cash as depositors empty ATMs.

·         Greece says it will keep banks closed on Monday to avert a collapse of its financial system, with expectations that capital controls will be implemented, which could limit the flow of money either in or out of the country.

·         For its part, the European Commission offered Greek voters a 10-point plant today, which it says was before Greek negotiators when they stopped talks with the referendum announcement Friday night and which  Commission President Jean-Claude Juncker will discuss at a press conference midday Monday Brussels time.

·         The actions of the Greek government would suggest that it is moving toward an exit from the Eurozone. Doing so would be expected to drive Greece into much deeper economic turmoil, while the rest of Europe would be expected to see a period of improved economic activity until Portugal, Italy, Spain or another member of the group starts down the same path. As such, I expect the euro to rebound once Europeans realize that the sun still comes up in the morning in the absence of Greece, once it has fully factored in the fear of the unknown of a Greek exit.

·         The question before the markets tonight is, has it already done that, or is there more fear to be factored into the currency and equity markets. Thursday and Friday’s market activity provided evidence that the market may have already factored in the worst of the fear, but it’s difficult to have confidence in that assertion as we head into this critical week. An eventual rebound in the euro would be expected to pressure the dollar, which tends to favor increased money flow into the broader commodity sector.

·         There are respected European analysts who are saying this weekend that Greece will stay in the Eurozone, but that too would be expected to unleash a rebound in the euro, leading to weakness in the greenback.

·         Friday’s CFTC commitment of traders report revealed that speculative hedge fund managers have erased their net short (sold) positions in soybeans and are going long, while they still held large short positions in corn and wheat, although the data was as of June 23, before much of the buying took place.

·         Cash corn and soybean movement increased dramatically over the past week, with national average corn basis weakening 3 cents and soybean basis weakening 5 cents over the past week.

·         Market sentiment is much friendlier toward the grain and oilseed complex following last Monday’s big drop in crop ratings in the eastern Midwest. Look for another drop in ratings tomorrow, although probably not as large.

·         The charts suggest that more upside is possible near-term in the corn, soybean and wheat markets, but uncertainty over Greece and USDA’s quarterly grain stocks and acreage reports on Tuesday add to the volatility and risk.

·         The markets will close at Noon CDT Thursday for the Fourth of July holiday and reopen at 7 p.m. CDT Sunday evening.

·         Cattle futures have broken key chart support and are now targeting a possible test of support at $146 on the August chart.

·         Friday’s USDA quarterly hogs and pigs report showed that near-term supplies of market hogs are 13% above year ago levels, beating expectations of 10%. That should put pressure on the upfront contracts, although much of it has already been priced in, while the deferred should find support from data showing that farrowing intentions are expected to contract as we move through the summer and fall. Animals kept for breeding increased just 1% over year ago levels.

·         Weekend rains favored the far eastern Midwest and were less than expected in western areas.

·         An active storm track is expected to continue to favor the southern belt over the next two weeks.

·         Regular disturbances continue into the 6 to 15 day period, favoring the central/southern Midwest. This will include locally heavy totals at the middle of next week and again in the 11 to 15 day that will keep surplus moisture concerns in place from MO/southern IA eastward (over 1/3 of belt) and will hinder late soy seeding and soft wheat harvest.

·         Dry areas of the Canadian Prairies are expected to be wetter at mid-week, but rainfall amounts are still expected to mostly be light.

·         Heat and dryness stress continues to build for corn and wheat in northern and western Europe.

·         The impact of El Nino is beginning to be seen on schedule in Australia. Dry weather over the next two weeks is expected to gradually lead to moisture shortages for one-third of the wheat belt.

Commodity Weather Group Weekend Summary

In the Midwest/South, weekend showers scattered across the northwest Midwest and southern/northeast Delta, but the heaviest totals of locally 3 to 6” occurred in a few spots in far northeast MO/central IL and were most prevalent in central/northeast IN, far southeast MI, far northern/far western OH, and central/southeast NC. River and low-lying flooding continues from the middle MS River eastward, with the heaviest rainfall this month focused on pockets of northeast MO, central/northeast IL, northern IN, and northwest OH.

Scattered showers will move through the central/eastern Midwest into Tuesday, with more organized thundershowers developing late Wednesday/Thursday in the southern Midwest and dipping into the northern Delta. Regular disturbances continue into the 6 to 15 day as well and favor the central/southern Midwest. This will include locally heavy totals at the middle of next week and again in the 11 to 15 day that will keep surplus moisture concerns in place from MO/southern IA eastward (over 1/3 of belt) and will hinder late soy seeding and soft wheat harvest.

Favorable corn/soy growth is likely elsewhere given the lack of heat in the outlook through July. Dry patches may develop in the southern Delta and linger in the Southeast, but rains in the northern Delta will aid growth in the next 10 days.

In the Plains/Canada, showers were very limited over the weekend. Heat will stress western Canada (90s) and the Pacific Northwest (100s) spring wheat early this week. Heat continues through much of the 15-day but moderates slightly. Rain chances did improve for the middle of this week in parts of the Canadian Prairies to offer some temporary relief, but amounts will largely average .50” and are unlikely to end concerns.

Winter wheat harvest slows only briefly in the S. Plains this week, but an active C. Plains pattern in July hinders progress.

 

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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