Today I joined Michelle Rook on AgWeb's Markets Now to discuss corn, soybeans, wheat, crude oil, the U.S. dollar, and the red-hot cattle market. Watch my interview here.
Michelle Rook: Good morning and welcome to Markets Now. I am Michelle Rook with Darin Newsom, a senior market analyst with Barchart. Seeing some mixed trade to start off in grain and livestock futures. Cattle into contract highs again this morning. Hogs are lower, and we are seeing mixed trade in the grains with the row crop sector actually to the plus side, but we're seeing some pressure in the wheat market. Darin, I want to start off talking about corn and soybeans. We saw or have seen all week, the forward spreads have been very active in both corn and soybeans. Let's talk about what that's telling us. Is it telling us something about old crop tightness that we didn't get in the USDA reports this week?
Darin Newsom: Yes, it certainly is. I mean, we could see at the end of March, if we study the cash market, if we study the cash national average cash prices, we knew that available stocks to use were tightening here in the United States. It's no real surprise that we continue to see the May-July spreads for both corn and soybeans skyrocketing and there is a couple of things going on. One, we continue to have some commercial buying going on. We continue to make export sales in corn. I've been thinking we've been making some in soybeans as well, but we're just not seeing it. Not only on daily announcements but, then the weekly export sales and shipments update as well, so a little bit of a surprise there.
I still think there's some commercial activity in soybeans, but certainly, we're seeing it in corn. This is the week of the Goldman roll, and there are a lot of things going on. The non-commercial traders held a large short futures position, not a net short futures position, but short futures in corn. They're covering some of that. They're getting rid of some of that. That's helping to spike the May against the July as well, so we've got both sides buying May versus July corn and what looked to be some commercial activity in May soybeans. Based on the idea, we've still got exports going on due in part to Brazil's crop, probably not as large as everybody's talking about due to the rains during harvest.
Michelle: Let's talk about what's happened with cash basis as well. We know that a lot of the elevators have now rolled from the May down to the July contract on both corn and beans, haven't they, in terms of cash prices?
Darin: Yes, particularly in the soybeans, when we look at the changes of the daily cash indexes each day, we're seeing that they fit closer with what's happening in the July issue as opposed to May futures, but in the corn, it still seems to favor May. There has been some moving over into the July contract, but again, we're getting mixed messages right now on basis. Always a difficult time of year when we start to see that with the rolling for May to July. Then you add in the potential for new crop wheat bids as well, with that May-July spread, so it just makes it a very interesting time.
Michelle: No doubt. We mentioned May corn getting support from the China business this morning seven and a half million bushels, but I wonder as far as soybeans. Is May also getting some push here from the fact that the soybean meal market is so strong and we have this Argentina crop, which continues to shrink? I think Rosario grain exchange came out with another lower figure again yesterday
Darin: I think so. One of the things we really haven't seen is an uptick in crush demand, at least reported in the monthly numbers, and I do think that's coming. I still think we're going to see a stronger crush. We've got decent export demands still going on as far as shipments go. We're not making any sales of soybeans, but I think domestic crush is going to pick up as well. I think the US is going to start exporting more soybean meal over the coming months. I do look for that side of demand to get stronger. I think we could certainly follow the lead of soybean meal and I think it's going to provide some support to soybeans down the road.
Michelle: Yes. As strong as the old crop is, we have new crop, corn and soybeans, which have been trending lower here, so it's a tale of two crops, but obviously, we're looking at maybe more favorable weather for planting. That seems to be weighing at least on the corn, doesn't it?
Darin: It does. I don't often bring the September corn contract into the discussion, but certainly, this year we can because if we watch that SEP-D spread and we see that SEPs losing ground in December, it tells us that we're seeing a lot of early planting going on, that we're making some progress. That September contract-- it's a hybrid old crop-new crop- but it's going to lean towards the new crop this time around. There's going to be more harvest potentially in late August against that SEP contract. We can certainly keep an eye on that. Yes, it makes sense that the new crop contracts, particularly in corn, are under a little bit of pressure this week. They should probably continue to work lower until we get through planting season and then we'll see what happens.
