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Sunday Outlook

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Weekend Developments

  • China’s economy grew at 7% in the first quarter of 2015, its slowest growth pace since 2009, while industrial production in March rose at its slowest pace since March 2008.
  • China’s foreign reserve holdings fell at the fastest pace on record, suggesting the government sold overseas currencies to prop up the yuan.
  • Japan now holds more U.S. bonds than does China.
  • China responded to the above data by announcing it will lower bank cash reserve requirements to 18.5%, down 1 point from its previous policy and the largest one-time drop since the great global recession started in 2008.
  • The drop in Chinese bank reserve requirements goes into effect tomorrow and is expected to push 1.2 trillion yuan ($194 billion) into the economy.
  • Chinese efforts to stimulate their economy are frequently, but not always, seen as friendly to U.S. commodity prices on speculation that it will boost demand.
  • Good rains fell across 85% of dry Plains winter wheat belt over the weekend, with active storm track expected to remain over the area the next 10 days.
  • Plains hard red winter wheat tour in a couple weeks will be interesting. Should see a whole new generation of tillers after this rain, even as crop is currently 10-12” tall and heading.
  • Rains over Midwest were disappointing, especially in dry northwestern areas. That will allow fieldwork to resume, although temperatures will be cool, impeding seeding.
  • Dryness the next two weeks should allow Argentine corn and soybean harvest to resume.
  • Friday afternoon’s CFTC report showed that as of April 14 speculative fund managers were building large short (sold) positions in corn, soybeans and wheat while commercial traders were shifting long (bought).
  • We could see some short-covering early in the week on the CFTC report/China stimulus, but the overall sentiment in the trade remains to sell the rallies until/unless a legitimate threat emerges. The object now is to see whether the market can hold together a seasonal planting-time rally into next month?

Commodity Weather Group Weekend Summary

In the U.S., weekend showers scattered from the central/southeast Plains into the western Midwest and from the southern Delta to the OH River/Southeast, favoring central MS, AL, western GA, southern/eastern LA, central TN, southwest KY, central/eastern TX, southeast/far northwest KS, central/western NE, and western IA.

Showers exit through the OH Valley and Great Lakes into Monday, and showers are ending up a bit below expectations (particularly in SD/far western MN/AR/western TN). While cool air will hinder drying somewhat this week in the Midwest, limited showers in the next 10 days should aid early seeding.

The Delta will remain more active, slowing fieldwork and threatening quality concerns for soft wheat. Rains may also pick up in the first 1/2 of May for the Midwest, aiding moisture but interrupting seeding. Spring wheat seeding prospects remain favorable. Dry spots are mainly focused on parts of southeast CO, north-central/southwest KS, far western OK, and northwest parts of the TX Panhandle (15% of Plains winter wheat).

Additional rain chances Tuesday and late this week as well as next week should further limit concerns and aid jointing/early heading. While occasional frost will occur in the northern U.S., freeze damage risks are minimal to wheat areas despite the cooler pattern.

In South America, rains in the past 2 days favored the southwest 1/2 of Brazil safrinha corn (.25 to 1.5”, locally 2.5”) and soy harvest areas in Rio Grande do Sul. One more rain event stalls soy harvest early this week, but harvest then recovers. Rains will favor central Brazil, boosting corn yields during early pollination and easing stress on filling coffee. Northern Brazil corn should see at least normal rains aid pollination in the next 30 days. Sugarcane harvest slows, but damage potential remains limited.

Argentina corn/soy saw showers (.25 to .75”) in the southern 1/4 of the belt end early in the weekend. Drier conditions will allow a slow recovery for corn/soy harvest in the next 2 weeks, with near normal rain in the 16 to 30 day posing minimal threats of renewed delays.

China Rains Covered Entire Wheat Belt Over Weekend, Enhancing Yield Potential. Weekend rain (.25 to 1”) aided jointing and set the crop up for above trend yields, as heading gets underway. Drier weather dominates in the next 10 days, but showers may return in the 11 to 15 day.

Showers Return to NW Europe Next Weekend Easing Moisture Shortages for Wheat. Weekend showers scattered across central/northeast France and aided dry wheat areas, but U.K./northern Germany remained dry. Rain returns to the area next weekend and should avert damaging stress for 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

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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