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Morning Outlook

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Overnight Highlights

·         The roller coaster story in China continues to impact the markets. China’s Shanghai Composite Index fell another 5.1% initially in the overnight session, following a loss of 6.2% the previous day, before rallying from that low to close today’s trade up 1.2%. The turn came as investors began anticipating additional stimulus from the Chinese government if the index falls much below current levels. Even so, investors remain concerned about the future of China’s economy, with a record drop in yuan positions at the central bank and other financial institutions suggesting that many investors may be moving currency out of China.

·         Meanwhile, the decline of China’s yuan in recent days continues to impact other Asian currencies. A currency war has ensued, with other countries pushing their currencies lower to remain competitive in the export market. That region is a major customer of U.S. commodities. Their deflated currencies make buying our commodities more expensive.

·         However, Wall Street’s attention today will be on the 1 p.m. CDT release of the minutes of the July Federal Reserve meeting. Investors will be parsing every word in those minutes in search of clues on the Fed’s intent for raising interest rates, looking to see if it might be in September.

·         Industry analysts now believe that China will maintain its current policy of stockpiling grain for another year. However, it is believed that China will reduce the quantity that it purchases and reduce the price that it will be willing to pay. The current system keeps prices elevated so high that local end users can’t afford to buy it. Prices were near $9.50 per bushel after conversion for currency, while they’re now about $1 lower. However, that price is still twice the level seen at the U.S. Gulf. The current drop in cash prices within China is due to expectations that China will pay 20% less than year ago levels, dropping support prices another $1 to near $7.54 per bushel.

·         The Pro Farmer crop tour moves into its third day today, with both the east and west legs moving into opposite ends of the state of Iowa. The big take away from the western leg on Tuesday seemed to be the mere “average” condition of the crop, rather than the exceptional conditions expected. Participants on the eastern leg saw a significant amount of nitrogen and disease problems with highly variable yields. Conditions are expected to slowly improve on both legs of today’s tour, with the best conditions of the week in the final day of the tour tomorrow. Thus far the tour has not revealed anything to suggest a need to raise our production estimates.

·         November soybeans spiked lower to $8.98 per bushel overnight, its lowest level since reaching a low of $8.9575 on June 15. However, the contract didn’t spend much time there, with buyers emerging to push prices a couple cents higher by this morning. It’s important to sustain the move back above $9, because a return below $9 could very well propel us down to $8.80. The comeback is encouraging, but this market is still vulnerable.

·         December corn opened the overnight session near unchanged and has posted modest gains since then. It currently sits just below the post USDA recovery high of $3.795. The contract needs to take out that resistance soon to sustain upward momentum or we will likely see traders try to test the downside once again. The market probably won’t have the data it needs to sustain a rally until the combines roll through the southern Midwest, leaving the market vulnerable in the meantime.

·         Pockets of the western Midwest saw heavy rain yesterday, with overall conditions wetter than expected. Rains are not expected to be as substantial with the rest of the system as showers scatter to the east. The showers should limit dryness concerns, but some areas will lack the needed moisture. Showers then shift to the Upper Midwest in the 6- to 15-day period, but within a less active pattern overall. The 16- to 30-day outlook remains drier than normal from the Ohio Valley into the South and could allow some stress to develop on late maturing crops, while wetter weather will focus on Nebraska, Iowa, Minnesota and Wisconsin.

Commodity Weather Group Forecast

In the Midwest/South, Midwest thundershowers (locally up to 4”) favored SD, southeast ND, southern MN, southern WI, central/southwest IA, much of IL, central/far northwest MO, and eastern KS. Thundershowers will not be as substantial with the balance of the system but will bring some needed moisture for shallow-rooted areas (favoring IN/MI).

This should limit dryness concerns to mainly parts of ND/central OH (10% of Midwest soy). Showers will then shift focus to the upper Midwest in the 6 to 15 day, but the pattern will be less active overall than the current system. While pockets of excess moisture will remain possible in parts of eastern NE, western IA, SD, and southwest MN that have seen locally heavy totals in the past few days, concerns will be very limited in scope.

Scattered showers were limited to mainly the Southeast yesterday, but expanding rains during the 1 to 5 day will aid late soy/cotton growth throughout much of the Delta/Southeast. The 16 to 30 day outlook remains drier than normal from the OH Valley into the South and could allow some stress to develop on late double-crop soy growth but will aid harvest progress, while wetter weather and fieldwork delays focus on NE/IA/MN/WI.

In the N. Plains/Canada, notable rains stalled wheat harvest in SD, southeast ND, and central/southern MN yesterday, but delays with a weekend system focus on mainly MN. Occasional delays occur in the N. Plains in the 6 to 15 day but should not be serious, particularly given rapid progress thus far.

Late-week rains move across much of the Canadian Prairies, but showers otherwise tend to favor the far western wheat/canola. Early harvest prospects are favorable for late August/early September, and a cold shot on Saturday is less likely to pose any frost damage concerns in northern Alberta.

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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