On Friday I joined Bryce Doeschot on Market Journal to discuss the recent action in corn, soybeans, and wheat. We also discussed how the weather is affecting the grain markets. Watch my interview here.
Bryce Doeschot: Well, let's turn our attention now over to markets and joining us this week is Barchart's senior analyst Darin Newsom. Hey, Darin, how's the month of August treating you?
Darin Newsom: Oh, it's going well, Bryce. Again, the last month of summer, looking ahead to fall already.
Bryce: Well, let's look ahead, break down what's happening in the grain markets. We've got a report this week. You don't like to spend a lot of time on that. We'll respect that, just talk about what you're seeing in the markets as you and I have this conversation ahead of that report. Your thoughts?
Darin: Yes, the biggest thing is, I know everyone gets excited about. This is some fundamental read on things, but the real fundamentals in the market, if we look at basis and future spreads, across the board-- corn, soybeans, wheat- we're seeing the commercial side grow less bullish, and in some cases, much more bearish, particularly in soft red winter wheat. We know that the commercial side, again, is growing more comfortable with 2023 production of corn and soybeans. We don't know what acres are, actually. We don't know what yield's going to be, but because of the way the weather's played out, say, through the last half of July and the first half of August. We've seen some carry building in these spreads, and it's interesting to watch, and so we know that the overall idea, the production's getting larger, whatever the numbers turn out to be, certainly seems to be the driving force in these markets these days.
Bryce: It's quite an interesting year, as we look at it. The shift in weather patterns we've had as we cross the halfway mark through summer for some folks, it was the late part of July before rain started falling in others. To that point, Darin, it's tough to try to predict, as some try to do this week, what's going to happen because we haven't really had a year like this in a while where rain's really kicked in here in the month of August for many of us, have we?
Darin: No, it has been a while, but I think we do have a template for what we can expect. All we have to do is look south and to see what happened in Brazil in January and February, as their weather pattern moved from La Niña to El Niño. All of a sudden, they went from having what was expected to be a good crop to a record crop. Now, the U.S. isn't going to have a record soybean crop. It's just not going to happen. The acres weren't there. We knew that in February, watching the no bean- D's corn spread. We knew that acres had been bought by December corn, so we're not going to have a record U.S. soybean crop, but we're going to have a larger soybean crop than expected.
Once we get supplies tucked away here this fall, the issue's going to continue to be demand. We're already seeing a slowdown in demand, despite the fact that China's hog herd has just exploded in size, so much to the point where they have an overproduction. They have oversupplies at this point. The U.S. still isn't moving any soybeans and not moving a lot of soybean meal, so the problem's going to continue to be demand, particularly once we start to increase our supplies once again.
Bryce: Darin, I want to toss a viewer question to you that came in this week. The viewer was curious as we get your thoughts, is $6 corn completely in the rearview mirror out of possibility at this point, or perhaps what factors could lead to $6 corn again?
Darin: Nothing is ever impossible, and we learned that with crude oil going to a negative price a number of years ago, so we know that anything could happen. Do I think we're going to see $6 corn any time soon? No, but what could happen, let's say some of these rainstorms that continue to move through. Let's say we have a derecho that seems to happen, say, some point here in August or early September, and just flattens a wide swath of the crop across the Midwest. That could certainly spark some life or if we start to see some export business again. I think we're really going to have to see U.S. exports pick up. Probably not as important in corn as it would be in soybeans, but if we see some life on the export side of corn, that could help. We're also going to have to see feed demand start to pick up again, and right now, that just doesn't look like it's going to happen.
Bryce: Well, every time we have you here on Market Journal, we like to toss a couple of wheat questions out to our producers. Wheat producers like when we do that, so I guess I'll toss it to you on that. You noted something interesting when it comes to spreads for one of the wheat markets. What was that?
Darin: The key here is the soft red winter, the Chicago soft red winter market. We're looking at the September-December spread. It has been running 90% or greater for a couple of weeks now, and the CME's got a running average. They're doing their calculation at this point, and it runs through August 25th, that if that percent of full carry is greater than 80%, the average is greater than 80% as of August 25th, then we see the higher storage rates based on the variable storage rate program picking in, kicking in. Right now, it's sitting at about 83%. That's going to be a problem for the commercial side of the wheat market, certainly not something that happens if a market is bullish.
You don't see this type of carry in a market if we're tight supplies or have strong demand. Regardless of everything happening over in the Black Sea, all the headlines and this and that, and ports coming under attack, the situation for the U.S. soft red winter wheat market continues to grow more bearish. Supply and demand gets to be more cumbersome.
Bryce: Another viewer question that came in this week, wanted to toss at you, Darin, has to do with the price of fuel, gas, and diesel. This viewer noted that perhaps they should have been looking at prices a few months ago, but they're just starting to look at locking in fuel prices for the fall. They were curious if they should do that now or perhaps wait a little bit as the price might come down. Your thoughts?
Darin: It's been an interesting few months in the energy sector. First, we saw Arbob Gasoline, its futures contract, go to a new four-month high. That's one of the bullish reversal patterns that I look for. Then at the end of July, we saw the same thing in Dislich, which is heating oil, diesel fuel and these sorts of things. That told us that the long-term trend in the diesel market had turned up, but we hadn't seen anything in crude oil until this past Wednesday morning when we got the same pattern. We had a new four-month high posted by the spot-month contract. Bottom line is it looks like that the energy sector as a whole wants to continue to go higher.
Some of it's contra-seasonal, but we're still looking at a tight supply and demand situation across the board. We've got inverted forward curves or in backwardation, as the New Yorkers like to say. It's a bullish fundamental situation, and it looks like it's going to start drawing in some investment money as well.
Bryce: All right, Darin, I want to give you the final word, particularly as it relates to marketing new crop. What advice do you want to leave our viewers with today?
Darin: I think right now we need to be in a sell-the-rallies mentality. We are going to still see some rallies. We don't know where they're going to come from, what's going to spark them. Even if it's post-USDA, if we get some knee-jerk reaction. I don't think we're in a buy-the-dips situation at this point. Certainly, it looks like production's going up, and until we get our hand on demand, find some new demand globally, it looks like we're going to be dealing with a different situation than we've had the last two or three years.
More Grain News from Barchart
- Where are Corn, Soybean, and Wheat Prices Headed as the USDA Report is Released?
- What Went Awry in Corn, Soybeans, and Wheat Friday?
- Arabica Coffee Slides on Increased Supplies from Brazil
- Sugar Rallies on the Outlook for Smaller Global Supplies