Michelle: Yes. You mentioned the spreads in the wheat market obviously, but also, I'm curious about the Chicago versus Kansas City wheat spread that widened out in the favor of the Kansas City wheat quite substantially, almost $2 at one point. Are we going to start to pull that back in here now? Is that what's happening or not?
Darin: I think what we're seeing right now is just a short-term move. Fundamentally Kansas City hard red winter's still much more bullish than the Chicago market. We can just see that from the weather. If we look at the drought monitor maps, the southern plains are just extreme to extraordinary excessive drought. While the US Midwest soft red winter growing area seems to be fine at this point. I think this is a fundamental play. Got a little bit of easing in Kansas City here, the short-term trends turned down in July, but long-term, I still like hard red winter to gain on soft red winter. There's just no demand right now for soft red winter, and I think we're looking at at least another year of tight hard red winter supplies.
Michelle: Yes, you've got to wonder, though, this morning with exports coming in at only dismal five million bushels, if that's-- why wheat is down here, just this poor demand still?
Darin: Yes, though demand hasn't done anything. This whole time that Russia's invaded Ukraine, the idea early on was the US might see some more export business, and it just hasn't happened. Week in and week out, we just continued to see these, as you said, dismal numbers. Just hasn't changed much. If we've been watching those Chicago spreads, we've been seeing, the 2022, '23 spreads borderline bearish as far as the amount of calculated full commercial carry they're covering. Now as we've gone out to new crop and are looking ahead, that July, September has been flirting with 70% or more is backed off a little bit here the last couple days, but still borderline bearish, meaning we're not worried about soft red winter supplies and overall US wheat supplies at this point.
Michelle: All right, last time you and I talked, we talked about the crude oil market and the chart pattern, and we've actually had a chart breakout now to new highs for the year. Where do we go from here, Darin, and what is this chart telling us?
Darin: It looks like we've got some commercial buying finally coming in and I've started hearing some whispers on the wind of maybe the US Department of Energy starting to buy some barrels to refill the strategic petroleum reserve. I haven't seen any concrete evidence of it, but again, the future spreads are showing it's moved back into an inverse. We're seeing some commercial buying. Futures have jumped initially on the news out of OPEC, but the West Texas Intermediate crude oil market stayed strong, so it never really backed off after gapping higher. There seems to be some buying coming from both commercials and non-commercial traders in here. Would certainly seemed to add some weight or some credence to the idea that Department of Energy's getting a little bit busier at this point.
Michelle: Yes and trading to the inverse of that is the dollar, which has been actually sliding here now, right?
Darin: Yes, we're actually getting close to a key number in the low 101s. I think it's 100.82. Whatever the February low was in the US dollar index, we're already pressing towards that here in April, and it looks like we're going to go ahead and take it out. The idea is that with all the numbers that are coming in, if we look at the Fed fund futures forward curve-- always fun to say- it looks like the market is anticipating possibly some lower interest rates in July now. It was June. They've pushed it back to July and the dollar is showing the effects of that. The dollar's weakening, also bringing some buying back into some of these commodities.
Michelle: Everybody is talking about this red hot cattle market, red hot cash market, red hot beef market. Do you see any signs of topping at all, Darin?
Darin: None whatsoever. In fact, the choice boxed beef jumped up to almost $300 on Wednesday afternoon, so it's just showing no signs of topping. Cash markets continue to stay strong hearing reports from both south and north live markets heating up here again late in the week. April is trying to do its best to keep up, and if April's going to go up, June's going to follow, so I'm not seeing any signs of topping. It is sharply overbought, but there's just times in the markets when that just simply doesn't matter.
Michelle: Yes. We've blown past the 2014 chart pattern or the high that we had there, and so it's hard to really predict a top at this time because we don't have anything to compare it to, do we?
Darin: No, we really don't. The live cattle futures have gone to all-time highs. What this tells me is that we've just got incredible demand right now, and to me that's as good an economic read, particularly on employment that we're going to see. I know the government's got all kinds of numbers, but if we want to look at an actual market-based number, certainly boxed beef and the way it's just skyrocketing at this point, tells us that people aren't afraid of high-priced beef particularly as we're heading into spring and summer grilling season, they're not backing away from it.
Michelle: Okay, that's a good point. Thanks so much for joining us. Always fun to have you along. Darin Newsom, senior market analyst with Barchart, and that is 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.
