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Morning Outlook

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Overnight Highlights

·         Three telling headlines from overnight:

o   Thanksgiving weekend U.S. consumer spending dropped 11% from the previous year as shoppers stay home.

o   Contraction in German manufacturing pulls Euro-zone PMI  to near stagnation point.

o   Moody’s cuts Japan’s credit rating to A1 from Aa3.

·         The global economy is slowing, but the U.S. economy remains the brightest spot in an otherwise dim global outlook.

·         The dollar traded to a fresh 4-1/2 year high overnight, although it is off its high now.

·         Crude oil pulled commodities to a five-year low on worries about demand as the global economy slips and a strong dollar makes our commodities less competitive.

·         Fresh soymeal demand is softening, but fulfillment of a big backlog of previous orders continues to keep supplies tight and crush margins strong, providing periodic bounces in the soy complex, although the charts are looking increasingly vulnerable.

·         Slow farmer selling amid strengthening demand provides underlying support for corn, although holding trader interest becomes increasingly difficult in view of expectations for a 2 billion-bushel carryout.

·         Kansas City wheat continues to gain on Chicago amid Australian and Argentine harvest delays and expectations that Brazil will need more U.S. hard wheat.

·         Additional support for KC wheat overnight came from more rumors of Russian export restrictions, although locals continue to insist that the impact will be minimal.

·         A few areas of Argentina and Brazil are excessively wet, but the prevailing theme is that “rain makes grain” as the pattern remains generally favorable overall with widespread rains.

·         Showers are possible early next week for dry areas of the Southern Plains wheat belt, but confidence is lacking.

Commodity Weather Group Forecast

In the U.S., weekend showers were limited to light snow around the Great Lakes and light rain showers (mostly .10 to .50”) along the OH River. Showers return to the southeast Plains/southern Midwest/northern Delta by Friday, with another system dipping even a bit farther south next Sunday to Tuesday. This will slow late harvest in the OH Valley and northern Delta, but the bulk of harvest areas should see drier weather then aid fieldwork for the rest of next week.

Some benefit is possible for slow wheat growth in the S. Plains, but drier risks are increasing with the 6 to 10 day event. Prospects for germination in late-seeded wheat areas of the southern Midwest are slightly better given the warmer than normal outlook.

In South America, weekend rains were widespread in much of Argentina, with the more limited showers in Cordoba. Another event crosses next weekend. While the forecast is slightly drier and confidence on rainfall placement is low given model disagreement, the rains will still likely again slow late corn/soy seeding and limit drying for maturing wheat (greatest concern in Buenos Aires). Another break then occurs for the rest of next week, with the next storm entering the west late in the 11 to 15 day.

Brazil showers favored southern Mato Grosso, northern Mato Grosso do Sul, southern Goias, Minas Gerais, and southern Rio Grande do Sul. Widespread coverage in the next 2 weeks will be most frequent in Minas Gerais, Goias, and the Mato Grossos, with a slight wetter shift since yesterday. However, guidance overstated weekend rain intensity, and risks for excess moisture remain somewhat limited given this wet model bias. The rains will otherwise aid crop development.

Wet Weather in E. Australia to Hinder Wheat Harvest; West Favorably Dry. Frequent rains slow wheat harvest and lower quality for 1/3 of the crop, particularly in the next week.

Marginal Winterkill Threat With Cold Push at Mid-Week for FSU Wheat. A cold push mid to late in the week will bring readings near damage thresholds in some of eastern Ukraine and adjacent parts of Russia with thin snow cover. Damage potential currently appears patchy, but the event needs to be watched.

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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