Earlier today I appeared on AgWeb's Markets Now with Michelle Rook to discuss the wheat, soybean, and corn markets. I also talked about the energy markets, gold, the volatility in cattle prices, the recent selloff in the equity markets, and what's to expect for interest rates in the next few months. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. We're seeing mostly higher prices over on the grain and livestock futures this morning with the exemption of feeder cattle. In the outside markets, crude oil is down pretty hard this morning, we'll talk about that in a bit. Darin, let's talk about soybeans, we're to the plus side this morning. Is this just a little short covering or what about this China business that we saw this morning? Is this giving us a little bit of a lift and are we going to see more? Because we're hearing maybe China is short-bought.
Darin Newsom: Yes, to me, well, the sale, the small sale that we saw early Thursday morning was likely reflected in the market. We've seen the market rally a couple of times here early in the week. I'm going to guess we probably saw it in, either Tuesday or overnight Wednesday activity. We've seen some commercial buying and then all of a sudden it just evaporates as the day goes along, which has become pretty standard in the soybean market. Is China short-bought? I would doubt it. It would seem unlikely that they get themselves into-- that it gets itself into that situation. It certainly could be. Again, what it looks like to me is they're still doing just enough buying to cover what they can't pull from or won't be pulling from Brazil here as we get towards the end of Brazil shipping season. We're in the biggest part of the six months that the US takes center stage and we have seen a seasonal uptick in export demand. We're still running behind pace, though. The latest weekly export sales and shipments, the numbers show us that, if we look at total sales, if we look at shipments. The US still has a lot of work to do. We're going to continue to see these small sales made to China. Now we'll just have to see if they start to accumulate and make a difference.
Michelle: Yes. Is the reason, Darin, that they haven't had a big, big market impact is the fact that, as you point out, we're 29% below where we were last year at this time in terms of export sales. At this point, do you think there's any way that we can get caught up?
Darin: I think we could get caught up. What might have to happen is gets deeper into the season. In other words, we're used to seeing Brazil take over the market, say, in late February, early March. If they have any sort of weather problems, if it stays dry and the crop isn't as good, maybe we see a later season push here in the US for US soybeans. It certainly doesn't look like it's going to happen. It could still happen over the winter, but it's in doubt at this point, so we'll have to see what happens.
If we look at the spreads, the commercial side of the market just simply isn't indicating that they're overly concerned right now. My biggest, what I'm watching right now is that Nov-Jan spread finished covering 64.5% calculated full commercial carry on Wednesday. That doesn't sound all that exciting, except 67% is the bearish threshold. With delivery coming up, if that spread moves into bearish territory, that sets a target for what the Jan-March could do. That would tell us
not only is the US crop larger than what was expected, demand just simply isn't coming around to meet those new supplies.
Michelle: Interestingly enough, when we talk about the other part of the demand leg here, crush, that's been stellar. We've seen a soybean meal, obviously. We're filling in some needs from an export perspective because of Argentina's shortfall. We made new contract ties yesterday and then reversed. Were we just taking some profits on that bean meal, bean oil meal spread, or are we done going up there?
Darin: Yes, I think it's like what we've seen in cattle. We saw a bean meal hit a new high and then it just ran out of buyers, and then it had a vacuum underneath it so it fell right back down. Again, if we go back to the latest weekly sales and shipments number, total sales of soybeans so far for the 2020, I think his guess would be the '23/'24 marketing year, it's running total sales are 43% ahead of last year's pace, so that's pretty impressive. We've got to pick up the pace of shipments a little bit. They're a little bit behind, but if we count unshipped sales and so on, we still have a lot of meal on the books. Again, I think this comes back to not only Argentina's crop but there's been a lot of chatter about the recent Argentine presidential election possibly causing some havoc in the market as well. A lot of things to watch in Argentina. Again, right now the market's telling us we should continue to see a solid demand for US supplies.
Michelle: Hopefully that can help at some point get us back above $13 in the nearby beans, but so far, it's not been the case. The corn market. We're up a little this morning. Are we just following soybeans or are we correcting our oversold status? Because we did break through some key support yesterday, didn't we?
Darin: Well, yes, it broke through some support yesterday, but by and large, corn's not going anywhere. It's still in its sideways range on its daily chart. If we look at the D's contract from roughly 473 and a half up to, let's just call it 507 and a half, something like that. It's about a 34-cent range. We've poked our head below that range. We've poked our head above it a week or so ago. It just, it falls right back into where we are. There's no reason for the market to really break out at this point. Everything we look at fundamentally from basis and future spreads, it's all neutral.
Everybody just seems content at this point. We're going to see a little bit of movement, a little bit of popping around when we get towards the low end. Wouldn't be too surprising to see a bit of a rally as traders try to push the market up just for something to do. There's no change in the structure of the market. They're just looking for something to do at core.
Michelle: Yes. Although we did a pretty big volume overnight, right?
