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Morning Outlook

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Overnight Highlights

* Traders have a two-fold focus as we head into the weekend. The immediate focus is on this morning’s U.S. September jobs report to be released at 7:30 a.m. CDT. Wall Street expects it to show that the unemployment rate remained unchanged at 5.1%, while the economy created 203K jobs, up from 173K the previous month. They also expect the data to show a 0.2% rise in wages during the month. Traders believe those numbers would be strong enough to support a rate hike from the Federal Reserve later this month.

* European stocks were generally 1% to 2% higher overnight on the expectations that the jobs data would support a rate hike, because that would also suggest that the Fed believes the global economy is strong enough to support it. U.S. stock futures are modestly higher ahead of the report release, with a slightly positive net money flow into the broader commodity sector.

* The other factor being watched is the increasingly tense situation developing in Syria. Russia continues to exert itself with bombing raids on U.S. supported opponents of the Syrian regime, with their aircraft operating in the same airspace as our own fighters. Crude oil prices are modestly higher this morning as the tensions escalate in the region.

* It’s no secret that the major hedge funds have a significant influence on price movement in the commodity sector, as well as in the other markets. Data released shows that some noted hedge fund managers on Wall Street are posting double-digit losses this year as the market continues to frustrate them, while the average losses are near 3% and reflect the poorest performance since 2008.

* INTL FCStone released the results of its latest survey of grain industry personnel. The survey suggests that the U.S. corn crop is at 167 bushels per acre, while the soybean crop is at 46.9 bushels. Both are up from its previous survey, but down slightly from USDA’s latest estimates. However, the market had begun pricing expectations that USDA would reduce its yield estimate next week, particularly for corn.

* Corn and wheat prices held onto modest gains in the face of a weaker commodity sector Thursday, but have pulled back overnight. Soybean prices tried to push higher early in the overnight session, but could not hold those gains and is slipping lower this morning. In general, the market is in a bearish malaise on fears of weak demand and large production, lacking sufficient data to suggest otherwise at this point.

* Wheat prices have turned the charts impressively higher in recent weeks, despite the poorest upfront supply and demand fundamentals. Traders felt that the worst of the news had been factored into prices already and began to focus on emerging dryness in the winter wheat belt, Australia, Russia and Ukraine. The dryness in the Former Soviet Union is particularly threatening, although sustaining rallies on the possibilities of a short-crop in that region frequently proves difficult at this time of year.

* Corn and soybeans have tried to turn the charts higher, figuring that the most bearish balance sheets have already been priced into the market. However, traders have often found themselves swimming against a tide of bearish sentiment toward the broader commodity sector focused on Fed monetary policy and the latest perceptions about the global economy.

* Rains are expected to scatter into the far southeast Ohio River Valley tomorrow and into the western Plains through the weekend. Hurricane Joaquin is expected to stay offshore with this morning’s model runs. The best chance for Midwest rains arrives Thursday and Friday of next week from southwestern areas into the Great Lakes, offering some slight improvement to dry hard red winter wheat areas. Soft wheat growing areas could also see some relief in the 6- to 15-day period.

* Northwest Brazil soybean areas remain drier than normal over the next two weeks, hampering early seeding of the crop. Rains fell across the entire Argentine wheat belt yesterday, although showers should be more limited now until the end of next week when another extensive rain event occurs.

* Dryness in the Former Soviet Union wheat belt is expected to be compounded by colder temperatures over the next two weeks that further limit crop establishment ahead of the region’s harsh winter. Rains are likely to be limited for the driest 40% of the belt. Elsewhere, models are back in agreement supporting ongoing dryness in Australia over the next 10 days, with the greatest concerns focused on the southeastern third of the belt.

Commodity Weather Group Forecast

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In the U.S., rains favored central TN, NC, eastern SC, southeast GA, and central OK in the past day. Rains will scatter into the far southeast OH Valley tomorrow and into the western Plains through the weekend, but the bulk of the rains into Monday will focus on the Southeast.

While Hurricane Joaquin will stay offshore, the wet weather will stall soy/cotton harvest and threaten damage, particularly with the heaviest amounts (locally better than 10″) in SC. The Southeast sees needed drying in the balance of the forecast period, and Midwest harvest interruptions remain very minor.

The best chance for rain arrives next Thursday/Friday from the southwest Midwest into the Great Lakes. The weekend showers will offer some slight improvement to dry hard red winter wheat areas in the western Plains (1/3 of the belt), but up to 1/4 of the belt may still lack sufficient moisture for early wheat growth. However, the Euro guidance trended much wetter in the 6 to 10 day in the S. Plains. While our outlook is not as aggressive, this should narrow dry spots a bit more. Soft wheat areas may see a few beneficial showers ahead of seeding in the 6 to 15 day, but forecast risks are to the drier side in today’s guidance.

In South America, rains (.25 to .75″) were isolated in central/northwest Brazil yesterday. Rains cover the wheat belt this weekend (.50 to 2″, locally 4″). Similar rains at the middle and end of next week will add to quality declines and localized lodging damage. Rains expand north later next week, easing dryness in 2/3 of the coffee belt but slowing sugar harvest. Only northwest Brazil soy areas remain drier than normal in the next 2 weeks, hampering early seeding.

Rains fell across the entire Argentina corn/wheat belt yesterday with .25 to 1.25″ (locally 2.5″). Rains will be more limited until the end of next week, when another extensive rain event should ensure that heading wheat and early corn growth remain favorable.

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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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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