This morning I was interviewed by Michelle Rook on AgWeb's Markets Now. We talked about the wheat, corn, and soybean, and markets. We also spoke about the cattle market and the US dollar. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. Lots of green on the board in both grain and livestock futures trade, and Darin, the green in the grains after a little bit of profit taking overnight. Let's talk about what's driving this market. We've been hearing a lot about China buying. Is that what it is? Is it South America's crop maybe not as good as we thought?
Darin Newsom: It could be all of the above. I know the folks in this industry like to make up reasons why for every possible move. Very few of them are actually seated in reality, but it could be anything. It could be the phase of the moon. It could be just about anything that we can imagine. Now logically, does a move like this usually tie back to what's going on with China, possibly Brazilian production? Absolutely. If we want to see what the market is telling us and remember the what is more important than the why, we can see that in both corn and soybeans, the May-July future spreads, the corn deferred spread turned bullish this past August.
Right now, as of Tuesday's close, the soybean May-July, which is a good reflection of the next Brazilian crop, is knocking on the door of being bullish as it sits just outside that 33% calculated full commercial carry threshold. We don't know exactly why these things are happening, but we can see the what, and the what is the commercial side is starting to buy soybeans and corn longer term, and certainly indicating that they are expecting, that the commercial side is expecting a tightening supply and demand situation as we get into spring and summer.
Michelle: The 5.35 million bushel sale that we had, the flash sale to unknown this morning, is it possible that that is China? Because there was rumors in the market yesterday that China was in buying soybeans and corn.
Darin: Certainly could be. I think if I recall, this was a corn sale announced early this morning. We've certainly seen indications, again, by looking at not just the May-July, but also the March-May, that there's been some commercial support. What really stood out to me overnight was the fact that the National Corn Index held firm. It didn't continue to lose ground to the March futures contract, despite March futures closing 5.75 cents higher. On Tuesday, we saw a like gain by the index overnight. Again, merchandisers this time did not take the defensive stance of weakening basis in the face of a futures rally.
I found that interesting. We saw that in corn, now in soybeans. We did see some continued weakening of basis. Again, this isn't necessarily coming from immediate-term demand, this rally, a lot of it's coming from funds who are buying into this, probably as they look down the road, and they see that same commercial buying going on in the May-July spread.
Michelle: Yes. Is there a perception though that maybe we have a paradigm shift, maybe we could get better trade relations with China or more business from China?
Darin: [laughs] I have strong doubts about that. The one thing we do know is that we can't believe anything that's said over the next number of years. We've heard it all before. We heard about a phase one that never actually materialized. We heard that trade wars are good and easy to win. That wasn't true. Basically, anything we hear about trade policy between the United States and China coming out of Washington or even coming out of Beijing, I just think we have to basically ignore all of it and instead watch what's going on in the markets.
Now, is there improvement? Highly unlikely. What are we actually seeing in the market? It could certainly have to do with Brazilian production. That would be which way I would lean. If the ripple effect of that is more sales to China, that's a possibility. I certainly wouldn't believe anything I hear or see or read, again, coming out of Washington at this point.
Michelle: The interesting part is Brazil soybeans are being offered over a dollar below US Gulf prices. The fact that China has continued to buy those higher priced beans, does that infer that those are going into the reserves or again, is there something else going on?
Darin: There could always be something else going on. Again, the US is a secondary supplier to Brazil. We haven't seen the bulk of Brazil's harvest fire up yet. What we're hearing is just some early harvest being done. We'll see. Maybe there's not the supplies, maybe there's not this, maybe there's not that. If we go back to US weekly export sales and shipments, we see the US still has to make 500 million bushels worth of sales, roughly 450 to 500 million bushels worth of sales, just to meet the pace projection, not the stupid USDA demand projection for exports, but just the pace projection for what we've seen through roughly the first half of the 2024-25 market year.
Keeping in mind, this is when US sales and shipments start to slow down. If we start to see a contraseasonal move, then yes, there's something going on underneath all of this. There could be some reality to the fact that possibly Brazilian production just isn't there.
Michelle: You mentioned the funds. Let's talk about that because I think they're long now over 300,000 contracts in corn, and they have moved from short to long, as you mentioned, in soybeans. Do they keep pushing the long side of that market, do you think, and how far?
Darin: How far? It's a good question. No one ever knows, and even though everyone says, no one actually knows how far funds will continue to buy. It's all based on momentum. A lot of it's based on moving averages. It's based on a lot of these things outside of supply and demand, even though I do know that some of these algorithms are building in some looks at the supply and demand through spreads and so on. We do have that. How far might it go?
