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Sunday Outlook

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Weekend Developments

·         The stock market held near record highs into the close on Friday, following a jobs report that suggested that the U.S. economy is holding its own despite a slowdown in other major economies around the world.

·         That suggests that the dollar should continue to have strong fundamentals on expectations that we will see some degree of tightening in monetary policy in 2015, likely interest rate hikes, although the dollar will certainly have its setbacks.

·         Meanwhile, tensions are escalating again in Ukraine, on reports of Russian troop movement across the border, and ISIS continues its advances in the Middle East, raising a risk threat for the markets.

·         Speculative hedge funds have built net long (bought) positions of 623 million bushels of corn, whereas they were net short (sold) 1.168 billion bushels a year ago.

·         The rally in soybeans came on a decline in open interest as hedge fund managers reduced their net short position from 431 million bushels six weeks ago to net short 40 million bushels as of November 4, but they have not been building new long positions.

·         The October rally was driven by tight soymeal and soybean supplies as huge demand was slowed to be serviced by an even larger supply. There are signs that the balance is starting to tilt as supplies increase, but tightness still lingers.

·         It’s been mostly an open weekend for harvest, with showers in the northern fringes of mostly less than 0.10”.

·         A band of snow tomorrow will stall harvest across northern areas, impact just 1% of the national crop. Otherwise, we’re looking at two weeks of wide open weather for harvest.

·         Cold over the next two weeks will clear moisture out of the Midwest, but it will also push the winter wheat crop into dormancy, with roughly a quarter of it lacking good development.

·         Rains have dramatically improved conditions in South America and are expected to continue to do so for the foreseeable future.

·         USDA will release its November crop report tomorrow morning at 11 a.m. CST. It is expected to confirm that big crops get bigger, with large surpluses expected at the end of the year.

·         Corn is vulnerable below $3.60 and soybeans below the $9.95 to $10.00 support range.

Commodity Weather Group Weekend Summary

In the U.S., showers were limited to northern fringes of the Midwest this weekend and were mainly less than .10”. A band of snow tomorrow extends from the Dakotas into MN, with 2 to 6” (locally 10”) stalling harvest but impacting only 1% of the national crop. Dry weather aids harvest in the rest of the Midwest in the next 2 weeks. Delta cotton/soy harvest and wheat seeding should be favorably dry for the next week. The cold pattern in the next 2 weeks will push Midwest wheat into dormancy early, cutting short growth for 1/4 of the crop.

In South America, weekend showers favored parts of western Goias, central/eastern Mato Grosso, western Parana, central/far southwest Sao Paulo, and much of Mato Grosso do Sul. Showers reach much of Brazil this week, focusing on the far north in the 6 to 15 day and starting to inch south again late in the month. The rains are improving moisture supplies for nearly all corn/soy/coffee/sugar areas and should not be persistent enough in any one spot to pose serious wetness concerns.

Argentina was mostly dry over the weekend, but scattered storms will occur into Tuesday. While some guidance is drier, our forecast does include many already very wet areas in Buenos Aires (mostly .50 to 1.5’). An extended period of warmer/drier weather (90s west next week) then does arrive through the rest of the 10-day, but a major storm remains in the models for the 11 to 15 day. This is likely to once again hit wetter southern fields with similar to heavier rainfall than early this week.

The 16 to 30 day also leans wetter than normal in these areas. While enough breaks should occur in central areas to limit the severity of delays to spring seeding, some acreage shifts remain possible from corn to soy in late-planted areas of Buenos Aires (15% of belt), and the wetness will remain a threat to about 1/2 of Argentine wheat.

 

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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