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Morning Outlook

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Overnight Highlights

·         Russia’s economy is expected to see negative growth of 0.8% in 2015, according to government estimates, resulting in a weaker currency and even cheaper wheat prices on the global market.

·         The European Central Bank is expected to support more stimulus when it meets later this week, leading to a weaker euro and stronger dollar ahead of the meetings.

·         U.S. commodities came under pressure overnight as the dollar rallied once again.

·         Monday’s CFTC commitment of traders report showed long-term index fund investors shedding ownership of commodities on expectations that a sluggish global economy and strong dollar will hurt demand for those asset classes.

·         Australia cut its wheat production estimate by 4% to 23.22 million metric tons on this year’s drought problems. We anticipate additional cuts in the months ahead as the harvest comes in, likely dropping the fourth largest exporter below 22 mmt.

·         Historically, December is a difficult time to sustain a rally based on wheat production problems, but headline writers have shifted their focus to various areas of global problems in recent days, allowing for the current rally.

·         The bulk of forecast Argentine rains have been delayed until the middle of next week, allowing wet areas to experience some relief.

·         Crop regions in central and northwestern Brazil will be wettest the next two weeks, which should be mostly beneficial for supporting high yield potential.

·         Shower potential for dry areas of the Southern Plains has diminished for next week.

Commodity Weather Group Forecast

In the U.S., showers favored the Delta (.10 to .50”) and southeast 1/4 of the Midwest (.10 to .75”) yesterday. Showers cross the southeast Plains, southern 1/4 of the Midwest, Delta, and Southeast Friday to early Sunday and will slow very late harvest. A few more light showers early next week could slow the return to the fields, but damage potential is minimal.

Potential rains for S. Plains wheat continue to diminish and will leave most areas short of moisture for slow growth. Prospects for germination in late-seeded wheat areas of the southern Midwest are still marginal given colder trends in the latest Euro model. Pacific Northwest wheat rains aid low soil moisture, and a warm-up next week aids germination.

In South America, Argentina dried out yesterday, and a weekend rain event now appears to reach only about 1/3 of the belt. However, rains are more extensive by mid-week (favoring the north/east), with another chance entering the far west and then central areas at the end of the 10-day and the far west again at the end of the 11 to 15 day.

The fairly limited coverage in the next week will allow some corn/soy seeding to resume by later in the week in the wake of significant rain last weekend. However, the subsequent shower events will still interrupt fieldwork and limit drying in the wettest southeast 1/2 of the wheat belt (Buenos Aires/Entre Rios).

Brazil thundershowers favored areas from western Rio Grande do Sul into central Mato Grosso do Sul and much of Mato Grosso yesterday. An active rain pattern in the next 2 weeks will likely be heaviest in northwest areas. However, models have been overstating rain totals, and the rains should be mostly beneficial to crop growth.

Winterkill Threat Limited But Likely This Week, Given Poorly Established FSU Wheat Crop. Eastern Ukraine/northern South Russia are at risk to dip below 0°F. Snow cover ranges from 1 to 4” across this area and is insufficient to fully protect the crop, leaving up to 10% of total acreage at risk of patchy damage the next 3 nights.

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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