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Morning Outlook



Overnight Highlights

* Asian stocks were up modestly overnight, while European stocks were up more than 3% in some cases on expectations that poor economic data in Europe and the United States will necessitate more stimulus in Europe while delaying a rate hike in the U.S.

* Commodities are also a buy thus far this morning on ideas that they are a good value near multi-year lows, particularly with the dollar showing signs of trending lower now that the markets expect a rate hike to be delayed into next year or later. Grain and oilseed prices benefited as well overnight from that money flow into the broader commodity sector.

* USDA will be releasing its monthly crop report Friday morning, updating supply and demand estimates, including updated yield data. The pattern that we would expect based on similar growing seasons would be a very modest reduction in soybean yields, while corn should see a more significant 2 to 3 bushel decline. The agency is also expected to adjust harvested acreage for soybeans, although any adjustments for corn may need to wait until more data is available.

* Egypt made a significant purchase of wheat over the weekend, although the Black Sea continued its dominance. The sale involved 8.6 million bushels of Russian and Ukrainian wheat for early November delivery. The price of the wheat was listed at $5.44 per bushel cost and freight, according to trade reports.

* Wheat continues to find support from speculative hedge fund managers unwinding large short (sold) positions amid ongoing developing dryness in much of the U.S. winter wheat belt, as well as Australia, Russia and Ukraine. Other bargain hunters are also buying into the positive chart signals for the food grain.

* Unseasonably cold temperatures are expected to add to dryness problems for the Former Soviet Union wheat belt over the next two weeks. Freezes and dryness the next 10 days will curtail wheat growth for over half of the belt, leaving the crop poorly developed going into the region’s typically harsh winter. Australian wheat has a better chance for showers in the dry southeastern third of the belt next weekend, where light rains of 0.10 to 0.50″ could provide very temporary relief to half of the dry area that is in the grain fill stage, but earlier losses are irreversible.

* Corn prices continue attempting to build energy just below key chart resistance at $3.95, with additional resistance at $4.00 and $4.06. Yield results are pulling back somewhat deeper into the harvest, especially in eastern areas of the Midwest. However, traders are reluctant to push prices through overhead resistance ahead of Friday’s crop report.

* Soybeans pushed a nickel higher overnight as buying interest in the broader commodity sector coincides with prices near the bottom of the recent predominant trading range. Demand is strengthening significantly, but traders are still worried about a big crop that could overwhelm that demand. Even so, we’re also seeing a tendency for later yields to pull back from earlier levels, particularly in the eastern half of the belt.

* The bulk of the Midwest should see above normal temperatures and below normal precipitation over the next 15 days, favoring active harvest progress. The western Texas and Oklahoma have chances for rain in the days ahead, but the winter wheat belt also remains largely dry the next couple of weeks, adding to dryness concerns.

Commodity Weather Group Forecast


In the U.S., heavy weekend rains focused on the Southeast, with severe flooding damage focused on central/eastern SC cotton/soy (locally 20″ or more). Light showers also scattered across the eastern OH and TN Valleys and C. Plains, while more organized showers occurred in western parts of TX/OK. The showers reduced dry spots in the Plains wheat belt but still short-changed much of central/southwest KS and CO (nearly 1/4 of belt). Plains rain favors W. TX again later this week, with showers otherwise very limited in the next two weeks for the belt.

Rain chances have also been scaled back in the 6 to 15 day for the Midwest/Delta, with any interruptions to fieldwork very minor during the next two weeks. The best chances for scattered activity will occur late Thursday/Friday and again by the middle of next week and late in the 11 to 15 day. This will likely only offer minor improvement to limited moisture supplies in soft wheat areas as planting increases.

Southeast rains will be much more limited after today, allowing recovery in areas that were not hardest-hit by the weekend flooding. The GFS operational model does show increasing Midwest frost risks at mid-month, but most guidance still shows a warmer pattern.

In South America, rains (.50 to 1.5″, locally 2.5″) covered Brazil wheat over the weekend. A slow-moving cold front produces heavy rains (1 to 4″, locally 7″) from Thursday through Monday, adding to wheat damage. Rains expand into northwest corn/soy areas next weekend, aiding early growth. Models have backed away from rains for the coffee belt, threatening bloom potential but reducing late sugar harvest delays.

Weekend rains (<.50") in Argentina were confined to the southeast fringes of the corn/wheat belt. Rains (.25 to 1") will scatter across the region early this week, keeping moisture mainly adequate for heading wheat and early corn growth. Showers are very limited in the 6 to 15 day, but this is not an immediate concern.
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(r) | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

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