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Sunday Outlook

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Weekend Developments

·         The European Central Bank reports that 25 banks failed the most recent stress test, although half of them have already raised the needed cash to qualify.

·         Many of the problems that captured daily headlines in Europe’s economy in 2009 have been re-emerging in recent weeks, helping to push the U.S. dollar higher.

·         The U.S. Federal Reserve will consider whether to stay the course with its monetary policy when it meets on Tuesday and Wednesday of this week.

·         The above factors could provide us with yet again another volatile week for the dollar in the global currency market, along with resulting volatility in money flow both in and out of the broader commodity sector.

·         Friday’s bearish reversal for the grain and oilseed markets sends a warning sign of possible lower prices tonight.

·         It was a wide-open weekend for harvest across much of the Midwest, increasing the flow of corn and soybeans to processors.

·         Limited showers are expected on Tuesday.

·         The next significant shower potential will be nearly a week later.

·         Good rains continue to fall in the prime corn and soybean growing areas of Brazil that had previously been dry.

·         I look for a soft open tonight with a bearish bias as harvest gains momentum, but look for grain traders to keep a close eye on the Fed and on the currency markets as we go through the week.

·         Friday’s USDA cattle-on-feed report held few surprises, with the data coming in close to trade expectations.

Commodity Weather Group Weekend Summary

In the U.S., dry weather dominated this weekend. Showers this week will be mainly Tuesday and will be very limited. The next significant shower potential is nearly a week later. As a result, corn/soy/cotton harvest progress should accelerate. Rains late in the 6 to 10 and into the 11 to 15 day favor the southeast Midwest/northern Delta and may finally slow harvest, but damage potential is very low. S. Plains wheat should see rains later next week aid early growth, and showers will also continue for Pacific Northwest wheat in the next 2 weeks.

In South America, weekend thundershowers have not exceeded expectations but have expanded in northern Brazil, with amounts most commonly .50 to 1” but locally 2.5” thus far. Rains will lift northward through mid-week, with the main focus for rains then expected to slide back to the south and west for the balance of the 15-day period.

Confidence remains low, as some guidance (particularly the GFS) keeps a more active pattern in northeast Brazil as well. However, our forecast has not shifted much since Friday, as it appears that the current rain event could come in toward the lighter end of model projections from late last week.

Regardless, the near-term showers will provide temporary relief, aiding new sugarcane/corn germination and coffee flowering in much of northeast Brazil. However, follow-up showers will be important, and models remain erratic on November rain chances in particularly Bahia/Minas Gerais.

Soybeans in northwest Brazil are seeing a favorably wetter pattern develop to improve germination conditions and encourage seeding to accelerate in between showers.

Widespread rains in Argentina will slow corn seeding through mid-week, but most areas are then dry again for at least  a week. Wetness concerns in the southern/eastern wheat should remain limited to about 15% of the belt.

 

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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