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Sunday Outlook

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Weekend Developments

·         A close-watched manufacturing index over the weekend fell short of expectations in China, showing that sector on the verge of contraction. Large manufacturers were doing okay, but small manufacturers are in a state of contraction. The data suggests that a sector of China’s economy is struggling due to slow exports. Europe, the primary receiver of China’s exports, is struggling to get its economy going, creating problems for China. As a result, China’s stock market could come under pressure once again in tonight’s session.

·         Friday’s CFTC report showed that the speculative funds had considerably lightened their load of long (bought) positions in corn and soybeans and extended short (sold) positions again for wheat. This leaves these markets less vulnerable to another significant sell-off, but doesn’t remove the risk of selling in the broader commodity indices dragging the grains lower into sell-stops.

·         The closely watched CRB, one of about nine significant commodity indices, is showing signs of trying to post a bottom at its 2009 low near 200. However, the Continuous Commodity Index is still well-above its 2009 low and vulnerable to additional weakness.

·         Iran states that it could ramp up crude oil production by 500,000 barrels per day within a week of sanctions being lifted and 1 million barrels per day within a month. Full sanction lifting is projected for November based on the nuclear agreement reached with the Obama Administration and other parties.

·         Corn, soybean and wheat prices posted major losses on Monday, before consolidating in choppy trade the rest of the week. It was the second Monday in a row of significant selling, both times precipitated by big sell-offs in the major commodity indices. As such, that becomes one of the keys for trade to start the week. Corn, soybeans and wheat finished poorly on Friday, but held above the weekly lows.

·         As such, it is important for grain traders to see some sense of stability in the major commodity indices as we start the new week, and much of that may hinge on China and the rest of the outside markets. The major commodity indices seemed to break away from China factors early on Friday, but then finished the Friday’s session very poorly, suggesting a vulnerability to follow-through selling to start this week.

·         Notable showers disappointed in the western Midwest over the weekend, favoring scattered areas of northern Missouri and central Nebraska. Notable heat was limited to the far South. Broader coverage of moderate to locally heavy rain is expected between Tuesday and early Friday, reaching most of the recently dry shallow-rooted areas of Illinois, Indiana and Ohio. Some patches in the west are running short of moisture, but overall this forecast will likely be seen by traders as favorable for Midwest crops.

·         In the end, it comes down to how poor crops across the southern half of the Midwest balance with very good crops in the northwestern Midwest. I continue to believe that good yields in the west will not be able to offset lingering problems in persistent wet areas, leading to lower yields than those currently projected by USDA. Soybeans in particular run the risk of lower harvested acreage due to late planting problems, with reductions in yield as well. However, many of these supportive factors may not manifest themselves to traders for quite some time yet, leaving grain and oilseed prices vulnerable to lingering bearishness toward the broader commodity complex tied to economic concerns.

·         Heat eases on corn in South Russia by mid-week, but then refocuses on corn areas of Eastern Europe where yields are being impacted. Australian wheat will be mostly dry over the next two weeks, but stress will be slow to develop considering recent rains. Moisture remains good over China corn and soybean areas.

Commodity Weather Group Weekend Summary

In the Midwest/South, weekend showers were less than expected in the western Midwest, favoring scattered sections of northern MO, central NE, southern GA, and far eastern SC. Notable heat was limited to the Deep South (90s).

Showers aid areas around the Great Lakes overnight, with broader coverage of moderate to locally heavy Midwest rain between Tuesday and early Friday. This will reach most of the recently drier shallow-rooted fields in IL/IN/OH to support corn/soy development, and shower potential even expands into the northern Delta late in the week. This will mainly leave the chance for dry patches in parts of central NE, southeast ND, near the IA/WI border southern AR, southern MS, and northern LA (10% of Midwest corn/soy and 1/3 of Delta soy).

Six to 10 day showers then mostly shift to the Southeast, with another chance mid to late in the period favoring parts of the upper Midwest. 11 to 15 day showers also tend to favor the northern Midwest and Southeast. This offers a chance for moisture deficits to ease in the drier sections of ND/IA/WI to narrow concerns further, and notable heat remains focused on mainly the Deep South over the next 2 weeks with no worse than low 90s on the warmest days in the southwest Midwest. The CFS 16 to 30 day guidance did shift warmer in the Midwest but is also wetter to aid late development, while heat/dryness remains focused on the Delta.

In the N. Plains/Canada, weekend showers were limited to a few spots in northeast ND/northern MN/southern Manitoba/central Alberta. Highs rose into the mid-90s to 100s from the Pacific Northwest into the northwest Plains, accelerating maturation and adding some protein. Showers expand by mid-week in the northern/far western Prairies and southwest sections of the U.S. belt, with additional 6 to 10 day activity.

This may ease dry spots in northwest Alberta, and recent rains have stabilized wheat/canola in much of the rest of the Prairies. The rains will slow early U.S. harvest in the next 10 days and again in the 16 to 30 day, but damage potential is limited.

 

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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