I joined Michelle Rook, of of AgWeb's Markets Now, to discuss soybeans, corn, wheat, and the Black Sea Grain initiative being extended another 60 days. We also spoke about the cattle market, the U.S. dollar, the economy, and copper. Watch my interview here.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, along with Darin Newsom, with Barchart, a Senior Market Analyst there, and we're seeing a lot of green on the board this morning with the exception of hogs. Darin, it's been a really tough down week here for really all of the grain trade funds have been pretty relentless sellers. We scored some new lows for the move and both corn and soybean yesterday. We're bouncing today. I guess the key is, are these reversals? Are these going to hold? Those are the big questions farmers have.
Darin Newsom: Yes, it's a great question, Michelle. From a technical point of view, we could certainly see a reversal on the D's corn weekly chart and so that would tell us that, again, from a technical point of view, that maybe this intermediate-term trend's going to try to turn back up. We haven't seen any change in the long-term trend. As you said, we've seen both the cash market, the old crop futures, new crop futures all extend to new lows this week. As far as until we see some change there, we just call the long-term trend still down. We haven't seen a reversal.
There could just be a little bit light buying coming in. It's been quite a week, as you mentioned, a lot of selling. We've seen a lot of non-commercial pressure. We've seen some capitulation-type trade, particularly in July corn. The fact that it's a little higher on a Friday, not overly surprising attention. By the time we get to this afternoon, particularly in new crop markets, it's going to be on weather forecast. Are they going to be hot and dry? It's still early. It's still May. It's a bit too soon to get too excited about possible weather markets. They're going to be looking for anything. Traders will be looking for anything to possibly cover some short positions.
Michelle: We get oversold, so some of this could just be a little bit of a dead cat bounce. The closes today are going to be important, but we haven't been able to buy really a bullish story on either the supplier, the demand side of the grain trade this week. Let's talk about demand, because exports yesterday were dismal. We had marketing year lows and a lot of the sectors, including soybeans, did not look very good. You have a take on that, talk about it.
Darin: Seasonally, this is just time of year when soybeans start to slow down. We tend to get shoved to the side and everything's coming out of South America, particularly Brazil. It's no huge surprise that we're seeing this quick drop-off in demand for US. We also saw very small cancellations from China. Again, it is small because they don't have anything on the books, and I find that interesting as well. Now, we can look at this a couple of different ways. One, it's the ongoing trade war. We know that. China does not want to buy from the us, doesn't want to buy anything from the US.
The US is also tight on supplies. We've been running a very tight available stock-to-use situation the entire 2022/23 marketing year. It's possible we just don't-- the US just simply doesn't have the supplies to ship. We're also seeing an uptick in soybean meal export. Again, we knew Argentina had a small crop. We've seen the huge inverse in the soybean meal market. We knew there was demand for soybean meal. This could finally be starting to show up in some of our numbers here. Again, we saw some decent exports for soybean meal. This could continue at least through the end of the marketing year.
Michelle: You would think so with Argentina, short crop for sure. What about corn though? Because when we talk about exports there, we are down sharply from last year. If this market is really trying to put in a short-term bottom, can it do it if we don't get demand to pick up a little bit because we're competing with Brazil?
Darin: Yes, it's not going to happen. Right now the US is on pace to ship just under 1.6 billion bushels. The concern that I've had for months now, and I've been writing and talking about is the way that the cash market, national average cash index that I track is following a similar path. I don't believe in analogous years, but a similar path to what we saw in 2010 and '14 when it bottomed out around 340 in July of 2014. We're still sitting just under $5 on the cash index as of Thursday's calculation.
If we don't have export demand, if we see feed demand, which is another issue coming down and it certainly could here in 2023/24 next marketing year. That's where demand remains constant, but not growing. Then I think there's still room to the downside. I don't know that we're bottoming out this cash market and therefore the future's market could struggle as well.
Michelle: Got you. What about the wheat market? We've had a bit of a correction here. We technically in at least HRW wheat, July could not get above the $9 mark, stay above that. What I'm wondering is, the HRW wheat was this just some profit taking and by the rumor sell the fact with the Kansas wheat who are confirming that terrible crop or what was it?
Darin: I think you have it there, Michelle. I think this was-- I always hate to say profit taking, but in this case, it probably was. We've seen the July contract rally almost $2 in a very short period of time. I call it a vacuum. We just simply ran out of buy orders. I believe it was during Wednesday's session. I think it was Wednesday session when we topped this thing out and we actually posted a reversal pattern on the contract's daily chart. Do I think it had anything to do with the crop tour? No, I don't because there's a lot that goes into these crop tours. I've never followed them. You know that well.
