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Morning Outlook

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Overnight Highlights

·         Greece’s parliament passes the second set of reforms necessary to qualify it for its third aid package. The bill, which passed 230 to 63, simplified court decisions and transposes European rules on Greece’s failing banks. Greece hopes to wrap up talks with creditors in time to make its August 30 payment to the European Central Bank. The euro rallied to a one-week high on the global currency market as fears of a broader crisis eased.

·         China’s Shanghai Composite Index pushed more than 2% higher overnight, posting its longest stretch of gains since May. Many observers believe that the gains are temporary and that structural problems with China’s economy remain, but concerns of a China collapse have eased for now.

·         The dollar dropped to one-week lows overnight on slumping concerns overseas. The greenback slipped nearly 700 points in overnight trade triggering a modest rebound in money flowing into the broader commodity complex. There’s been a major focus on Wall Street on the bearish fundamentals of the broader commodity sector as the global economy struggles, with major commodity indices testing significant chart support. Often times such talk actually signals that a major low is near, although breaking through that support could trigger another round of selling with commodity prices moving another leg lower.

·         Soybean prices saw follow-through buying from yesterday’s rebound as demand remains seasonally strong. Crush margins are quite good, encouraging processors to push bids to pull as many soybeans through the plant as possible, suggesting that USDA will need to further tighten its old-crop balance sheet. That’s pulling new-crop prices higher as well, although at a slower pace as traders focus on hopes that an improved weather pattern will help the crop heal from early-season problems.

·         Corn prices are posting modest gains this morning after holding above yesterday’s lows, supported by strength in the soybean complex. Some bottom-pickers have emerged to buy corn after it held just above a 50% retracement of the mid-summer rally on Wednesday.

·         Germany’s wheat crop may not be as bad as feared when a heat dome set up over Europe as the crop was finishing grain fill. Early harvest results indicate good quality, with better-than-feared yields. French consultancy Agritel estimates the German wheat crop at 24.9 million metric tons, down 10% from last year’s big crop, but 2.3% above the five-year average. Romania’s crop was pegged at 6.99 mmt, down 6.2% on the year, but up 6.5% from the five-year average. European exports are above last year’s pace, even though this year’s crop is smaller than last year’s big crop.

·         Even so, U.S. wheat prices bounced modestly overnight on profit taking following their recent collapse. This week’s industry tour of the Canadian Prairies continues to highlight some of the problems with the Canadian hard red spring wheat crop.

·         The Midwest has been much drier this week, easing fears of excessive moisture in the southern Midwest. Weekend showers are expected to return to central and northwestern areas of the Midwest, with similar activity in the 6- to 10-day period. This will aid corn and soybean growth in the region, but could still short-change a few spots in east-central South Dakota and southwestern Minnesota. Ohio and Indiana could see a return of showers in the 11- to 15-day period.

·         Midwest heat is still focused on Friday and Saturday this weekend, returning again on Monday to Wednesday. However, readings in the mid-90s still focus on primarily southern Nebraska, Kansas and Missouri, with a brief expansion at mid-week into southern Illinois. Milder readings are expected in the 16- to 30-day period.

·         Rains are expected to aid dry areas of Canada on Monday and Tuesday before a drier pattern returns to the area. However, forecast models suggest some wetter risks to the outlook.

·         Heat is easing for Eastern European corn, but showers remain limited. Heat could build for South Russia corn next week. Showers are easing dryness concerns in northeastern China, but widespread rain relief has been delayed until next week. There is better consensus this morning for an upturn in Western Australia rains next week to ease developing wheat stress.

Commodity Weather Group Forecast

In the Midwest/South, an isolated thundershower occurred in far northeast SD/west-central MN and central NE, but most of the rain focused on the northern Delta and favored western KY, far southeast MO, and central TN. Weekend thundershowers return to the central/northwest Midwest, with similar activity in the 6 to 10 day. This will aid corn/soy growth but could still short-change a few spots in east-central SD/southwest MN. The wettest fields farther south and east in the belt will see a less active pattern ease concerns, with the best chance for showers in OH/IN during the 11 to 15 day.

Heat is still focused on Friday/Saturday and returns Monday to Wednesday, but mid-90s still focus on southern NE, KS, and MO, with a brief expansion at mid-week into southern IL. Given the lack of notable dryness, stress should be limited to the hottest areas in KS and the Delta, with milder temperatures still projected for the 16 to 30 day. Showers are offering some improvement to the northern Delta currently and will fill in for the Southeast regularly. However, dry spots may develop for soy in the southwest 1/3 of the Delta (southern AR, northern LA, southwest MS) during the next few weeks.

In the N. Plains/Canada, showers favored parts of central Alberta and central Manitoba in the past day, with just spotty showers in the U.S. belt. Rains will aid late spring wheat growth in the near-term for the N. Plains, with drier conditions then aiding maturation into August. Rains will aid Canada on Monday/Tuesday before the drier spell, but our forecast did reduce rain chances in western Saskatchewan/southeast Alberta. However, risks are in the wetter direction for the belt.

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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