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Morning Outlook

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Overnight Highlights

* China’s stocks firmed overnight after dropping 29% over the third quarter of the year. In fact, global stocks lost $11 trillion of value over the past three months. Yet, European stocks were 2% to 3% higher overnight on ideas the market has already priced in the worst of the data. U.S. stock futures suggest that we’ll open trade today with triple-digit gains for the Dow Jones Industrial Average.

* However, all is not rosy for the global economy. China still has structural problems with its economy as it attempts to transition from an export-based to a consumption-based economy. Many countries have struggled a great deal with that transition. Furthermore, the Eurozone’s area inflation rate surprised analysts when it turned 0.1% lower in September from the previous year, putting pressure on the European Central Bank to increase stimulus for the region. Several members of the U.S. Fed are scheduled to speak later today, which could certainly impact the markets based on recent experience.

* Money flow is modestly in favor of the broader commodity sector this morning, even though crude oil is down slightly from the previous day. However, there remains a great deal of uncertainty in the sector, with the default sentiment being toward the fear side in regards to demand.

* The European Commission sharply increased its estimate of this year’s soft wheat crop to 144.6 million metric tons, up from 140.6 mmt the previous month. However, it made another cut to its corn crop due to drought, dropping it to 58.4 mmt from 58.7 mmt previously and 75.29 mmt previously. USDA currently has the region at 58.0 mmt.

* Grain and oilseed prices bounced modestly, with corn and soybeans just below key areas of resistance. However, traders are unlikely to push prices too far against chart signals until they see this morning’s 11 a.m. CDT quarterly stocks report. That report is known for its surprises that produce daily-limit moves in prices, with the direction of the surprises at times defying logic. Trade estimates ahead of the report are as follows:
U.S. Quarterly Stocks

2015-16

Wheat

Corn

Soybeans

billions of bushels

USDA September 30

Average Trade Estimate

2.149

1.739

0.205

Highest Trade Estimate

2.285

1.850

0.250

Lowest Trade Estimate

1.987

1.647

0.165

USDA Previous Year

1.907

1.232

0.092

Water Street Solutions

2.145

1.743

0.209

* Midwest showers are limited to the western edge of the belt as well as the far southeast Ohio Valley from this weekend into early next week. Forecasters expect brief interruptions for harvest activity the middle of next week as well in Nebraska and Iowa as well as the Great Lakes region. The best rain chances sink into the northern Delta in the 11- to 15-day period.

* Intermittent cool shots over the next two weeks are weaker in this morning’s outlook, keeping Midwest frost threats isolated to the far north. Scattered showers into the weekend are expected to offer slight relief to dry areas of the western third of the Plains, but rains are more limited and could be scaled back even further for the region. Early wheat growth may struggle in the southwestern third of the Plains in particular as a previously wet outlook turns dry.

* Dryness in the Former Soviet Union wheat belt is now looking like it will persist over the next two weeks over nearly the entire belt. The lack of moisture is expected to hamper wheat establishment over a third of the belt, with rains limited to far southern Russia. Dryness is also expected to persist over Australia’s wheat/canola belt, cutting yields for the southeastern third of the crop area, where crops are in a vulnerable development stage at this point.

Commodity Weather Group Forecast

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In the U.S., showers favored southern IL, southern IN, southern OH, central KY, central TN, and near the GA/SC border in the past day. Midwest showers are limited to the western edge of the belt and far southeast OH Valley from this weekend into early next week, with brief interruptions at the middle of next week centered on NE/IA and the Great Lakes.

The best rain chances then sink southward into the northern Delta in the 11 to 15 day, aiding soft wheat moisture supplies and threatening only minor harvest slowdowns. Intermittent cool shots over the next 2 weeks are even weaker, keeping any Midwest frost very isolated in the far north. Harvest will stall in the Mid-Atlantic due to a tropical system in the Atlantic interacting with a boundary along the East Coast, particularly from late Friday through the weekend. Quality declines and flooding damage (locally 5 to 10″ or more) are likely, including NC cotton/soy areas.

Scattered showers into the weekend will offer slight relief to dry areas in the western 1/3 of the Plains, but rains are more limited and could be scaled back even further. Given the lack of additional rain chances in the southwest 1/3 of the belt during October, early wheat growth may still struggle.

In South America, rains (.50 to 2″) were limited to northern fringes of Brazil wheat yesterday but extended into Goias corn/soy as well. Rains in wheat areas on Thursday/Friday produce 1 to 3″ totals, leading to further damage potential. Another rain event at the middle of next week keeps harvest limited. Rains in the 11 to 15 day still look likely to expand in the north and ease dryness in at least the southern 1/2 of the coffee belt. Sugar harvest delays are more limited. Showers (.25 to .50″) fell in central Santa Fe in Argentina corn/wheat yesterday. Rains in key southern wheat areas later this week ease dryness but are more limited in the north next week. A few dry spots linger, but any yield loss should be very limited.

Morning Market Snapshot

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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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www.waterstreet.org
or 1-866-249-2528

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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY(r) | 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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