The yield numbers were coming in larger, but we can't look at the yield numbers because they're not counting the zeroed-out or the abandoned acres. What we have to look at if we're going to study the crop tour, really the only number that matters is their guess on what total production is going to be. That came in below 180 million bushels from what I read from one source compared to the five-year average of more than 300 million bushels.
Again, all it really did was confirm what we've been seeing in the future spreads for over a year. We've just recently seen the July, September go to an inverse of 16 cents. We know the crop isn't there, it hasn't been there. The SEP-D spread is also inverted. We're going to work through this. We're going to get through this vacuum where there wasn't any buy orders and should see some traders starting to filter back into the market at some point.
Michelle: The other negative headline that we're trading here or that the trade is traded is the Black Seed Grain Initiative being extended another 60 days. Do you think that was also part of this weight on the market this week?
Darin: I think the headline could have been, yes. Do I think the reality has changed? Not at all. You mentioned weekly export sales and shipments earlier. They were dismal for corn, dismal for soybeans, but they've been dismal for wheat for a long time. Particularly soft red winter. We're not moving anything. We didn't move anything when there was no grain deal. The rest of the world continues to move wheat around. The US is just basically sitting on the sidelines. Number one, we didn't have any hardwood winter, hardwood spring, but we use most of that domestically soft red winter, nobody's interested.
That's why we've got a strong carry in the Chicago spread because we're also looking at a crop that's had beneficial weather so far heading into the summer. I don't think it changes the situation at all. Again, it's also coming from Russia. They're probably going to change their mind in another 24 hours, whatever it might be. Then I just don't know that there's much grain to move out of Ukraine's black seaports to begin with. I think too much was made of it. If traders traded it, if algorithms kicked in on it, fine. I just don't really think it changes the situation at all.
Michelle: I'm with you on that. What about, why is the market continue to ignore the fact that we're not going to get all the spring wheat planted up in the northern plains and the fact that Canada is dry as well so we may not get that crop all to harvest either?
Darin: That's a great question, Michelle. I wish I knew the answer to that one, but right now the traders aren't interested. The commercial side is, again, we've got-- I know I'm a broken record here, but we've got bullish spreads indicating the commercial sides concerned about finding supplies for its mills and so on of hard red spring. They're looking at a year when supplies are going to be down.
Because it's unlikely at this point that the acres get planted. What gets planted is that's just going to be it. We're not going to get any extra acres or anything like that. It's not just spring wheat, it's corn and soybeans and everything that was going to be put in across the northern plains and it's just so wet across the US northern plains, they just can't get any field work done at this point. Will traders move into it? Possibly they might buy into it at some point. Right now they just seem more interested in other things.
Michelle: Yes, it's really disappointing for sure. Cattle market has had a good week. Live cattle a little bit, I guess steady to a little bit better. Cash trade seems to have supported the market, don't you think?
Darin: I do. I think there was a spike in the cash and I was reading some reports that some of the packers might have been a bit short-bought coming into the week. As the week has progressed, we've seen steady, flatten out a little bit, still stronger. I do believe that's brought some buyers back into the market. It's kept support underneath the market. We also for USDA reports, we have a cattle on feed as of May 1. We could see what was going on leading up to this because that also takes into account April placements and April marketings. Again, if we go back to the box beef market was $29 higher in choice and something like $18 higher in select during April. We know there was a big push for cattle. We know the supplies really weren't there by looking at spreads. I'm not going to be too surprised in anything that we see in the cattle-on-feed report coming out this afternoon.
Michelle: Got you. What about outside market? Let's talk about some of the things that have happened here over the last week. You got the dollar making some new highs for the move early on this week, metals, some reversals there. Talk a little bit about what that's all indicating to us from an economic standpoint.
Darin: I'm on the record saying, I don't think the economy's as bad as everybody else wants to say. I think there's some indicators that tell us that the US economy's actually doing relatively well. I know markets don't equal the economy, but we've also got the US stock markets, the three major markets in Uptrends right now. Now, there's been this made-up drama about the debt ceiling.
It's going to get raised, we're not going to default. I don't know why everyone gets so worked up over this, but the dollar has been able to build some strength here this week. As you mentioned, we've gone to a new four-week high, it's helped push it up a little bit, pressuring gold. Really what I'm looking at here, like so many other markets, copper is in position to establish a reversal pattern, a bullish reversal pattern on its weekly chart.
This tells me that money could start flowing back into copper rather than gold. Not as much fear in the market as it is when they're buying gold and actually looking at a stronger, again, economic indicator if copper starts rallying again. Some interesting plays going on out there. I do see some bullish indicators and particularly one would be if copper starts to go up again.
Michelle: Lots of things to watch there that may be a better indicator than all of the noise that we get in the markets for sure. All right. Thanks for joining us. Darin Newsom, Senior Market Analyst with Barchart. That's 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.
