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Sunday Outlook

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Weekend Developments

·         The chief economist for the People’s Bank of China predicts that the yuan will probably move in both directions in the future following last week’s devaluation as the economy stabilizes. However, his party-line assessment may be more optimistic than other analysts. China committed to greater intervention to prevent big swings after seeing its first major devaluation since 1994. That sparked a currency war over the past week, particularly amid Asian currencies.

·         China is trying to move the yuan closer to market value to stimulate exports to support its ailing economy while also bringing it closer to qualifying for inclusion in the International Monetary fund’s basket of reserve currencies. China recently reported that its economy has slowed to 7% growth, but a survey of economists monitoring China believe it is closer to 6.3% for the first half of 2015, with a 6.6% pace expected for the calendar year.

·         Scattered storms stretch from Nebraska to Minnesota this afternoon, with a few showers still scattered across parts of the Dakotas. Thus far weekend rains have been near expectations, largely focused on these northwestern areas, the Great Lakes and the Tennessee Valley.

·         Showers are expected to build in the northwestern belt through Tuesday, scattering farther to the east from late Monday through Wednesday. A few dry patches may still linger; mainly both in North Dakota and in the eastern Midwest, but much of the Midwest should otherwise see relief from this system.

·         Showers are not expected to be as extensive in the 6- to 15-day period, but will still occur primarily in western areas. Rains are also more likely to reach into the Delta and Southeast  by the end of the week. Shallow-rooted crops in the Eastern Midwest look to be at the greatest risk of missing out on meaningful rainfall over the next two weeks.

·         Overnight temperatures have been quite warm in the northwestern Midwest for much of this month, impacting grain fill, with daytime highs reaching into the mid-90s to near 100°F on Friday, although readings have now moderated considerably. The longer-term CFS model is both warmer and wetter today than it was on Friday, but still favors primarily northwestern areas of the Midwest for rainfall going forward.

·         Cold air remains a possible threat in northern Alberta this coming Friday and Saturday mornings, and again a week later. The threat is still marginal, but some reduction in oil content is possible for the northwestern 10% of the Canadian canola crop.

·         Rains are easing dryness in southeastern Europe and southeastern Ukraine, but the rest of the FSU grain belt remains mostly dry over the next 10 days. Rains are expected to east dryness concerns in the southern groundnut belt of India this week, but a drier 6- to 15-day outlook threatens stress for the northwestern quarter of the oilseed belt. Rains should keep wheat stable across southern and Western Australia this week, while rain chances improve in the 6- to 10-day period for drier areas of northeastern Australia. Argentine wheat should be favorably dry the next 10 days, while a wetter southern Brazil outlook raises wheat damage concerns. Rains are aiding northeastern China corn and soybean crops, with typhoons unlikely to threaten crop damage.

·         Traders have had a weekend now to let the nerves calm down after Wednesday’s USDA crop report created a blood-bath in the grain and oilseed markets. Prices bounced Thursday as some traders holding short (sold) positions took profits on the big decline, with spread unwinding supporting corn and wheat while pressuring soybeans on Friday.

·         We remain confident that the corn crop will come in 4 to 5% below current USDA projections with significant price implications, with the soybean crop likely to be smaller as well. However, the market probably won’t have data to confirm that until the combines roll, and that will take time.

·         All eyes will be on the Pro Farmer crop tour this week. It is the most widely attended and respected tour of the summer and the final tour of significance ahead of harvest. Tour participants will follow similar procedures as previous tours and will likely come up with similar results. However, the greatest value from this week’s tour may come in listening to reports from individual participant cars on any emerging disease problems with the corn and soybean crops that may be developing out there. That may provide clues to late grain fill and pod fill not seen by previous tour groups, including USDA.

·         The corn charts are consolidating above Wednesday’s lows while waiting for direction with a bit of an upward bias. My gut tells me that the lows will hold, but the charts do not yet provide confirmation of that, leaving prices vulnerable. The soybean charts are neutral to bearish  in the near-term, while wheat is trying once again to carve out a bottom. Market bulls probably will not have sufficient fodder to sustain a rally in corn and soybeans until/unless the combines provide such next month, unless this week’s tour uncovers significant disease development.

Commodity Weather Group Weekend Summary

In the Midwest/South, weekend rains were near expectations and scattered across the far northwest Midwest, Great Lakes, and TN Valley, favoring parts of southern ND, west-central MN, eastern WI, south-central MI, northern IN, far northeast IL, far northwest OH, south-central TN, and northwest AL.

Showers build in the northwest through Tuesday, scattering farther to the east from late Monday through Wednesday as well. While a few dry patches may still linger (10% of belt) in mainly northern ND and along the eastern edge of the belt, the rains aid late corn/soy growth in much of the belt.

Showers are not as extensive in the 6 to 15 day but still occur, particularly in the west. Rains also are more likely to reach into the Delta/Southeast by the latter 1/2 of this week, reducing dry spots to well under 1/4 of the Delta and aiding late soy growth elsewhere.

Highs reached into the mid-90s to near 100 F on Friday into central SD and to the ND/MN border, but readings have moderated. 90s will mainly be possible from the South into the southern/western Plains in the next 2 weeks. The CFS guidance is both warmer and wetter since Friday but favors the northwest Midwest most for rainfall.

In the N. Plains/Canada, weekend rains favored southern ND, central MN, central/northeast Alberta, and northern Saskatchewan, with the heaviest totals in central Alberta. Additional rains favor the southern edge of the N. Plains through Tuesday and similar areas in Canada to finish the week. Another rain event slows N. Plains harvest at the start of the 6 to 10 day, but the entire region otherwise quiets down to aid harvest until the 16 to 30 day.

Cold air remains possible in northern Alberta on Friday/Saturday mornings and again a week later. While still a marginal threat, some reduction in oil content is possible in the northwest 10% of the Canadian canola.

 

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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