I joined Michelle Rook on AgWeb's Markets Now this morning to discuss the recent action in the soybean, wheat, and corn and markets. We also spoke about interest rates and the US dollar. WATCH THE INTERVIEW HERE.
Michelle: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior market analyst with Barchart. We started off mixed this morning, Darin, but now here we are a half hour after the opening and everything is starting to push lower. I guess we need to look at another tweet from the president. Something is going on and that's what this market is like now. We're back into that mode where we're trading every headline. When does the market become numb to that?
Darin: Yes, you're absolutely right, Michelle. This is this is exactly what we saw from 2017 to '20. I've talked about it. I talked about it again this morning, how the intelligence part of artificial intelligence just simply is lacking at this point because it has to relearn all the lessons. It has to go through the evolutionary process that we saw from 2017 to '20, where, algorithms get rewritten, they get reprogrammed so that they ignore, they grow numb, as you said, which was exactly right, to all the nonsense and stupid things that are said coming out of the White House for no other reason than to manipulate markets and to see, to gauge what type of market reaction there is.
It doesn't matter if we're talking about financial markets, energy markets, grain markets, anything, every sector, it's the same thing. As you said, here we are on a Thursday morning. We're all talking about what was said, what was tweeted, what was done. Is the US going to invade Haiti this morning? I don't know. The list is going on and on and on.
Michelle: Right, and it's been back-and-forth headlines, especially about tariffs and whatnot and markets don't like uncertainty, do they?
Darin: No, and that's the key. We can go back to what you and I learned decades ago, and that's markets don't like uncertainty and long-term investors don't like uncertainty, so they look for safe haven markets. We've seen gold, we've seen silver continue to find buying in this time where everything else, the volatility has just been ramped up. We have no idea what the next, what's going to happen next, what's going to be said next, so we just have to plan on, we have to account for increased volatility and created by this constant uncertainty.
Michelle: Then let's add on top of that, you've got South American weather and the forecasts keep going back and forth, and so that also adds volatility here, especially to corn and soybeans, right?
Darin: It does and we've seen some interesting activity in future spreads. Again, we have to still hopefully be able to rely on future spreads as a read on real supply and demand. Though, again, this comes with an asterisk this week because the Goldman roll starts on Friday and those markets where we see long fund positions could be rolled from March to May. Again, that adds a little extra fun to this, but you're right. At this time, we've got early harvest going on. I don't know if we can still call it early or not, in Brazil. We've got the world's largest buyer showing most of its interest still in South America, still doing maybe a little bit buying some secondary supplies from the United States.
Certainly that adds another level of uncertainty. What's the weather going to do? How are markets going to react? How long will it take for those supplies to get from the field to the port and from the port to China? All of these things do, again, raise the level of uncertainty and certainly increase the volatility.
Michelle: Let me ask you specifically about weekly exports because for corn, they weren't bad, but soybeans, obviously, were not very good. That's typical this time of year as we start to transition over to that Brazil crop?
Darin: Yes, you're right. This is a seasonal move, most of the activity now is seen in corn. The Lunar New Year is just that, I don't even know if I'm using the phrase, demarcation point or that seasonal point that we can look back to and say this is when this is when the big change occurs. It's probably before this that most of the attention goes to South America, but this is where Brazil starts to resupply due to its harvest in some of those early fields. Those bushels and those beans are starting to make their way to town. Yes, this is when we expect to see US soybeans shipments slowing down. We'll keep an eye on total sales.
Overall, yes, this is when we do start to see it. If trade wars and tariffs and everything is reheated, possibly the seasonal slide to lack of interest. The lack of interest certainly could continue and certainly could accelerate this point.
Michelle: No doubt. I do want to talk to you about a couple of technical things in corn and soybeans because I know soybeans got above the 200-day moving average this week and now we're back below that level. We could not close above the $5r level in corn. Do we need to close above those levels to keep the market going here?
Darin: Again, it comes back to what is Watson watching. In other words, what are the funds watching? What are the algorithms watching? Much of what we view as classic technical analysis just simply doesn't matter anymore because algorithms aren't geared, aren't coded to watch them. Now, you mentioned the 200-day moving average. This could still be important. Volatility, as we mentioned, certainly is important. Momentum indicators, which, again, includes moving averages, certainly something that's still used by most of these algorithms. I do think some of that comes into play, but again, it's just day-to-day. One day we're above the 200, the next day we're below.
We see implied volatility going up or we see momentum indicators going down. It's just something that changes every day and it certainly raises the issue or raises the interest in a discussion of, are we back to just random walks and chaos or is there still some validity to technical analysis in some way, shape or form that we can use to try to figure out these markets?
Michelle: I know you say technicals aren't mattering right now. You got wheat though with all three classes above 100-day moving average. That's a pretty good long-term average, so it looks like maybe we've put the bottom in. Is this market just seeing fund short covering or are we starting to recognize some of these global issues, especially as you see Russia's prices start to tick up here?
Darin: To me, what we're seeing in the US wheat markets is it's basically just non-commercial short covering, fund short covering. They were holding such large short futures position, net short futures positions in all three markets. They've just moved to a record large short futures position in the soft red winter wheat and still near its all-time record large short futures position in hard red spring. I do think we're seeing a good deal of short covering. Fundamentally, I'm just not seeing anything to suggest that there's getting to be any concern. We've still got neutral to bearish calculated full commercial carry in the winter wheat markets.
We've got bearish basis markets in both soft red winter and hard red winter. Again, there's just nothing jumping out at me saying, "Oh, yes, there's some sort of terrible problem in Russia" or there's some sort of problem in wherever it might be. Wheat's grown around the world and everything that we can see, all the real fundamental reason we can see at this point are saying the same thing. There's no real fundamental concern here, meaning most of the support seems to be coming from the non-commercial side.
Michelle: I know wheat gets whipsawed here a little bit by what happens with the corn and soybean market, but it'd be nice to see that market divorce itself a little bit. Let's talk just in a broader sense about if we have tariffs that go on, what signal does that send to the outside marketplace, especially when you look at things like interest rates and what the dollar does and all of that?
Darin: I think in a general sense, once we get into, and I know we will, or at least it seems like the path we're on is towards more tariffs and this sort of thing, the general reaction is going to be higher inflation. If the Federal Reserve is allowed to take its defensive stance against higher inflation, it means higher interest rates as well and higher interest rates would then say US stock indexes should come down. That's what the logical path looks like at this point, but given the administration that the US has, given the global situation that we're dealing with, I don't think we can apply logic.
Again, I think it comes down to what is the latest tweet statement action each and every day. Logically, it would seem like into a path of higher interest rates, higher inflation, and we'll have to see the US dollar continue to firm. It's going to be interesting. That's probably the best way to sum it up.
Michelle: Yes, and it does impact money flow, and so that's why we talk about it because it has an impact, that money flow in the ag sector.
Darin: It certainly does.
Michelle: Yes. All right, thanks, Darin. Darin Newsom, senior market analyst with Barchart. This is Markets Now.
