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Morning Outlook

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Overnight Highlights

* Global stocks started the new quarter on a modestly positive note overnight, with U.S. stock futures pointed higher as well. However, the global markets lack any significant drivers today and remain vulnerable to shifting winds ahead of tomorrow morning’s big U.S. monthly jobs report. Today’s economic reports include manufacturing data and construction spending, while tomorrow’s jobs report is expected to show that the economy created 203K jobs in September, up from 173K the previous month.

* Crude oil prices are higher this morning, but pulling back after testing the top of a wedge formation on the charts. Crude oil has been a critical indicator for money flow into the broader commodity sector in recent weeks.

* Wholesale prices in the Eurozone fell in September for the first time in six months as energy price declines are passed on to the retail sector. Analysts there are worried about deflationary pressures in Europe despite unprecedented stimulus coming from its central bank. The drop in consumer prices is triggering calls for expansion of the region’s quantitative easing program, already set at $1.2 trillion.

* Here in the U.S., Congress reached an agreement to keep the government open until December 11, averting a shutdown. That’s positive from a market standpoint, as traders don’t like the uncertainty created by shutdowns.

* Corn remains under very modest seasonal harvest pressure, even as soybeans are posting small gains this morning as prices drift while waiting for greater direction from USDA’s October 9 crop report. Wheat prices saw follow-through buying following yesterday’s supportive quarterly stocks and small grains summary reports, but ultimately still need help from corn, the currency market and/or a more significant weather threat. Based on the pattern seen in the limited number of years with similar growing conditions we would expect to see reductions in both corn and soybean yields in this October crop report, with a modest reduction in soybean acreage expected as well. The bottom line is that we expect to see USDA move toward a trend of tightening the balance sheet as more data becomes available.

* Hurricane Joaquin is now a category 3 hurricane near the Bahamas, with forecasts placing high risks for the mid-Atlantic in the days ahead. That will also impact weather patterns in the Midwest. Very heavy rains are expected across the Southeast into the Mid-Atlantic over the next 5 days, approaching 10″ or more. Otherwise, the Midwest is expected to be dry into early next week, with showers next week stretching from the southeastern Plains across Iowa, Missouri and into the Great Lakes.

* Rains favored the northern half of Brazil’s wheat belt yesterday, with additional rains expected across wheat areas tomorrow, before drier weather develops until the middle of next week when a heavier rain event cross the belt. Rains early in the 11- to 15-day period still look likely to expand north. Argentina was dry yesterday, but beneficial rains are expected to expand for dry wheat and corn areas tonight across much of its grain belt. More rains are possible for the bulk of the belt next week as well, aiding heading wheat and early corn growth.

* Dryness is still likely to persist for the Former Soviet Union wheat belt the next 10 days, hampering establishment of the crop. The GFS model trended wetter for late in the 6- to 10-day period, but the preferred models remain drier in the eastern half of Ukraine’s wheat belt, which is where the greatest dryness concerns have existed. Australian dryness is likely to persist in the southeastern third of the wheat belt the next 10 days. The GFS model trended wetter in the middle of the 6- to 10-day period, but again the preferred models keep a drier pattern in place.

Commodity Weather Group Forecast

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In the U.S., showers scattered across mainly northeast NC, northeast SC, southwest GA, and south-central KY in the past day, with a few very spotty showers in south-central KS/north-central OK and central/northeast ND. Hurricane Joaquin continues to strengthen near the Bahamas. Forecast guidance continues to show a huge range of solutions, but more solutions have shifted to an offshore track.

Regardless, very heavy rain (locally up to 10″ or more) continues in the next 5 days across the Southeast, posing the greatest threat to open boll cotton and unharvested soy in SC/southern NC. Drier weather then returns to the Southeast, while the best chance for rains elsewhere focuses from the central/southeast Plains into the central/southwest Midwest in the latter 1/2 of next week. While this will cause brief harvest interruptions, damage is unlikely, and the GFS guidance shows drier risks to the forecast.

A few welcome showers remain possible in the 11 to 15 day for the soft wheat areas in the OH Valley/Delta, while scattered showers into the weekend will bring patchy relief to the drier western 1/3 of the Plains wheat but could still leave up to 1/4 of the belt unfavorably dry for wheat establishment through October.

In South America, rains (.25 to 1″, locally 2″) favored the northern half of Brazil wheat yesterday. Additional rains cross wheat areas tomorrow (.50 to 1.5″), with drier weather then expected until the middle of next week when a heavier rain event crosses the belt. This will keep localized damage a concern. Rains early in the 11 to 15 day still look likely to expand north and ease dryness in at least 2/3 of the coffee belt. Rains slow sugar harvest, but damage potential is limited.

Argentina was dry yesterday. Beneficial rains look more expansive for wheat/corn areas tonight and should ease dryness in much of the belt. More rains are possible for the bulk of the belt next week as well, aiding heading wheat and early corn growth.

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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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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