This morning I joined Michelle Rook, of of AgWeb's Markets Now, to discuss wheat, corn, soybeans, and cattle. We also talked about the war in Ukraine, as it pertains to the agricultural markets, and the crude oil market. Watch my interview here.
Michelle: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior analyst with Barchart. We are seeing a lower hog, started off mixed in the kettle, but we're starting to actually gain some momentum to the plus side there while we're seeing some higher prices in the grains. Darin, let's talk about the grains, first of all. Wheat sock key reversal on Wednesday. We confirmed it yesterday. Do you think we're trying to bottom the wheat market at this point? Is it just that we're trading technicals or is there a fundamental reason for us to be hired?
Darin Newsom: Yes, it's interesting and it's certainly setting up for a fun weekend of weekly analysis as well on the weekly charts because we did see short-term reversals across the board, or I should say in a lot of contracts on the daily charts. Short-term turn certainly occurred this week. When we look at wheat, in particular, the hard red winter variety fundamentals haven't changed. They're still bullish. We look at that July, September spread, it's still inverted, hasn't gone anywhere.
There's very little carry in the Sep-D. We've got a bullish situation. The commercial side of the market knows that much of the hard red winter crop across southern Kansas, basically gone. All that rain did last week was improve the potential planting conditions for some dry-land corn. It's going to go in and replace the wheat crop. It didn't change the fate of hard red winter at all. We're still looking at a small crop. Fundamentally, it hasn't changed. Technically, we're starting to see some reversal patterns. What's going to be interesting how soon until we see non-commercial traders go from a net short back to a net long in the Kansas City wheat market.
Michelle: What about Chicago though? Because they're still heavily short that market and unfortunately, even though the crop situation is different for HRW, Chicago does have an impact on that market.
Darin: Yes, Chicago, the software winter crop is smallest of the three major wheat crops that the US grows, but yet, it does get all the headlines. Here we see something completely different fundamentally. We've got the July, September and September, December future spreads, both knocking on the door of bearish calculated full commercial carry. I think they were covering something like 64, 65% with 67% the threshold. It's a neutral, mostly bearish situation right now in software winter.
That does continue to weigh on the wheat sector as a whole. Why is software winter a barrier? They've had good conditions for the most part across the US Midwest growing area. Much different than what we've seen across the plains.
Michelle: It doesn't feel like-- you and I have talked about this before, much weather premium is in the wheat market. We haven't respected the conditions, but we also don't seem to be respecting the war and what's going on there. Of course, we had this drone strike on the Kremlin on Wednesday that started this reversal, but now we're talking about the Black Sea green deal and they're talking, and that's about all they're doing right now. Where do you see that going?
Darin: All right. A couple things that you mentioned there. The drone strike was phony. I think it's pretty obvious to watch the video. Yes it happened, but it wasn't what it was made out to be. The black seat grain deal, you and I have talked before, there's nothing left for Russia to steal out of Ukraine. Again, it's not a huge deal. What I think we're really seeing here is, again, the change in movement and change in flow of the non-commercial money.
I think what they're actually doing is we're now into May. They're waking up to the idea that the hard red winter crop isn't there. Hard red spring, it's going to have some trouble because it's so wet across the northern plains. I think we're going to start to see some money coming back in. Will the black seed region play a part? Sure, but I don't think it's the driving factor right now.
Michelle: You mentioned money coming back into wheat. What about money coming back into corn? Have we bottomed the corn market? Are we going to see funds short in the commitment of traders report this afternoon? Then will they have to cover those shorts?
Darin: All great questions, Michelle. I think we have seen some short covering going on because this next CFTC report, and particularly the legacy futures only is the one I look at. I think it is going to show that funds move to a net short futures position in corn. That was as of Tuesday. Then we would turn around. Wednesday's the first positioning day of the new week for the non-commercial side, and they came back in buying and buying heavily. It looked to be some short covering. There was also a little bit of commercial buying scattered around. We've actually seen basis firms, so we've got buying coming from both sides.
