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Morning Outlook

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Overnight Highlights

·         China’s yuan gained value for the third session in a row after its big break last week, as its central bank continues to take steps to stabilize the currency. China’s Shanghai Composite Index was also modestly higher overnight.

·         That turned the focus of currency traders back to the highly-anticipated interest rate hike in the United States, with the dollar trading modestly higher overnight. Crude oil traded down to $41.64 per barrel overnight, but remained inside of Friday’s trading range. Wednesday could be the key day for money flow this week, as that is when we get a look at the minutes of the last Fed meeting.

·         USDA-FSA released its first monthly update of certified acres early this morning. Typically I would be wary of reading too much into this first report, but today’s data contained some red flags that suggest we could see this year’s planted/harvested acreage adjusted lower in future USDA crop reports; particularly soybeans.

·         Last week’s crop report indicated that USDA reduced planted soybean acreage by 800,000, with 650,000 coming from Missouri and the remainder split between Kansas and Arkansas. However, this morning’s FSA data indicates that Missouri soybean prevented acres totaled 1.02 million acres and that number could continue to work higher as more data becomes available. Total soybean prevented acres in this August report came to 2.17 million, up from 0.827 million in the same report in 2014. Illinois soybean prevented plant acres came to 231,000 acres, with Indiana adding another 92,000 and Iowa 77,000. The bottom line is that soybean acres could drop by another 300K to 400K based on this very preliminary data.

·         Corn prevented plant acres in the August report totaled 2.3 million acres, compared to 1.5 million in the same report last year. However, planted acres are above the expected pace, suggesting that USDA is currently under-estimating total corn acres. As such, I think we need to see future monthly FSA reports before we can draw any hard conclusions on the corn acres.

·         The highly-anticipated Pro Farmer crop tour takes place this week. I am most interested in hearing reports from the field on disease presence, or the lack thereof. The odds are stacked in favor of a significant disease presence this year, but we still don’t know whether that threat will play out. This is a critical time to determine whether disease will be a widespread problem during grain fill and pod fill for corn and soybeans.

·         We saw good follow-through buying on corn overnight, with soybeans recovering from early losses. Now those gains need to be tested in the day session trade. Our bias remains friendly longer-term, but corn and soybeans may lack the data needed to justify such a move for several more weeks if this week’s tour fails to uncover fresh fodder.

·         Weekend showers were spotty, but picked up in intensity and coverage overnight in the northwestern Midwest. Thunderstorms are expected in the western Midwest through Tuesday, scattering to the east through early Thursday, with showers also building in much of the Delta and Southeast by the last half of the week. Forecast models continue to debate the exact timing and resulting shower placement, but extensive coverage is likely to aid late corn and soybean development across much of the belt. Areas most at risk of being missed are in North Dakota and portions of the eastern Midwest. Showers are expected to remain active in the western Midwest in the 6- to 15-day period, but diminish in the south and east.

Commodity Weather Group Forecast

In the Midwest/South, weekend showers were spotty but increased overnight in the northwest Midwest. Favored areas included southwest MN, southeast SD, northwest IA, eastern NE, western KS, south-central MI, far northwest OH, central TN, and northwest AL.

Thundershowers will occur in the western Midwest through tomorrow and scatter east through early Thursday, with showers also building in much of the Delta/Southeast by the latter 1/2 of the week. While still debate amongst the models on the exact frontal timing and the resulting placement of showers, extensive activity is likely to aid late corn/soy growth in much of the belt. The best chances for gaps in Midwest coverage that leave some moisture stress will include parts of ND, eastern IN, eastern MI, and a few spots in OH (about 10% of the belt).

Showers remain active in the western Midwest in the 6 to 15 day but diminish farther south and east. The rains should also reduce dry spots in the southern 1/4 of the Delta substantially this week and benefit late soy growth. Highs did rise into the mid-90s to near 100°F on Friday in ND and central SD, but readings have moderated since. Warmer temperatures may return in the 11 to 15 day for the Midwest, but low 90s will only extend as far east as MO. The 16 to 30 day trended warmer/drier in the eastern Midwest/South to aid early harvest, while rains favor the northwest Midwest.

In the N. Plains/Canada, patchy showers caused only minor interruptions to spring wheat harvest in the southern Dakotas/MN, with similar slowdowns early this week. 6 to 15 day showers cause more notable delays in the N. Plains, but damage is not expected. Weekend rains aided central/northeast Alberta and northwest Saskatchewan canola. Light frost on Saturday may cause minor damage in the northwest 10% of Canadian canola.

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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