Darin: We did, and that's getting to be more common than what I remember. We had a five-and-a-quarter-cent trading range overnight on more than right around 50,000 or more contracts changing hands just at the December contract. To me, that's interesting. What's going on here? What's the market trying to tell us when this kind of volume build and the market just
can't move. Like I said, it only moved within five and a quarter cents. The market seems to be building for something. At some point, it'll break out and all of this activity will become a bit clearer as to who's doing what. For right now, it's just very interesting to see this type of overnight volume.
Michelle: Yes. Wheat market is up. Is this just short covering? We did score some new contract lows in Kansas City yesterday. We have a few headlines out this morning, Ukraine shutting the export corridor and whatnot.
Darin: Yes. To me, this is just some short covering. We haven't seen anything fundamentally change. We've been dealing with this Ukraine situation for a year and a half, and we've seen the US wheat futures spreads get more bearish along the way. Basis is still bearish. I just don't read much into the latest headlines. I think right now, it's mostly just some short covering.
Michelle: The cattle market trying to hold together here, at least on live cattle this morning, feeders obviously under a little pressure with the higher corn. What do you think here with the big correction that we had? Was that just a healthy correction or is the party over?
Darin: It would be interesting to say the party is over. The last three days, the first three days of this week, we've seen commercial buying coming into the market. If the party's going away and all the attention's going somewhere else and nobody wants to own cattle anymore, why are the commercial traders buying against fund selling? I find that interesting, particularly in live cattle. We've seen the spreads continue to firm. With all the news and numbers that are out there, we continue to see this group buy. Cash hasn't moved this week. Boxed beef has firmed a bit, but the cash trade hasn't really done much this week. It'll be interesting to see what happens here Thursday, and particularly on Friday with the cash markets, to see if some of this commercial buying that we're seeing in futures is rewarded.
Michelle: Yes, we had a little cash trade early in the week at lower money, but like you said, it was really light. I'm hearing from some of my cattle sources that maybe prices are going to improve here, but we'll see. What about the outside markets, Darin? I mentioned off the top that crude oil is down here pretty hard this morning. Talk about the energy markets, the outside markets in general, and what's been going on, because we are trading some of these headlines from the Middle East there at times, aren't we?
Darin: Yes, we went into last weekend with the idea that Israel was going to invade Gaza Strip. We saw some solid buying in both crude oil and gold heading into last weekend. Then it didn't pan out. The status quo held, and all of a sudden we came into Monday and we've seen pressure in both crude oil and gold, these two key safe haven markets. As the week's gone on, we've continued to see pressure. Again, just like I was talking about with the commercial support of cattle, what's interested me is that we've actually had commercial selling in crude oil. We've seen the inverse in the spread starting to weaken.
To me, this is an interesting development given what's going on over in the Middle East. It's like
the commercial side, okay, we're getting used to this type of problem. We know that the supply of oil isn't going to be disrupted that much. We've already had to deal again with Russia and Ukraine for a year and a half. It seems like they're taking all of these potential chaotic events in stride now and they may be saying it's just time for the market to back off for a while.
Michelle: Yes, the market is certainly nervous. The outside markets are as well, not only about Middle East war breaking out, but also that we're going to see maybe higher rates, interest rates, higher longer. we're starting to get more economic news that's pushing us in that direction.
Darin: Yes. Again, that won't be any surprise. Everybody's watching next week's FOMC meeting. It starts on Tuesday, the 31st, I believe, and finishes on Wednesday, November 1st, when the next announcement on interest rates. If we go back to June, Chairman Powell said, to expect two interest rate hikes, at least two interest rate hikes. Yet in 2023, we saw one in July and we haven't seen one since, so there's only two more opportunities. It's the ACNOV meeting and then again in December. If we don't see it next week, if we don't get another 25 basis point increase in the Fed fund rate, then that really puts the spotlight on December. I think the market, I think markets, financial markets are anticipating a possible interest rate hike, as you said. Financial data, the economic data that's been coming in, which certainly seems to indicate the economy is still going well, that the labor market is still pretty strong. There's really not that much fear of another rate hike, at least from the economic side of things.
Michelle: Yes. It's been a tough couple of weeks or tough, I guess, six weeks here in the equity sector, though, hasn't it?
Darin: Yes, we're seeing October is known for making some, for seeing some of the biggest moves in the equity markets. We're still in an uptrend on all three markets and all three major markets, the Dow, the NASDAQ, and the S&P. Within those uptrends, you do get downturns. That certainly seems to be what we're going through right now. We'll have to see how we finish off October. I think that's going to be interesting. My guess is we're going to close the month lower, set the stage for some continued pressure into November, and then we wait to see how we close out the year. We could still see some buying before the end of '23.
Michelle: Yes, pretty typical. All right. Good to talk to you. We'll talk soon. Darin Newsom, Senior Market Analyst with Barchart. That's Markets Now.
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