I was interviewed by Michelle Rook on AgWeb's Markets Now this morning. We discussed the corn, wheat, and soybean markets. In addition, we talked about interest rates and the cattle market. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, with Darin Newsom, Senior Market Analyst with Barchart, and we're seeing a lot of red on the Grain and Livestock Futures board this morning. Darin, I want to start off talking a little bit about corn and soybeans. We're at three-year lows here in both of those markets. Really the mentality now is that rain makes grain, right?
Darin Newsom: Yes. There's not a lot of fear out there right now as we look longer term on supply and demand. We could see this in the cash markets. We could see this in the future spreads, particularly in the new crop spread. Commercial traders have been putting pressure on the market to go along with what the funds have been doing here of late. Yes, the weather has been, I'm not going to say it's been perfect for everybody, but it's been generally beneficial for the 2024 crops. Again, we can see this simply by how the markets are reacting and the stance the commercial traders are taking.
Michelle: No doubt. You mentioned the funds. They're very short in this market, almost near record short in corn, if not record. Do you think the funds keep pushing the short side of these grain markets?
Darin: For now, they don't have much reason to stop, but we could make a technical and a fundamental argument that it's running out of room here for them to continue to push December corn lower. Previously, if we want to go back a decade from the fall of 2014 through the fall of 2020, these corn contracts stayed pretty much in a range between $320 and $420. We've reached what used to be the high end. Now that could be considered support. The old adage of old resistance turns into support. We could look at it that way.
From a fundamental point of view, why push the market below $4? Because if we look at the [sound cut]-- Right around $4, so there's not much reason fundamentally for the market to go below $4. We're testing that low end right now. Could funds continue to push this lower? Yes. Again, if we go back to what the new crop spreads are showing us, they're neutral. They're not hugely bearish. It's not like we've got these incredibly strong carries in the Dec-March, or even going out and looking at the Dec-July forward curve. It's just not there, at least not yet. There's still some question about what production is going to be, what the overall supply and demand situation is going to be as we get deeper into the next marketing year. For now, funds seem comfortable. There's no reason for them to cover. Now we'll see, as you said, if they've gone to a record large net short position.
Michelle: Yes, no doubt. They're short in soybeans. They're short in all three exchanges of the wheat markets as well. At the same time, like I said, we're down at three-year lows, but we don't seem to be stimulating a lot of demand, but cash basis levels have been strong because farmers just aren't selling here either, are they?
Darin: Yes, and this is what's going to get to be an interesting standoff, because presumably and reportedly, producers are still holding good amount of 2023 production of corn. At the same time, funds have moved, as we talked about, possibly to a record large net short position. Who wins this battle? Who usually wins this battle? In the meantime, yes, merchandisers are pushing for right now to source some supplies to meet what demand there is out there.
At some point, let's say those bin doors start to open, the US producer starts to wave the white flag, starts to sell some cash grain, then what happens to the basis market despite the fact that futures are, let's say, at or near three-year lows? Could be a difficult situation over the next couple of months if all of this plays out?
Michelle: No doubt. Okay, so you mentioned $4 is support on December corn. We took out the $11 mark in November soybeans, so that was a psychological level. I think $10.80 was another slight support area that we've taken out on the charts. Where do we go now? Where do we find support?
Darin: Yes, November soybeans have been in a interesting situation right now. I was looking back through time. Yesterday's, at Tuesday's low, and if I recall, November 2024 soybeans hit its lowest mark in almost three years. I think almost three years to the day it was down at these levels. There's just not a lot of support for the market to come back to it at this time. It's going to be interesting to see how far it wants to fall. Because again, if we look at the longer term supply and demand, the commercial side is so incredibly bearish.
Future spreads are still running neutral to bullish at this point, but it comes with an asterisk with the low trade volume out in the deferred issue. We got to understand that as well. There's not a lot of incentive for funds to continue to push this market. It could bottom. It could form some sort of spike pattern at any point in here. Seasonally, yes, there's still time for this market to move lower. I just don't know what price it might set as its next target.
Michelle: Again, demand has been a problem for this soybean market despite the fact that we saw our first new crop sales of soybeans to China this morning.
Darin: Yes, I'm surprised there wasn't more of a party thrown for that announcement with the hats and the buzzers and everything else. We have something on the books with China now. Now, whether or not they turn around and cancel it later, that's still to be seen. The US has a new crop sale, a 2024-2025 sale of soybeans on the books with China. It's 5 million bushels, roughly 4.9, if I recall. We'll see if this starts to grow, or if this is more of just a token thrown out there. It's just buy it when it looks like everything's on sale at this point.
