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Morning Outlook

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Overnight Highlights

·         The Eurozone’s economy grew at just 0.3% in the second quarter, down from 0.4% in the first quarter and below pre-report expectations of 0.4%. The data shows that Europe’s big three economies continue struggle. The region’s weakness has significant implications for China, as Europe is the largest importer of Chinese products.

·         China’s yuan rose in value overnight for the first time since Tuesday’s devaluation. However, other Asian currencies continue to fall in the currency war. China’s Shanghai Composite Index finished 5.9% higher on the week on ideas that further stimulus is coming, which was its best one-week performance in two months.

·         Crude oil prices slipped to fresh six-year lows overnight, before firming to modest gains this morning. Oil is currently on track for its longest run of weekly declines since January on a global supply glut that is expected to get worse as Iranian sanctions are lifted. Prices are down 30% since June’s closing high.

·         Grain and oilseed prices moved modestly lower overnight, with soybeans leading the way. USDA caught the trade leaning the wrong way on Wednesday. It has a track record of issuing bearish reports in August of wet years, while the major funds were expecting a bullish report with the agency beginning to acknowledge the problems with this year’s crops. The bearish surprise came at a time when sentiment is very negative toward the commodity sector at large as global economies struggle. Prices posted an impressive bounce on Thursday as funds holding short (sold) positions took profits following Wednesday’s big drop. However, the market probably won’t have any hard data to support a sustained rally for several weeks, which became evident when prices pulled back overnight.

·         Showers are expected to remain disorganized over the next couple of days, but the outlook has trended slightly wetter around the Great Lakes. A gradual upturn in rain is expected for the northwest Midwest to start the week. The wettest conditions arrive Tuesday into Thursday across the Midwest, with a secondary push of some monsoon moisture feeding out of the Plains to finish the week. There is a wetter risk on Tuesday, but much of the wettest weather has slipped back south of dry sections of North Dakota next week, with the best rains holding off until the 11- to 15-day period. The Ohio Valley is also not quite as wet next week, but still does see at least scattered storms.

·         This year’s heat dome continues to weight on European corn production. France lowered the condition of its crop to 55% Good to Excellent, down from 58% the previous week. Europe is expected to increase corn imports over the coming year, although Brazilian supplies will likely compete for that business. However, a look at the analog years suggests that the hot dry pattern may linger over portions of Russia through its main winter wheat planting season next month.

Commodity Weather Group Forecast

In the Midwest/South, showers were limited and light but did scatter into east-central SD, southeast ND, southwest MN, southwest WI, southwest MI, central NE, southwest KS, and GA in the past day. Showers will remain disorganized in the next 2 days, but the outlook did trend slightly wetter around the Great Lakes.

A gradual upturn in rain for the northwest Midwest occurs to start the week. The wettest weather arrives Tuesday into Thursday across the Midwest, with a secondary push of some monsoon moisture feeding out of the Plains to finish the week. While there is a wetter risk on Tuesday, much of the wettest weather has slipped back south of dry sections of ND soy early next week, with the best rains holding off until the 11 to 15 day.

The OH Valley is also not quite as wet next week but does still see at least scattered storms, and there should still be a net reduction in the driest sections of the Midwest (currently 15% of soy) with next week’s rain.

Warm temperatures will accelerate late crop development and pose little threat of crop stress in the Midwest, as most areas peak in only the upper 80s to low 90s (mid 90s limited to ND during the next 2 days). 11 to 15 day showers are less active than the 6 to 10 day but aid the northwest Midwest and scatter near the OH River. Expanding rains late next week into the 11 to 15 day aid the northern Delta/Southeast but still struggle to reach the driest sections of the southern 1/4 of Delta soy.

In the N. Plains/Canada, patchy showers were limited to the eastern edge of the N. Plains, but rains will cause minor delays next week and into the 11 to 15 day for spring wheat harvest. Weekend showers help to prevent any further crop loss for Canadian canola. However, a frost risk at the end of next week in the GFS model will need to be watched for immature canola in northwest Alberta.

Morning Market Snapshot

 

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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