Technically, we've seen short-term terms just as we did in the week. Intermediate-term on the weekly charts. Also, looking like there're in the position to turn bullish as well. The key is what's going to happen on the long-term monthly charts, and again, on the December, if we look at December contracts only, it's early in the month.
We've got a lot of May left, but we're already in position to see a bullish reversal on the monthly chart as well. That could certainly change the flow of money moving out of net short back into a net long.
Michelle: Is the same true of the soybean chart or not?
Darin: Soybean charts are similar, but we're not seeing the same sort of clear-cut reversal patterns, at least not yet. Soybeans have some other issues to deal with. One, the US has completely lost its standing pretty much in the global game. We're a distant supplier, distant second place supplier at this point. The big issue here is, okay, we're running short. We're not doing a great job on exports right now, but part of that's because we don't have a lot of available supplies.
The other part is demand just isn't there from China because they can look at Brazil and get all the soybeans that they need. The real question's going to be what happens in 2023/'24. We're already looking at smaller acres. This corn did what it needed to, to buy acres away this past spring, fall and winter. We're looking at the possibility of smaller acres. Then we'll see what production does. If demand's going to pick up, it's going to have to be on the domestic crush side.
Michelle: Yes. All of the attention now focus wise has been on the exports falling on soybeans, but man, we had cancellations and one of the worst weekly export totals in history yesterday on the corn, we're still 35% behind year to date. That's not a good story either there on demand, is it?
Darin: Now, that's been my concern for quite some time is that all three legs of corn demand could start to weaken. Certainly, exports just haven't done much of anything over the course of '22, '23. We don't have very many sales on the books and as you said, the last couple of weeks we've seen some cancellations, so it doesn't look like we're going to make much headway there. Feed demand is expected to come down over time. We've seen a lot of cows go to slaughter. I think at some point, that is going to have an effect on the market.
Right now, there's still plenty of cattle on feed. We still know that the planes are looking, they're still corn deficit, they're still looking for feed. We've got ethanol. It's a wild card right now. We know the demand should stay relatively consistent. It's congressionally designated as to how much there has to be. If we see overall gasoline demand coming down, certainly, could weigh on ethanol as well. I've posted already that it's possible that our Bob gasoline has seen its seasonal high and could start to drift lower. All three legs of demand certainly have question marks attached to them right now.
Michelle: Very interesting. Of course, we're also trading weather and talk about the setup there.
Darin: Yes, as I talked about, you and I like to visit. We're looking at a www situation, wraparound weather market weekend situation for wheat. We've got some forecast possibly for some rain across the southern plains, but some of that is Southern and Central Plains. Some of that's been taken out here over the last couple days. We'll see. Everybody can trade whatever weather forecast they want to on Fridays, then we see what happens.
Over the weekend and once market's open Sunday through Monday morning, we see the other side of it. We get the wraparound effect where folks actually trade what happens. It'll be interesting to see right now, wheat is in that timeframe where volatility could pick up. We're still a few weeks away from corn and soybeans moving into the spotlight as far as weekend weather goes. I do think they're going to be keeping a close eye on what happens across the wheat-growing areas.
Michelle: Right. As I mentioned, cattle market back to the plus side here and we've had a tough down week, but actually, the market has been pretty resilient in light of all of the macroeconomic things that have been thrown at the market. The banking collapses that are going on in lower cash trade again. I guess, what do you see going forward? Is this market going to hold together?
Darin: It would be very easy to say this market is topped. A lot of times when you hit all-time highs. At some point, you just run out of buying. It's similar to what we saw in the grains where you just ran out of selling this week. It would not surprise me to see the cattle market run out of buying and it certainly, opens up a vacuum underneath both live and feeders. If it were to collapse, all of a sudden, it would not be a huge shock but the problem is you just don't have--
With all of these macro things that you were talking about, there's just nobody really willing to step in and just pound this market to really start selling it heavily. Again, I think as long as we don't have that Newsom's Rule 4A comes into play, a market that can't go down, won't go down. Until we see that money move in and really start to hit this thing, I think it's going to want to stay here and be relatively stable, I would imagine.
