Today I joined Michelle Rook on AgWeb's Markets Now. We discussed the action in the corn, soybean, and wheat markets. We also spoke about the cattle market, the stock market, and interest rates. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. We ended with corn, soybeans, and cattle to the plus side, kind of a mixed day in hogs and actually lower in the wheat market. Darin, let's talk about corn and soybeans first off. Slight gains and obviously the funds are in there buying. How much longer do you think the funds pushed that market?
Darin Newsom: That's a great question. That's kind of the million dollar question here as we start the new year. Funds have a substantial long position already in corn and fundamentally we could make the argument that corn's long-term supply and demand outlook is still bullish. If we look at that May-July spread, we have seen basis weakening, we have seen a little bit of pressure on the nearby March-May spread, but that May-July remains bullish. This is taking into account what is expected to come out of Brazil as it starts to harvest its crops, its corn crops. How much higher can we go? Again, I like to talk about corn's characteristic round number reliance. We get through one round number and the market tends to move towards the next. If I recall, March was banging its head up against $4.60 to start the week, not to start the week, but coming out of the holiday on Thursday. If it can get through there, then maybe we'll start talking about $4.70, but at some point I think the market's going to start getting a bit overbought. If there is no fundamental reason to continue to add, I think funds do start to pocket some of this.
Michelle Rook: Do farmers sell at some point here too and also squash or cap the rally, you think?
Darin Newsom: That is going to be interesting to watch because sometimes, I'm not going to say always, but sometimes as we come into the new year, we do see some of the old previous harvest cash sold out of on-farm storage. That could put some pressure on the market. I talked about this earlier on Thursday. I talked about this on Thursday when I looked at the seasonal tendencies for the National Corn Index, National Average Cash Price, and it actually doesn't show that much pressure. Really, from about late September, early October through mid-June, the cash market just tends to go up. If I'm a producer still holding cash, maybe I feed the market a little bit if I'm needing some cash at the beginning of the year, but we've got bullish long-term technical signals. We've got some fundamental reads that are still bullish long-term. I might not throw it all in to the kitty. I might keep a little bit back and just feed the market as if it wants to continue to go up, again, with the asterisk being what happens at the end of January. No doubt. What about the soybean market there?
Michelle Rook: The funds are short. They covered into the end of the year and even today to start a new year, which was a little bit surprising. Now we're up into chart resistance. Do they keep covering shorts?
Darin Newsom: I think they could because, again, there's really no reason for them to. Let me put it this way. There is a reason for them to hold shorts, but most of them probably have very sizable profits. Up until, say, the last 10 days of January, I think we could see some covering. Once we get closer to those last 10 days of January, I think funds start to add to their short positions again because everybody knows what's coming. Everybody can see what's happening in the market. The general idea is the Brazilian crop keeps getting larger, so there's going to be less demand. We can watch the weekly export sales and shipments reports, keeping an eye on total sales. But when it's all said and done, by the time we get to January and by the time we get to the Brazilian harvest, I think we're going to start to see some pretty solid pressure on the U.S. market.
Michelle Rook: Do you think corn and soybeans, and especially the meal market today, were adding some weather premium just because it does look pretty hot and dry in Argentina, parts of southern Brazil?
Darin Newsom: There's always that chance. We didn't see a lot of commercial buying, and I will say that. Even in the soybean meal market, and it was you that pointed out to me how the large net short position that funds still hold in soybean meal. If it's weather related, it could have sparked some of the short covering and can keep prodding this short covering, but we're just not seeing it come from the commercial side. To me, that's interesting. If the commercial traders are saying, look, we're really not worried about it. There's pretty decent carry in the market. We're not going to push this thing. I think that's really what we need to look at. Certainly, we have to follow along with what the funds are doing, but we can use that to our advantage.
Michelle Rook: Speaking of the funds, were they back in selling in the wheat market today, or was that a function of a higher dollar or both?
Darin Newsom: I don't think it had much to do with the dollar, even though the dollar is screaming higher. I just don't think that's an important correlation anymore. Coming into the session, I said, wheat, logically, wheat should continue to see some short covering because here, we did see record large short futures positions in both Chicago softwood winter and Minneapolis hard red spring. What would the logical move be? Continue covering some of that. What did wheat do? Went the other way, which is perfectly normal for wheat is to do the completely illogical thing.
Michelle Rook: Wheat never makes sense. That's for sure. No, it does not. I know. The cattle market, new heist for the move in both live and feeder cattle futures, and we did have some 195 to 196 cash trade in the south here. That market has just been unbelievable, but this is really a cash-led market though, isn't it?
