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Morning Outlook

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Overnight Highlights

·         China’s producer price index dropped 2.7% in November compared to the previous year, marking a record 33rd consecutive decline and the biggest drop since the middle of last year. Falling oil and metal prices cut costs to factories, leading to lower export prices, but that also makes it more difficult for China to service its debt, which is becoming a greater concern.

·         Crude oil prices drop again overnight after Iran warns of $40 prices if dissention develops within OPEC.

·         U.S. stock futures are lower this morning following yesterday’s losses.

·         Soymeal and soybean prices pushed higher overnight on expectations that USDA will cut supplies on its balance sheet due to strong demand when it releases its crop report at 11 a.m. CST today.

·         Corn and wheat prices were weaker overnight on ideas that USDA will add to stocks in the report on soft demand due to high prices relative to much of the rest of the world.

·         Trade expectations for this morning’s report are as follows:

U.S. Ending Stocks

2014-15

Wheat

Corn

Soybeans

billions of bushels

USDA December Report

Average Trade Estimate

0.654

2.027

0.427

Highest Trade Estimate

0.681

2.156

0.455

Lowest Trade Estimate

0.642

1.905

0.400

Previous USDA Estimate

0.644

2.008

0.450

Water Street Solutions

0.673

2.076

0.403

 

·         Favorable rains are expected for the Plains, Midwest and Delta winter wheat in the next 10 days.

·         Rains are slow to expand, but reach most of Brazil over the next two weeks, maintaining nearly ideal growing conditions favoring high yields for corn and soybeans.

·         Near-term supplies are tight on strong demand amid slow farmer selling, but those supplies are expected to rise dramatically as the South America harvest arrives, especially for soybeans.

Commodity Weather Group Forecast

In the U.S., showers (.25 to 1”) were limited to NC, while .10 to .50” fell in the Pacific Northwest yesterday. The next significant showers favor the C. & S. Plains early next week and scatter across the Midwest. Additional rains late in the 6 to 10 day and the 11 to 15 day focus farther to the south, favoring the Delta/Southeast.

The showers will improve soil moisture reserves in the Plains wheat belt. The rains in the soft red winter wheat areas of the Midwest/South should not be heavy enough to cause wetness damage. Mild temperatures over the next week allow some additional germination for late-seeded soft wheat in the southwest Midwest but will be short-lived. Colder air returns in the 11 to 15 day, but no winterkill risks are expected. Showers in the Pacific Northwest wheat areas continue to improve soil moisture levels over the next two weeks.

In South America, showers scattered across much of central/northern Cordoba, Santa Fe, Entre Rios, and northern/far southern Buenos Aires yesterday, but most of the remaining showers in Argentina will be limited to the northwest corner of the belt this week. Showers then occur mainly in the south/west in the 6 to 15 day, with the next rain chance on Tuesday. While the rains will cause some late seeding interruptions (mainly Cordoba), serious concerns are unlikely. Quality and yield concerns remain in the southeast 1/3 of the wheat belt, but this remains mostly due to long-term moisture surpluses that persist.

Brazil showers were still just widely scattered and disorganized across the belt yesterday, but the very slow uptick in showers in the next 2 weeks should recharge topsoil moisture for stable crop growth in nearly all areas after more limited showers recently. The best chances for any drier gaps appear to be in the south, but these should be very isolated.

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

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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