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Sunday Outlook



Weekend Developments

·         Greece is expected to begin talks with the International Monetary Fund, the European Central Bank and the European Commission as soon as Tuesday of this week. It hopes to reach terms on a $94 billion emergency loan so that it can make its payment on an existing loan from the European Central Bank that is due on August 20.

·         A series of economic reports are scheduled for release this week that could shape sentiment among fund managers toward the broader commodity sector. Reports on durable goods orders, housing prices and sales, manufacturing and consumer confidence lead the list, while the Department of Commerce will give its preliminary estimate of gross domestic product growth (a measure of economic health) for the second quarter on Thursday.

·         Yet, the primary focus of money managers this week will likely be on the Federal Open Market Committee meetings Tuesday and Wednesday. The Fed is scheduled to release an updated monetary policy statement at 1 p.m. CDT Wednesday, with traders parsing every word to discern whether we’ll see our first interest rate hike since 2006 in September, or whether it will be put off until a later time. Their assessment of the statement is expected to shape the next move in the dollar, with implications for the commodities.

·         The primary factor over-shadowing grain prices right now is not the condition of the crops, but the overwhelming bearishness of Wall Street fund managers toward the commodity sector at large. They see a global economy that is in a serious slide, resulting in less demand for raw commodities. As a result, they are shorting (selling) the major commodity indices, driving them to six-year lows on Friday and settling near their session lows.

·         Corn and soybean prices plummeted in the final minutes of trade Friday, just as the major indices also came under pressure. A bottom is often near when everyone is leaning in one direction, as they appear to be with the major commodity indices, but Friday’s poor close suggests that bargain hunters will be very cautious about re-entering the commodity markets to start the week. Trade sentiment now assumes that early-season crop damage is healing, which will likely remain the case until we get deeper into August and begin seeing yield checks.

·         Grain and oilseed prices can rally while the rest of the commodity sector is moving lower, but it’s more difficult to do so. Weekend weather forecasts continue to be seen as favorable for the corn and soybean crops, again making it more difficult to go against the tide of broader commodity selling.

·         Weekend rains filled in many of the drier spots in the western Midwest. More showers are expected to reach dry patches near the Iowa/Wisconsin border by mid-week and central Kansas by late in the week. Meanwhile, persistently wet areas across the southern Midwest continue to dry out amid a drier pattern in that region.

·         Recent dryness in the northwest probably took more corn bushels off the top than what we regained by drying out in the South, but that’s tough for fund managers to quantify until they see harvest results. As a result, I adjusted yields correspondingly in my assessment. I still have 5 states at record corn yields in the west, but my national average yield is at 161.5 bushels per acre, down from 161.7 bushels last week. For soybeans I am at 44.3 bushels per acre, at least until I see tomorrow afternoon’s crop ratings.

·         High temperatures reached the mid-90s°F over the weekend near the Nebraska/Iowa border and into western Missouri, with hotter readings into Kansas and the Delta. However, the heat then shifted farther south yesterday and mid-90s only briefly expand into the southwestern quarter of the belt early this week, peaking on Tuesday. The 16- to 30-day CFS model guidance remains mild for most areas and has trended slightly drier, favoring the Plains and far western Midwest for the best shower potential.

·         Dryness stress is expected to persist for at least a quarter of the Canadian belt. Heat is easing in Eastern Europe corn, but a lack of rains is expected to cut yield potential over the next two weeks. Western Australian wheat should benefit from limited showers early in the week, with more extensive showers late in the week. Timely showers should avert notable stress for China corn/soybeans late in the week.

Commodity Weather Group Weekend Summary

In the Midwest/South, weekend rains managed to fill in many drier spots in the western Midwest, favoring central/southeast SD, parts of far southern MN, central/northwest MO, southern NE, western KS, southwest IL, a few spots near the Gulf Coast, and much of IA except for west-central/far southeast areas. Showers also fill in dry patches near the IA/WI border by mid-week and central KS late this week, while wet fields farther east continue to see needed drying and improved soft wheat harvest.

Showers expand by later in the 6 to 10 day and into the 11 to 15 day for the Midwest, leaving parts of eastern MI/ND and up to the southern 1/3 of the Delta at most risk for building moisture deficits. Frequent rain chances in the Southeast will aid soy/cotton.

Highs started the weekend in the mid-90s near the NE/IA border and in western MO, with hotter readings into KS/Delta. However, the heat shifted farther south yesterday, and mid-90s only briefly expands into the southwest 1/4 of the belt early this week (peaking on Tuesday). The Euro guidance attempts to bring a similar round of warmer temperatures late in the 6 to 10 day but has limited ensemble support. The 16 to 30 day CFS guidance remains mild for most areas and has trended slightly drier, favoring the Plains/far western Midwest for the best shower potential.

In the N. Plains/Canada, weekend showers favored central/northeast Alberta and eastern SD, with highs in the low 90s near the Canadian border. Rains in the far northern Plains and the eastern Canadian Prairies through Tuesday favor late crop development, with more limited rains then aiding maturing U.S. crops. Moisture stress is expected to persist for at least 1/4 of Canadian canola, mainly in parts of western Saskatchewan/eastern Alberta. CFS guidance does support increasing showers for the N. Plains in the 16 to 30 day but keeps Canada drier.


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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