Michelle: You and I have talked about the fact that even if it's on sale, a lot of times, well, recently, China has been making the US their secondary supplier.
Darin: Oh, sure, yes. The US dropped out of the big three game with the start of the trade war. There's no doubt about that. We can go back. We can see it graphically. The US was no longer one of the major players in the global soybean market. Yes, the US is, has been, and will continue to be a secondary supplier. Really, our demand for US soybeans will pick up on the global stage only when Brazil has some weather problems and some production problems. That's why all of this most recent chatter about crushed demand for next year and beyond, we'll have to see if it comes to pass. We've heard it for the last 10 to 15 years. Something's going to actually have to happen, or the US is going to find itself with too many soybeans on hand.
Michelle: Wheat markets also had a big correction here off of the spring highs. Of course, we're in the midst of harvest. Is the market sensing that this crop is a lot bigger than maybe we even thought? The yields are coming in off the combine better, aren't they?
Darin: A little interesting anecdote with this. The producers that I talk to from the Southern Plains through the Midwest all say the same thing. They all phrase it the same way. Yields are better than expected. We're talking to wheat producers. Sometimes those expectations of yields are anywhere from zero to horrible. Just because they're better than expected doesn't necessarily mean they're outstanding. We have to take that with a grain or salt or a kernel of salt.
Now, if we look at the market, we can see the commercial side is believing that there's getting to be plenty of supply so that yields not only are better than expected, but actually a little bit on the high end of the range that we normally see. We've got an incredibly strong carry in the Kansas City Sep-Dec spread. We've got a strong carry in the Sep-Dec Chicago spread. This is really all we need to know. Yield numbers, yes, they're better than what was expected, but I think they're also larger than what we normally see. The reality is, we're just getting more supplies than we have demand for. That's not only pushing the futures market lower, but it's also strengthening those carries.
Michelle: No doubt. Do you think we have much more downside risk there in the wheat market? We are at least 50% or past the 50% mark on harvest. When will we start to see some of that harvest pressure ease?
Darin: Back in the day, and I'm going way back to when I was a merchandiser, and it probably doesn't even exist anymore, but a lot of elevators would give 30 days free storage during wheat harvest. Then as those 30 days start to run out, then you get hit by a glut of cash wheat being sold regardless of price, because usually the price had moved lower anyway over that time frame. Again, I don't know if that's still the case, but as we're getting deeper into harvest, we're nearing the midpoint of July, we could start to see the cash sales of wheat starts slow. Producers don't like to hold wheat unless they absolutely have to.
That could start to take away some of the commercial pressure on the market. Now, from the fund side, they're still net short, all three markets. Will they have any incentive to buy? Not anytime soon, not that I can see. If we could just take at least a little bit of the commercial pressure away, that could start to slow this descent a bit.
Michelle: Got you. Cattle market, what do you think there? This is the third down day. Boxed beef looks like it's topped, so have the futures topped as well?
Darin: I think so. At least short term, if nothing else. The interesting thing to me about both cattle markets is the amount of commercial selling we saw coming out of the weekend. After last week, we saw some reports of better cash trade. Then just to come into this week with strong commercial selling, particularly in the live cattle market, it was eye opening then to see what's happened in boxed beef so far this week. All indicators are that the cattle market has topped, again, if nothing else short term.
Michelle: One last question for you. Fed Chairman Jerome Powell has testified in front of the Senate. I think he's in front of the House today, but certainly a lot of speculation about when they're going to cut interest rates. Has he said anything different to you that indicates any change of their course, I guess, in this point?
Darin: Not really. The one statement that stood out to me during Tuesday's speech, whatever, was the fact when Chairman Powell said, leaving interest rates too high, too long could have a bearish effect on the economy as a whole. That really wasn't a change from what he said in the past, from what has been said in the past. It certainly leaves the door open here in 2024 to a rate cut, if not more than one.
We'll see if it happens. Will it happen here in July? I don't know. I doubt it. Anything is possible. To me, there hasn't been a big change, and rightfully so, in the approach, except for understanding the fact that, at some point, interest rates probably will start to come down, be it here in 2024 or possibly pushed back to early 2025.
Michelle: Okay. Thanks for your insight, as always, Darin Newsom with Barchart. That is Markets Now.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