Darin Newsom: It is. This goes back to the old days. We could talk to all the old names who were classic livestock analysts and commentators. Back in the day, it was believed that the cash market led futures. It's always good to see when that situation develops again. I'm certainly not going to step in front of this. As long as cash wants to go up, we're seeing it again. As you mentioned, in cash cattle, we're seeing boxed beef strong. I'm not going to step in front of it. We've got funds who are long the market. Everything's saying bullish. Yes, it does remind me of, say, the Poseidon adventure where everyone starts getting over to one side and the boat rolls over. In case of that or in preparation for that, maybe we certainly want to continue to roll some puts up underneath this market, but I'm not going to be the first one to step in front of this and start selling and say, look, it's over. It's heading down. I'm not going to be that guy.
Michelle Rook: No doubt. The funds so far have pretty much defended their long position. Now that we've made these new highs for the move, do live cattle go up and take out the highs that we had back in March of 2024? I think that's our next chart point.
Darin Newsom: They certainly could. Again, it's going to depend on what the cash market does. With cash going to new all-time highs, it certainly makes sense that the futures should continue to move higher as long as commercial traders are willing to step in and continue to buy, as well as funds continuing to add to their position. Now, from the fund point of view, they could be looking over there at the possible bearish turn in U.S. stock indexes, and they could be getting a little bit nervous. It's a situation where we could have increasingly bullish fundamentals in live cattle. We could see the continued strength of the cash market. But funds could start to get out, and that would push it down a little bit. That could push the market down a little bit. I call that a rubber band disposition. Usually, those things fix themselves with funds getting back in line with fundamentals, but we'll see. We'll see how it plays out longer term. Some of that may depend on money flow, and we saw the stock market pull back here today. But when we talk about money flow, commodities like the grains, they're not seeing the big influx of money.
Michelle Rook: So where's the money going right now?
Darin Newsom: Well, it looks to me at least this first trading day of 2025, it looked like it was going everywhere but the grains. We've seen it in softs for the last number of years, and this is all weather-related. Energies looked like they were taking off here Thursday and could possibly start to build some longer-term uptrends there as well. Gold was back rallying again. Again, if we look at the overall global political and economic situation, it would not surprise me, given the sell-off that we've seen in the gold market, that investment traders turned to that as a safe haven market. Again, if we've seen U.S. stock indexes turn bearish or show some bearish signs, long-term bearish signs, I think some money is going to roll over into gold. I think with all the talk that's coming from the new U.S. administration as far as what it might do in trade, what it might do with the economy, I think traders are going to be nervous and investors are going to be nervous. I think they're going to go towards gold. So I do think the commodity sector is going to continue to see some increased money flow. It's going to be coming out of the markets that have been screaming higher, going to new record highs, particularly in the softs, and possibly into some more of the traditional markets, energies and metals.
Michelle Rook: Yeah, when you look at the big run that the stock market had, obviously you would have thought we'd have some end-of-year profit-taking. But the fact that we're seeing or saw selling pressure here today, does that give you the idea that we do have a longer-term downtrend that might be starting here, especially if we start seeing tariffs and inflation and everything else?
Darin Newsom: I think so. And again, one day does not make a trend. But for much of the last of December, we certainly saw the indexes coming under pressure. And now the reality is we're into 2025. By the end of the month, we're going to see more broken trade agreements. We're going to see announcements. Even if it's just on social media, we're going to see announcements of more tariffs, and we're going to see more trade wars. And the fire underneath all of these things turned up again. That's just not good. It never has been good for an economy. It certainly heats inflation up again. And then the debate becomes, OK, we're seeing how the dollar is reacting on the anticipation of increased inflation that's going to be caused by all this. Will the administration allow interest rates to go higher? I know there was early talk of the, at the time, candidate wanting final say on any and all interest rate announcements. And that is just craziness to me. But we know there's a battle between the incoming White House and the U.S. Federal Open Market Committee, particularly the chairman. So it's going to be quite a battle. Last time around, anyone who dared mention raising interest rates to fight the inflation that was happening that began with the first round of trade wars and tariffs, they were threatened with losing their jobs. So again, there's going to be a lot of things happening here at the end of the month. But certainly looks like the markets are anticipating that inflation and higher interest rate situation.
Michelle Rook: And overall, just markets don't like uncertainty, do they?
Darin Newsom: No, they don't. And so when we're starting to talk about long term investors, I mean, this is where the money flow could change. It could come out of things like stocks. It could come out of some of the other longer term things that we've seen going into the last number of years. Certainly raises the interest in markets, safe haven markets like gold.
Michelle Rook: All right. Thanks so much, Darin Newsom, Senior Market Analyst with Barchart with MarketsNow.
