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Sunday Outlook

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Weekend Developments

·         U.S. stocks just had their poorest week since 2011, amid concerns about the global economy slowing down.

·         Japan’s Prime Minister Shinzo Abe’s Liberal Democratic Party rolled to victory in elections this weekend, suggesting that we’ll continue to see the policies in place that have taken that country to the brink of recession once again, adding strength to the dollar as the yen weakens.

·         The chief economist for the People’s Bank of China’s research center projects that China’s 2015 GDP growth will slow to 7.1%, down from a projected 7.4% this year and the slowest growth since 1990.

·         Europe, China’s biggest customer of good and services, is on the cusp of recession.

·         The United Arab Emirate’s energy minister stated this weekend that OPEC will continue to pump oil, even if prices go to $40 per barrel, adding pressure to the energy sector.

·         Fund managers continued to pull money from the broader commodity sector over the past week, despite a pullback in the dollar, due to the above global economic concerns that are leading economists to revise demand estimates lower.

·         Yet, the grain and oilseed complex moved higher against that tide of selling, largely led by renewed headlines about possible Russian wheat export restrictions, the possibility of renewed corn export sales to China and the possibility of USDA cutting acreage in January.

·         Reuters reported Friday that Syngenta expects approval of MIR162 by China in the near-future; possibly within days. I estimate that such a move would add 40 to 80 million bushels to current-year U.S. corn exports, while dramatically slowing U.S. grain sorghum export shipments.

·         USDA-FSA released certified acreage data several days early on Friday. Based on the relationship between FSA and USDA-NASS data in previous years, it would suggest that 2014 planted corn acreage could drop 1.9 million in January, while soybeans drop 1.1 million. However, I still believe that we saw a small percentage drop in farmer certification that accounted for many of these acres, which would leave the market disappointed in January.

·         The most bullish scenario I can draw up based on the above factors would be a drop of current-year corn stocks to 1.510 billion and soybeans to 345 million bushels in the January crop report.

·         There’s little disagreement that both scenarios would still leave us with burdensome supplies of corn and soybeans, with South America likely adding to that surplus in the months ahead if the weather continues to be favorable.

·         However, one of my 10 undeniable truths about marketing is that the markets can remain illogical longer than one can stay liquid, with the corn market currently showing the greatest tendency to do so. As such, we must maintain a discipline to the charts, reflecting trade behavior.

·         Deliveries against the expiring December corn contract Friday jumped to a massive 5+ million bushels, suggesting that the futures market is over-priced and holders of the corn wanted to take advantage of it.

·         Farmer selling is increasing, pushing export corn basis to two-month lows.

·         A Chinese delegation of soybean buyers will be in Chicago at the start of the week to sign a ceremonial agreement to buy soybeans that they were going to buy anyway, but it sometimes gives a short-term pop to both the sales numbers and to market psychology.

·         December soymeal broke $27.20 per ton lower at expiration Friday, while the January contract broke $4.50 per ton.

·         South American weather remains quite favorable for high yields.

·         The U.S. winter wheat belt is expected to receive good rains this week.

Commodity Weather Group Weekend Summary

In the U.S., the weekend has been mainly dry but rains have begun to develop in the TX/OK panhandle this morning. These showers expand across C/S Plains wheat over next 2 days and are followed by additional showers centered on Thursday. Total rains are likely to be .25 to 1.0” across the entire belt improving moisture.

Rain showers cross the Midwest and Delta this week but impact on harvest is minor as most areas are now near completion due to recent dryness. The Delta could see locally 2-4” of rain late this week. Some standing water is possible but damage potential is low as dryness in the past month limits length of ponding and rains the following week tend to focus south/east of the wetter areas. Colder trends in 11-15 day are not strong enough to threaten winterkill and should help to push Plains/Midwest wheat back into dormancy.

In South America, showers scattered across all of Brazil (including drier S. areas) but were limited to northwestern fringes of Argentina. Showers this week will still concentrate in N. Brazil but will begin to increase in the south by late week and then concentrate over the south/central areas in 6 to 10 day ensuring that areas of low soil moisture receive needed rains in Mato Grosso do Sul, Parana and Rio Grande do Sul. Rains expand back north in the 11-15 day keeping moisture abundant for crops with minimal flooding concerns.

Argentine showers favor northern area benefiting corn/soy growth. Showers favor eastern areas in the 6-10 which could slow wheat harvest but is likely to miss the key areas in the south, keeping damage potential low. Main rains shift back to the north in the 11-15 day aiding corn/soy planting and wheat harvest in the south. Temperatures are expected to remain favorably below normal over the next two weeks keeping most highs in the 80s to lower 90s.

FSU Wheat Remains Free of Winterkill Risks Next 2 Weeks, Snow Cover May Build in 11-15 Day. Unseasonably mild temperatures the rest of this month are not enough to bring the crop out of dormancy but will keep snow cover limited. Snow potential improves in 11-15 day for north half 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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