Michelle: Yes. The funds, as you point out, they're long over a hundred thousand contracts. They continue to defend that long position, and as long as they do that, we should be in pretty good shape plus the futures are still at a discount to where this cash trade is. The other factor is the box beef values are still at pretty high levels here and you have an interesting take on that because you say the April jobs data this morning had already indicated, been in watching, or had been already projected by what was going on in the box beef market.
Darin: Yes, April was a huge month for box beef. We saw the choice go up over-- It gained almost $30 for the month and select wasn't far behind. The fact that the made up April jobs numbers and unemployment rate and all those sort of thing came in stronger or more bullish than what was expected, we already knew that because we saw that US consumers were willing to pay more for high-price cuts of beef. This doesn't tell me that the jobs are going down, that the labor market is struggling.
This is an indication that the labor market remains strong. They're willing to use more of their discretionary income to buy beef. That's not bearish. That's a bullish economic signal. We already knew that. Now, we'll have to watch how May plays out. It's been a little quiet here in the box beef market to start the month. Maybe backing off ever so slightly, but just as we were talking about in the cattle futures, in the overall cattle market, it just doesn't want to break hard and when it does start, if it does start to break hard, that does change our economic read a bit.
Michelle: All right. I got one last question for you in the crude oil market, which you and I have talked about here in past programs, but we had the big reversal, it looked like a spike low the other day, is that going to hold, do you think, because you just said you think RBOB is already actually topped, do those trade independently or what?
Darin: Yes, that's a really tricky question, Michelle. That was quite a move we saw a couple of days ago, a couple of mornings ago. I still haven't been able to pinpoint, make up all the reasons why to what we saw. It was a reversal. Absolutely. On the short-term daily chart, like so many other things. On the long-term chart, we actually got a bullish reversal at the end of April. This fits into the bigger economic picture where bonds are going up, meaning prices, which indicates that possibly interest rates could start coming down.
We've already seen US stock indexes turn up as well and so the next thing would be commodities. We've had gold moving higher. Now, if we've got crude oil showing a reversal and the possibility of some of these tea grains, including corn, also showing long-term reversals, it could mean that we are at the point where we're going to start seeing the commodity sector as a whole start trending up again. It's all going to have to come down to investment money.
Fundamentally, again, crude oil has not changed. It's still bullish long term given what we see on the future spreads in the forward curve. Again, it's just, will it bring some money and will it find some buying. I think it could break away from what we're seeing in RBOB gasoline though. If crude oil does rally, it wouldn't be too surprising to see RBOB try to follow, at least to a certain degree.
Michelle: All right, so I lied. I do have one more question because you just said something that spurred my interest. You said that maybe we could see the speculative money start coming back into the commodity sector here with these reversals, but you've got interest rates as high as they are. There's other things that are as profitable than being in commodities, but you think the money's going to come back in?
Darin: I think it could to a certain degree. I don't think it's going to be like it was a couple of years ago because you're right. As I said, we've seen bonds, they're trending higher. Those are safer play than commodities. We've seen stock indexes move higher, post reversal, so money could go back into equities. Commodities could play a distant third but what they're going to look for, what investors tend to look for are those markets that have bullish fundamentals.
Right now, crude oil certainly showing that long term. It's hard red winter wheat and corn. I think it's going to be more selective. Might not be commodity sector wide but in general, we could see some of the key commodities moving higher start to draw some of that investment money just not to the same degree from a few years ago.
Michelle: All right. Thanks. Always fun to have you along for the ride here. That is Darin Newsom, Senior Market Analyst with Barchart and 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.
