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Morning Outlook

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Overnight Highlights

·         An emergency summit is currently starting in Brussels with European leaders seeking a solution to the Greek crisis. Prime Minister Tsipras has been given hours to come up with a viable proposal for keeping Greece within the Eurozone, but the true deadline is likely July 20. Even so, analysts expect to see banks beginning to fail this week, deepening the crisis for Greek citizens. As such, the euro remains under pressure, which tends to support the U.S. dollar.

·         However, China is gradually becoming the greater problem facing the global market on a long-term basis. It’s stock market continued to slide overnight amid fears of a slowing economy. Today’s losses spilled over into the Hong Kong market, which is also now in a bear market. More than a quarter of the firms listed on China’s mainland exchanges have suspended trading in an effort to stop the bleeding. China’s market has lost $3.2 trillion in value in the past three weeks and the losses are spreading to other Asian markets.

·         The dollar pushed to a new one-month highs overnight as global investors seek the safe-haven currency amid rising uncertainty in the world. Crude oil experienced its largest losses in five months on Monday, tried to bounce overnight, but is now moving to new lows once again with the dollar up more than 800 points.

·         A combination of the above factors continues to signal fund managers that we could be looking at a global decline in commodity demand. As such, they are selling the major commodity indices, which then amplifies losses in the grains at times when they are going down and mutes gains when they try to rally.

·         Corn prices came under pressure once again overnight after Monday afternoon’s USDA weekly crop progress report showed improving conditions rather than additional deterioration as anticipated by the trade. The improving crop ratings added 1.6 bushels to my yield model on the week and suggest that USDA will probably not lower its yield in Friday’s USDA monthly crop report. The trade tends to be skeptical that excessive rain can significantly hurt a crop and Monday’s crop ratings fed that skepticism. As such, the historical pattern in wet years is for a mid-summer rally to be followed by a correction lower into the end of the growing season when the market trades actual yields.

·         Soybean prices came under pressure again overnight as crop ratings remained unchanged in the latest weekly data, when traders were expecting a significant decline. USDA has only changed its soybean yield estimate in the July crop report five times in the past 22 years and this week’s crop ratings raise the odds that it will keep its yield high at 46 bushels on Friday, even though a lower yield could probably be justified.

·         Wheat prices posted double-digit losses again overnight amid slow export demand as a strong dollar makes it difficult for U.S. wheat to compete on the world market. Friday’s USDA crop report is expected to factor in higher stocks reflected in the agency’s June 30 report. It is also expected to show larger production, although a surprise dip in hard red spring ratings Monday modify those expectations somewhat.

·         Heavy rains are again expected to be a factor in the Midwest this week, favoring saturated southern areas, but then conditions moderate in the extended outlook with rains favoring the eastern Ohio River Valley. Up to 5” or more could be seen from Missouri to Ohio this week before a quieter pattern returns to the region.

·         Forecast models have turned wetter for dry areas of the Canadian Prairies in the 6- to 10-day period, although Commodity Weather Group continues to favor the drier outlook.

·         A dry pattern across all but northeastern Europe over the next two weeks threatens corn yields, especially in France and Hungary.

·         Light showers ease southeastern Australian wheat dryness next weekend, but dryness in the west remains a concern amid a developing El Nino pattern.

Commodity Weather Group Forecast

In the Midwest/South, rains scattered through the central/southwest Midwest and a few spots in the northern Delta, favoring eastern KS, central/northern MO, southeast IA, northern IL, northwest IN, west-central MI, and western KY. Highs were mostly in the 70s to mid-80s.

Rains remain active this week in the central/southern Midwest and far northern Delta, including locally heavy rain totals of up to 5”+ possible from MO to OH. This will cause surplus moisture concerns to ramp back up in the southern Midwest after a quieter pattern in the past week. 6 to 15 day rains will occur regularly in the eastern OH Valley, but wet spots in MO and southwest IL remain likely to ease.

Rain totals also should not be as substantial in the eastern belt, keeping concerns mainly focused on river bottoms and low-lying fields. Other than a few dry patches in NE/KS/southwest IA (10% or less of the corn belt), moisture will remain favorable for pollinating corn elsewhere. The best chance for any mid-90s  or better is limited to NE/KS in the 6 to 10 day. Delta/Southeast moisture is adequate for now in the wake of recent rains but will be drawn down in the next few weeks, while mostly seasonable 16 to 30 day conditions are expected in the Midwest.

In the Plains/Canada, heavy rain occurred in West TX, central/southwest OK, and eastern KS in the past day and continue today in the S. Plains. This is causing localized lodging damage to wheat, but drier weather will then aid harvest recovery. Guidance is wetter in the 6 to 10 day for the Canadian Prairies, but our forecast still sides in the drier direction for up to the southwest 1/2 of the wheat/canola. Yield potential continues to fall at the moment in better than 1/2 of the region.

Morning Market Snapshot

 

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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