Today I joined Michelle Rook on AgWeb’s Markets Now. We discussed the action in the corn, soybean, and wheat markets. We also spoke about the cattle market, gold prices, and this week’s Annual Agricultural Outlook Forum. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now, I'm Michelle Rook with Darin Newsom, senior market analyst with Barchart. Seen a lot of red on the board again here this morning in the grains and hogs. Cattle futures, one of the places where we are seeing a little uptick. All right, so let's talk about the pressure that we're seeing in the grains, Darin. Is this end-of-the-month positioning in the case of corn, maybe some profit-taking with the funds long, or is this tariff concerns?
Darin Newsom: I think it's probably a mixture of both, as you said, with the end of the month coming up. We have to remember, this is also the end of the quarter for the grains sector. Everyone always says they want these markets to be fundamentally driven. I think that's actually what we're seeing here because we know that the fundamentals are not bullish in corn. They're certainly not bullish in soybeans. They're incredibly bearish in wheat.
The fact that funds added almost 44,000, 46,000, whatever contracts it was to their net-long futures position in corn as of a week ago today is a bit bothersome because, again, we've seen basis weakening. We've seen the carry in the future spreads and the old crop spreads strengthening. We knew that fundamentals were not pushing this market, at least at that point. Now, we seem to have a bit of a rubber band disposition where funds may have to move, may have to sell to get back in line with fundamentals.
Michelle: Specifically with the corn, talk about the May-July spread and what it's indicating now about the comfort level of this market in terms of, one, the Brazil safrinha corn crop and, two, the amount of, I guess, demand that we have in the market.
Darin: Yes, great point. I've been watching the May-July closely. While it still covers a bullish level of calculated, full-commercial carry, which is our measure, bullish, bearish, and so on, it's been covering more here in the last couple of weeks. A couple of Fridays ago, it covered 11%. At Monday's close, it was up to 23% already. It's still bullish. What this tells us is there is a growing confidence in Brazilian safrinha crop production. All of a sudden, the world's not going to have to come banging on the US door this spring and summer that they're going to have another alternative route, and that is with some Brazilian corn as well.
This also tells us there's been a lot of supplies coming on hand from US producers left over from last year's harvest, the 2024 harvest, so it's been coming online as well, coming into the supply line. That's been putting pressure on the March-May spread. The major lie is still bullish on the idea that, "Okay, we're going to move a lot of that corn," but there's still going to be some leftover. The demand's not going to completely erase or take care of all of US supply. We just see a bit of a supply build as we head into the spring.
Michelle: It does make sense, though, Darin, that when we got close to $5 or over it, in some instances, farmers would do some selling and take some money off the table or sell some old crop. Is that why the basis has widened out?
Darin: I think so. It's a big round number. Corn likes round numbers. The bigger the round number, the more interest there is. It's not surprising that we've seen increased cash sales, particularly as the cash index itself got closer to $5. If we want to look out to futures, we've seen May and July and so on out to $5 as well. It's not overly surprising that we've seen increased cash sales. It certainly put pressure on the basis market where calculations for both March and May are running well below previous five-year lows and, in some cases, below the 10-year lows. I think it's indicative that this is not a fundamentally bullish market, at least not right now. Again, there's plenty of supplies to meet demand. It's simply what the market's telling us.
Michelle: Yes, but better that we get some of those supplies in the market through the channel versus last year where this scenario was. We had so much in storage and the funds knew that, didn't they?
Darin: They did. At this time, if I recall, they were holding a sizable net short. Then all of a sudden, late last spring and early summer, they started to switch and move to a net long. Again, what's a bit of a concern here is, yes, funds are still looking at that May-July. Yes, they still see that it's a bullish situation. The fact that they have extended their net-long position to the degree that they have, I think, is a concern of the market because supply and demand certainly isn't tightening at this point. The fact funds continue to buy again just puts the market a bit out of balance and certainly opens the trap door for a larger round of long liquidation to come.
Michelle: At the levels that we have been on corn prices and we're getting into the end of February here where those base prices are set for insurance, the market, did it do its job buying enough corn acres or soybeans? Did we maybe shift enough acres away from soybeans to keep that market so that it's not going to see so much pressure?
Darin: The bottom line is if we've been watching that Nov bean/Dec corn spread since last September and it has favored more corn acres, less soybean acres the entire way, the entire six-month period. It's not just a February situation. It's not just as we come upon the end of the month, end of the quarter. This has been going on for the past six months, which is when we like to track this spread.
The fact that it looks like there's going to be more corn acres planted in 2025 certainly fits with what the price of the markets are doing. Again, that's what the market's job is to do, is to show us, by price, what the situation is. Then as you and I know over the years visiting with seed salesmen and fertilizer interests as we make our way around the winter travel season, everything's lining up the same this year.
Seed salesmen are saying, "More corn sales, more corn seed sales, more fertilizers for cornfields," and this sort of thing. There's really no surprise out there. I know USDA's Outlook Forum is this week. That's always good for a laugh, which will lead us to the end-of-March prospective plantings, which is even bigger laugh. We have all of these things that are going to say what we already know simply by watching the markets.
Michelle: Absolutely. Okay, so the wheat market, are we also removing weather premium there, do you think?
Darin: Yes, I don't think there was ever any weather premium there. Really, what stands out to me, there's one thing that really jumps out at me in the wheat market, and that's the hard red winter July-September spread. I think it's covering something 85% calculated, full-commercial carry at Monday's close. We've got the September-December covering 73%. The commercial side of the market is just simply saying, "There's not a problem."
At least right now, there's no problem with 2025 production supplies to meet demand as we get into the next crop. I know there's a lot of chatter. There are still folks saying, "This thing is bullish." There's weather this, there's weather that. It's just simply not true. The market itself is saying, "This is incredibly bearish situation." It's going to take something dramatic in the weather to change that.
Michelle: Got you. Are the outside markets also indicating their concerns about tariffs or inflationary fears or anything like that?
Darin: Certainly. We can see that in the gold. Everyone talks about the gold market, "They should be topping in this, that, and everything else." I just don't see it happening. I don't think the fact that it's at all-time highs is going to dissuade buyers from getting in it because this is still a safe haven market. Precious metals are still going to be viewed as probably the key safe haven markets, both gold and silver.
Energy is not so much, grains not so much, and so on. I think gold is going to continue to find that buying interest as investors look to protect against the-- we expected the chaos, but possibly more chaos than what was expected. That's affecting the other markets, the equities markets, the Treasury markets, and so on. I think they're going to continue to buy into gold just as, again, for some safety.
Michelle: The cattle market has had a pretty good rebound here. Lower corn helps with that. I think boxes have finally started to turn around. Do you think we can continue to build on this or not?
Darin: It's going to be interesting because when I look at those weekly charts and just from purely technical point of view, the first thing that comes to mind is a Benjamin Franklin fish analogy. We've got downtrends on those weekly charts, both live and feeder cattle. If we close higher again this week, particularly in the feeders is the one that jumps to mind, that would be three weeks in a row against the trend. Sometimes that's about as much as the market's willing to play out.
That being said, from a seasonal point of view, this is when buyers start to get interested, start to get some cash covered for the next drilling season. The fact you mentioned the boxes, we finally saw them tick up a little bit Monday afternoon after getting beaten up for most of February. I do think it's all going to come down to the cash markets. We've seen cash certainly taking out to the woodshed this month or the last couple of weeks in particular. If this market's going to rally and be able to come storming back, it's going to have to come from the cash side.
Michelle: Yes, no doubt. Well, maybe we're getting close to that bottom there on the cash. That would help. All right. Thanks so much, Darin Newsom, a 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.
