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Sunday Outlook

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Weekend Developments

·         France’s President Hollande proposed over the weekend that Europe adopt a common government. Greece highlighted the problem faced when a region has one common currency amid multiple political units. Rather than allow the euro-group to break up, there’s an emerging push to move toward a common government unit. European Central Bank President Draghi proposes a common European Treasury to be in place within 10 years as the region moves toward a common government.

·         Greece’s banks are scheduled to reopen for the first time this month tomorrow. Greek citizens will be limited to the withdrawal of 420 euros per week. Meanwhile, Germany indicates it may be open to some debt relief for Greece. The Greek parliament has another crucial vote scheduled for Wednesday to approve a second package of reforms needed to qualify for further financial assistance.

·         Thunderstorms continue to scatter across the southern Midwest through Tuesday, but otherwise focus further south through the week. Wet areas of Indiana, Ohio and Kentucky are expected to see occasional showers, but the pattern is expected to be drier for wet areas than what we’ve been seeing this summer.

·         Rains focus on the northwestern Midwest as we move into the 6- to 15-day period, providing timely rains that maintain high yield potential for the region. Mid-90s or higher temperatures are expected to be limited to Kansas and Nebraska and the Delta/Southeast.

·         Recent rains in Canada left areas of stress in parts of eastern Alberta and central/western Manitoba that picked up lighter totals. Rains are expected to continue favoring northern and eastern areas of the Prairies over the next 10 days. However, the overall area of stress has been reduced to just under one-third of the wheat and canola belt.

·         The heat dome shifts east in Europe, allowing heat to moderate in the west while shifting to eastern areas. However, that heat is expected to be limited to this week and be eased by showers as it abates.

·         Western Australian wheat is wetter over the next 10 days, holding off early-spring moisture stress. Rains this week should keep wheat in the east stable.

·         I expect record corn yields in six states, primarily in western areas of the Midwest, and my national average yield still comes in at 161.7 bushels per acre. Based on my demand assumptions, that would drop 2015-16 ending stocks to 1.2 billion bushels or 8.9% of ending stocks, and I am less optimistic on corn exports than is USDA. Even so, stocks of that level suggest a marketing year average cash price of $5.01 per bushel. This outlook is subject to change as we learn more about this year’s crop, but it provides our best understanding of the current fundamentals given to us by the current growing season.

·         For soybeans, I’m sticking with my seasonally adjusted yield model at this point, which projects a yield of 44.2 bushels per acre. That fits fairly well with a state-by-state look at the crop, but of course soybeans are probably the most difficult crop to assess yield potential in July. Regardless, a crop of that size would suggest 2015-16 ending stocks of 221 million bushels, which is far below USDA’s current estimate of 425 million bushels. Stocks of that size would be 5.9% of annual usage and suggest a marketing year average cash price of $11.05 per bushel. Again, this is fluid as we learn more about this year’s crop, but it provides a snapshot of the current situation as best as we can assess it. This analysis assumes a half-million fewer acres than USDA currently projects.

·         Weather looks less threatening to traders as we prepare to open another week of trade. That suggests that we continue late-week weakness as we start the new week, which is common in wet years. That weakness historically tended to continue into August or even September when actual yields are available to trade.

Commodity Weather Group Weekend Summary

In the Midwest/South, weekend rains have favored northern KS, far southeast NE, northern MO, central IL, northern/eastern IN, western OH, southwest MI, central/southeast WI, central MN, and northeast SD. Thundershowers continue to scatter across the southern Midwest into Tuesday but otherwise tend to focus farther south this week.

Wet spots near the MO/IA border see a break in the wet weather after early this week, while wet sections of northern/eastern IN, western OH, and northern KY will still be prone to occasional shower chances returning in the 6 to 15 day that will keep some wet pockets in place. However, the wettest areas next week tend to more likely shift into parts of the northwest Midwest, aiding pollinating corn and soy growth and allowing a bit of improvement to the south/east for soft wheat harvest.

Mid 90s or better were mostly limited to KS/NE and the Delta/Southeast during the weekend, with a similar event from Friday through early next week. This will mainly threaten KS corn yields, and expected rains from KS into the South will also help to mitigate stress and keep dry patches limited in scope. CFS 16 to 30 day guidance leans cooler than normal and shows more limited showers.

In the Plains/Canada, weekend showers mainly favored southwest/northern Alberta, west-central Manitoba, spotty sections of western Saskatchewan, northern KS, the OK Panhandle, central MN, and the eastern Dakotas. The recent rains have still left stress in parts of eastern Alberta and central/western Saskatchewan that picked up lighter totals, and rains favor the north/east over the next 10 days. However, the rains have reduced additional stress to under 1/3 of the Canadian wheat/canola. Occasional rains will hinder final winter wheat harvest in the C. Plains over the next 2 weeks, but damage risks are 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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