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Sunday Outlook

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Weekend Developments

·         China’s central bank cut interest rates again over the weekend. It was the third cut in the past six months as it attempts to stimulate its economy. With rates at 5.1%, the central bank has plenty of room for additional stimulus steps. Traders typically see Chinese stimulus as a demand stimulus for commodities.

·         Both China’s exports and imports slid in April, providing more evidence of a struggling economy.

·         Germany has provided the lion’s share of support for propping up Greece, but members of Chancellor Angela Merkel’s party are now starting to speak of a stronger euro if Greece is let go.

·         Heavy snow fell in the High Plains over the weekend, with some places in western Nebraska receiving nearly two feet of snow.

·         Port workers at Argentina’s Rosario port are expected to hold a strike vote Thursday if a deal isn’t reached on higher wages.

·         Two ships were registered to load with biodiesel in Argentina for shipment to the United States this past week.

·         The focus this week will be Tuesday’s USDA crop report containing the first balance sheets for the 2015-16 marketing year. Speculative traders have priced bearish expectations into the market, building large short (sold) positions in the corn and wheat markets.

·         Yet, the charts suggest that both markets may be wanting to turn higher near-term; covering a portion of their short positions, if USDA fails to provide fresh bearish fodder, even though the longer-term fundamentals remain bearish.

·         An active Southern Plains weather pattern continues to focus the heaviest rains on Texas and Oklahoma.

·         Rains are currently expanding across dry areas of the far northwestern Midwest.

·         Frost the next two nights in the northwestern Plains is not expected to do significant damage to wheat in the area.

·         Argentine dryness through next weekend is expected to improve harvest conditions for the last portion of the crop.

Commodity Weather Group Weekend Summary

In the U.S., weekend rains favored the southern/northwest Plains, western Delta, and central/southwest Midwest. While heavier pockets (3 to 5”) have also occurred elsewhere, the main flooding issues were again near the TX/OK border.

Showers exit the northeast Plains and head across the far northern Midwest in the next 2 days, with scattered storms farther south in the Midwest/Delta as well. Showers return to the N. Plains/northwest Midwest Thursday/Friday, but the main rains are expected from the S. Plains into the Delta/OH Valley between Wednesday and Saturday.

Additional rains reach the N. Plains/northwest Midwest early in the 6 to 10 day but otherwise tend to favor the S. Plains, northern Delta, and southern/eastern Midwest in the 6 to 15 day. This is a more southern storm track than much of the guidance, as the models have been north-biased in recent weeks. Planting delays should be relatively minor overall, but S. Plains wheat will need wetness to ease as wheat nears maturity.

Frost this morning and in the next 2 mornings focuses on areas of western SD/WY/NE Panhandle that saw weekend snow, but wheat damage is unlikely. Late spring wheat seeding will progress between showers in the N. Plains, while Canadian progress remains rapid but moisture supplies continue to decline.

In South America, rains developed in the past day in southern Brazil (.25 to 1”, locally 2”) and will expand across all of corn/coffee areas, aiding development. Soy harvest delays should be brief, as drier conditions now dominate for the rest of the week. Additional showers late this week further benefit at least the northern 1/2 of corn, ensuring adequate moisture for filling. Sugarcane harvest slows this week but improves during the 6 to 15 day.

Argentina corn/soy areas had rain (.25 to 50”, locally 1”) confined to the northeast 1/4 of the belt overnight. Dry weather now dominates until a few minor shower delays early next week, accelerating corn/soy harvest.

 

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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