Again, no real clue. It'll depend on how long these markets stay bullish, because, again, we've got a sizable position growing in the corn market. We've seen it start to build since August. As you said, it's over 300,000 contracts now, and that's sizable, but there's still room for it to grow larger. Then the soybeans, it was this past week, not as of the weekend, Tuesday, January 14th, that we saw this big switch of almost what, 50,000, 60,000 contracts where they move from a net short to a net long. All of a sudden we've got this bullish feeling to the market. If basis continues to lag and if we start to see more pressure on future spreads, I don't know how long they'll stick with these soybean longs.
Michelle: Okay. You're not going to rule out $11 beans, are you?
Darin: If we look at the weekly chart, just from a technical point of view, I think the $11 is a possibility. Let's put it that way. There was two weeks back-- I don't know what, back last summer or something like that, where the March contract hit $11 both weeks. Other than that, yes, it's a possibility. We'll see how it happens.
Michelle: We'd also had a big rally yesterday seeing some follow-through today. Is that fund short covering or are we concerned about a winter kill or is this the lower dollar?
Darin: It could be all of the above, could be none of the above. What I see is fund short-covering. We've got funds already going long corn and soybeans. We just talked about that. The outlier is the wheat subsector where Watson held sizable net short futures position in all three markets. Why? Is there going to be this divergence between wheat and the others? Probably not. Even if the US dollar starts to firm, even if we don't see a great deal of demand pickup for US wheat supplies, then we could see funds continue to cover anyway. I do believe that's what's been driving the market, as you mentioned.
We could start turning our attention to the new crop winter wheat markets with this latest polar blast moving through. Again, it's winter and it's winter wheat. If we look at the Kansas City July-September spread, it's still covering 70-some percent calculated for commercial carry and the bearish threshold on my table is 67%. We know the commercial side is still bearish. That market, we're just seeing some covering here as we head towards the end of this month.
Michelle: I got to believe these rallies will be met with farmer selling, don't you think?
Darin: In some cases, yes, particularly in corn and soybeans, probably not in wheat. Most of the cash wheat's already been sold. As we know, producers don't like to sell wheat in advance to do much forward pricing. You just never know what you're going to produce. It's still such a question mark. I think we could see some producers selling, letting go of some cash corn, some cash soybeans, maybe do a little bit of pricing for next year's crop as well, because again, we have Groundhog Day coming up, which will tell us how acreage shifts should play out later this spring. There's that to look forward to. Yes, I think we could see a little bit of producer selling, probably not a lot, at least at this point.
Michelle: Yes, we'll see how we go through the day here today, whether we get some profit taking and maybe some of that farmer selling that we just mentioned in the grains to produce a lower close here today or not. All right. Let's wrap up with the cattle market. We just keep marching higher there. The futures haven't made new highs again, but we do have record cash trade for the third week. This market is going to hold together for a while until cash falters, don't you think?
Darin: I think so. The livestock markets have historically been driven by their cash markets. Really that's the way you want to see things play out. As long as the cash market stays higher, it's a self-feeding system right now where we've got boxed beef staying firm, and because boxed beef staying firm, we've got the live cattle market staying strong and that's leaning over to the cash feeder market. Then this eventually leaks over into futures. Now, what I find interesting, an early look at the feeder cattle spreads and we saw some commercial buying this despite a story that came out this past weekend of the US-Mexico border being open to cattle again.
Just looks like either the traders don't believe it, it's just another one of those stories that have come out, or they're not overly concerned about it at this point. Even if it's longer term and not necessarily immediate, we're seeing some commercial activity as well in the deferred spread. A lot to watch, but certainly it still seems like the commercial side is driving these markets higher.
Michelle: Yes. Just mentioning the dollar, of course, we've scaled back from our highs. Do we keep going lower here, do you think? Is that market taking a turn?
Darin: It took a short-term turn. The short-term trend turned down on its daily chart. I don't put a lot of stock in that, but it does need to probably finish off this short-term downtrend. Then we'll see what happens next. We have the FOMC meeting next week. I'm not expecting anything to happen with interest rates. The Fed Fund Futures Forward Curve, always difficult to say, is still showing no, don't expect any change through at least the March-April timeframe. Then we'll see what happens after that. That's, again, if anything's allowed to happen because we know the stance of the new president is he should have any and all final say on interest rate decisions. It's going to be an interesting fight coming up.
Michelle: All right. Thanks so much, Darin Newsom with Barchart. That's Markets Now.
