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Sunday Outlook

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Weekend Developments

·         The dollar took out its March 2009 high late Friday, trading to its highest level since April 2006, despite the Fed’s more dovish stance, due to problems in much of the rest of the world that leave the dollar favored.

·         Russia’s ruble has declined in value by 53% this year, which is also weighing on other emerging nation currencies as well.

·         As a result, the Brazilian real is at its weakest level in nearly 10 years.

·         A weak real raises the value of Brazilian corn and soybeans when sold, but will increase their cost of inputs for the next crop. Brazil’s interest rates are expected to reach 13% by year’s end.

·         The market is again focused on the fact that U.S. wheat is over-priced on the global market, partly due to the strong dollar, and as such is unlikely to pick up much if any of the business given up by Russia amid ample world supplies.

·         Soymeal basis began to soften late this past week, with traders starting to focus on talk from Brazil of high yields.

·         Corn is finding it increasingly difficult to sustain rallies at times when soybean and wheat prices are breaking, despite record ethanol production amid slow farmer selling.

·         Dry areas of Cordoba in Argentina saw good coverage over the weekend, providing relief.

·         Rains are shifting north in Brazil, but should favor the south again in the 6- to 10-day period, keeping yield prospects for both corn and soybeans high.

·         The outlook turns even colder for Midwest/Plains wheat the next two weeks, but winterkill risks remain limited.

Commodity Weather Group Weekend Summary

In the U.S., rains were confined to the southern 1/3 of the Delta (.25 to 1”, locally 2”) and the Pacific Northwest (.25 to .50”, locally 1.5”). A storm pushes into the western Midwest early this week and intensifies over the eastern Midwest, Delta, and Southeast at mid-week. Rain amounts will be mostly .25 to 1.25”, locally up to 2.5” in the Southeast. Given the limited rains in the past week, wetness damage potential for soft red wheat is very low. Additional rains in the 6 to 15 day in the Delta/Southeast have low flooding potential as well.

Snow in Plains/Midwest wheat looks light and limited in the next two weeks. With the colder pattern setting up, winterkill risks become a concern. The latest GFS does show a risk for the Plains around the end of the 10-day period but has little support from ensembles, with only 10 to 20% of members supporting sub-zero readings in areas lacking snow cover.

In South America, weekend showers in Argentina were most organized in southeast Cordoba, northern/southwest Santa Fe, northern Entre Rios, and northwest Buenos Aires. This included .50 to 1.5” totals in many drier sections of southern Cordoba, and additional rains are expected in the 6 to 15 day. This should keep crop conditions stable, although wheat harvest in Buenos Aires will slow with the 6 to 15 day showers.

Brazil rains scattered across much of northern and far southern Brazil but favored much of eastern Mato Grosso and northeast Mato Grosso do Sul as well as Rio Grande do Sul. With rains shifting around quite a bit over the next 2 weeks, moisture supplies should remain favorable for corn/soy growth. The lack of persistent rain over a single region should also keep risks for excessive moisture limited. Highs in the 90s will be most common in the 6 to 10 day, mainly from western Argentina into northwest Brazil. However, sustained heat is unlikely.

FSU Wheat Likely to Trend Colder by End of Month, But Winterkill Risks Limited. Widespread showers benefit wheat this week, with building snow cover in northern Russia. Subzero readings are likely to remain confined to snow-protected areas when cold builds, and damage risks remain low.

 

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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