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Morning Outlook

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Overnight Highlights

·         The big story overnight is the collapse of China’s stock market. It’s closely-followed Shanghai Composite Index lost 8.5% overnight; its largest one-day loss in eight years. I’ve mentioned previously that steps taken by the Chinese government to stem the tide of selling likely just put off the inevitable. That fear came to the forefront overnight, with traders worried that China will need to lift those measures at some point, making the fears self-fulfilling. The whole matter shed light on the underlying structural problems with China’s economy.

·         The dollar is down more than 500 points this morning on expectations that the Fed will back away from its desire to raise interest rates when it discusses monetary policy in its meetings on Tuesday and Wednesday of this week. China’s problems on top of those in Europe will make it difficult to raise interest rates this year, in the minds of traders, leading them to sell the greenback.

·         The weaker dollar would normally be supportive of the commodity complex, but not with China at risk. East Asia is a major buyer of U.S. agricultural commodities. The region’s economy is heavily dependent upon China. As China goes, so goes the region. As a result, the CRB commodity index is gapping lower once again this morning, reflecting weakness in the commodities overnight.

·         Corn and soybean prices gapped to double-digit losses overnight with traders focused on expectations that “favorable” weather patterns over the past week have boosted prospects for this year’s crops. USDA will be releasing updated weekly crop progress and condition data this afternoon at 3 p.m. CDT. This comes on top of fears that expanding global economic problems such as those highlighted above will reduce demand for commodities.

·         Wheat prices followed the rest of the commodity complex lower overnight, but losses were somewhat less as the market seeks a bottom. History would argue for the entire grain complex to put in a seasonal low over the next week or so, but traders will likely need to see some sense of calm restored in the outside markets, but the plunge of the major commodity indices to new six-year lows raises significant worries about short-term grain and oilseed price direction.

·         Rains were slightly above expectations in the western Midwest over the weekend, easing dryness concerns. Very limited heat is expected across the region as we move through the final phase of corn pollination. Moisture deficits are building for the southern third of the Delta soybean belt.

·         Dryness stress has been reduced to less than a quarter of the Canadian wheat/canola belt. Eastern European corn will remain short of moisture over the next 10 days. Western Australian rains early and late this week are expected to ease moisture stress on wheat. Northeastern China rains will aid corn and soybeans over the next 10 days, with 6- to 10-day rains easing dryness in the northwestern quarter of the North China Plain.

Commodity Weather Group Forecast

In the Midwest/South, weekend rains were at or above expectations in the Midwest, favoring parts of northern/eastern SD, southern MN, southern NE, much of IA except for a few central/far southeast areas, northern/east-central MO, western/northern KS, far southern/far western IL, central/southeast IN, and southwest OH.

A few showers are lingering in the east today, but most rains focus on the northwest tonight/tomorrow and should ease drier spots near the IA/WI border. Late-week showers also ease dry spots in central KS. This should narrow the driest areas to a few spots in west-central IA, southeast ND, and eastern MI. 6 to 15 day rains expand across much of the belt but favor the southwest. These showers should recharge recently drier spots in southern IL/southwest IN and fill in most of the lingering dry patches to the north.

Mid 90s reached only as far north/east as the NE/IA border and western MO on Friday and then eased, with a brief peak in the southwest 1/4 of the belt during the next 2 days. Other than an even weaker warm-up early next week, readings otherwise are mild well into August to support pollinating corn/early soy pod set. Showers will aid the Southeast but may still struggle to reach the southern 1/3 of the Delta soy during August.

In the N. Plains/Canada, weekend showers favored SD/western ND but are expanding near the Canadian border today and will aid moisture in much of the Prairies and the far northern Plains during the next 2 days. The most likely stress to linger will be near the Saskatchewan/Alberta border, impacting less than 1/4 of the Canada wheat/canola. However, earlier losses will not be reversed.

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

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