I joined Michelle Rook on AgWeb's Markets Now this morning to discuss the recent rainfall in the Midwest and how it's affecting the corn, soybean, and wheat markets. I also discussed the cattle and hog markets, this weekend's brief insurrection in Russia, and the two planned rate hikes by the Federal Reserve later this year. Watch my interview here.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, along with Darin Newsom with Barchart, and we are seeing mostly higher prices over in the grains except new crop corn this morning. In the livestock futures, cattle are seeing pressure, but hogs mostly higher. Darin, let's talk about the grain trade first of all. Of course, we did have some rains over the weekend and a lot of speculation about were the rains good enough to reverse this trend here that we've seen in terms of drought and yield reduction.
Darin Newsom: Yes. Good morning, Michelle. It was an interesting open to the week where we saw [unintelligible 00:00:33] initially jump 6 cents on the open Sunday night, but it was only there for about an eye blink. Before we knew it, it was down 11, 12 cents. To me, Watson, which is my name for the algorithm trade, the algorithm industry as a whole, took a look at the maps. They saw some green across the Midwest as that storm system moved out of the northern plains, across the central plains, and into the Midwest throughout the weekend. The initial reaction was to sell. Has it changed? Did this weekend's rains change the soil moisture situation at all? No, it did not. When we look at those maps, we still see that there's deficits. This didn't change anything. In fact, I wouldn't be too surprised under close study of these maps if we don't actually see the soil moisture actually decreased last week because of how hot it got across the plains and Midwest again. I don't think in the long run the rains that we saw changed anything. I think the big question is now when will El Nino actually come into play? When will this supposed change in the long-term pattern start to bring rain across the Midwest? Is it going to be too late for corn? Is it going to help soybeans? These are all things we don't know at this point.
Michelle: Yes, and there are some forecasts for some rains in the extended models, but again, a lot of those haven't verified when we get to that event. We'll see if we can finally get some rain in those areas. Corn is not really following the big gains in soybeans and wheat this morning. Is that just because this fund community has now pushed long in this market, or was it because we've rallied enough for the time being?
Darin: Those are great points, Michelle. I think it's something we really have to consider here Monday morning is if we go back and look at the CFTC Commitments of Traders report, legacy futures only, we see that the non-commercial side added 73,000 contracts to their net long futures position as of last Tuesday. This takes into account the fact that markets were closed Monday, so it was a very busy week, and 63,000 of that was adding new loans with getting rid of the 10,000, 11,000 short contracts. It was an impressive round of buying, so now we have to decide, okay, are they going to continue to defend their position? When we see the market break down like it did late last week, are they going to jump in and defend this thing or are they going to get out pretty quickly? It's all going to depend on weather. It's that kind of a tentative point right now. They've done a lot of buying over the last four to five weeks. Now we'll see, again, if they're willing to defend these positions or long-term weather patterns start to change, as you mentioned, in the long-term forecast, they just decide to bail out, maybe move to the sideline and look at other markets.
Michelle: Yes. What about soybeans this morning? A pretty nice rally, and of course, that was a market here this morning that looked like it was getting pushed by the higher product values. Is it that? Is it weather? What's going on there this morning?
Darin: I still think we're seeing increased crush demand for US soybeans. I think that US supplies are actually quite tight for soybeans. I think we've seen them tighten up here over the last few weeks. Since we're not exporting anything, that would certainly indicate that crush demand's continuing to pick up. We saw it in the latest, I should say, weekly export sales and shipments update where soybean shipments or soybean meal shipments are now projecting a 4% increase over last year. That's impressive in a way. We'll see if that can continue. I do think a lot of the soybean support, particularly in the new crop, is coming from the idea that we're tightening up the old crop supply and demand situation, that beginning stocks are going to be less than expected, and we don't have as much of a margin of error if it's going to stay hot and dry across the Midwest.
Michelle: Yes, and certainly, the spreads have been indicating that as well, that tight old crop situation, but will the quarterly stocks come in and confirm that in the report this Friday?
Darin: [laughs] That's a great question, Michelle. We can all have opinions on how valuable the quarterly stocks numbers actually are. I will be interested to see what those numbers come in at. We know that so far this marketing year, they've been running below what we saw last year and previous years. My guess is or my argument's been that 2022 production was overstated in both corn and soybeans, so the situation for much of the marketing year so far has actually been tighter than what's reported. We'll see which side the USDA comes down on on Friday.
Michelle: No doubt. Wheat market is seeing some double-digit gains as well here. Of course, we had some headlines develop over the weekend with Russia and the Wagner Group causing maybe a little political uncertainty. Are we still trading that, or is this more of just this fun short-covering move that you and I have been talking about?
Darin: I think it's a little bit of all of the above, Michelle. I don't see that there's a lot of influence from the Wagner Group. Had that lasted longer, had that possible coup lasted more than just Saturday morning, I think it might have had more of an influence on the markets. I don't really know that it's changed the situation as far as available grain coming out of Ukraine anytime soon. I do think there's been a great deal of short-covering in Chicago. Fundamentally, it doesn't really need to do that, but we have seen it. There was a big move again in the latest CFTC report, and also if we go out to Kansas City, the reality of the situation is we're probably starting to see those yield reports coming in, and it's just pretty dismal for hard red when you're coming out of Kansas City, so not too surprising to see the September contract leading the charge here this morning.
Michelle: Yes, and definitely we haven't seen much harvest pressure, and it's probably because of what you just said, those yield reports are trumping that for sure. Cattle market, we did have Cattle Line Feed report, we got that out of the way now, but we still have some pressure in boxes. Cash trade was lower last week, so this trend has been lowered. Do you continue to see a correction here?
Darin: Yes, I think you and I talked about this last time where it looked like the box beef market might be starting to top out. It just seems like it got a little bit ahead of itself and it's been backing off not in huge chunks, but just a little bit of time. This could be a seasonal play. Most of the buying for the grilling season could possibly be done. A lot of times we see the box beef market and some of the cash cattle markets top out around the 4th of July. Well, that's next week, so after that, we start to slide through the rest of summer and on into fall.
We'll see if that's the case again this year, but it certainly looks to be a little bit top-heavy here. It certainly seems to be following some technical patterns that we've developed on both short-term and intermediate-term charts.
Michelle: Hogs back to the plus side here. We've had a nice rally off the contract lows, and if you look at the fund position there, the funds have actually erased all of their massive short position and I think they've gone long now. How much more upside can we expect in that market?
Darin: What's interesting in hogs is it's been led the right way as far as I'm concerned. We saw a long-term reversal pattern on the monthly chart for the CME cash index at the end of May. This started in the cash market, and this is how you want to see. You want to see fundamentals leading the futures, and that's what we seem to have going on in the hogs. Given that, that certainly seemed to spark some of this noncommercial rally in the futures market by funds. Again, it comes down to a similar situation as in corn. Are they willing to continue to add to this position on the idea the cash market is going to continue to strengthen, or at some point, do they say, okay, we've done enough, let's take it back to neutral and see what develops from there? Right now, at least from a technical point of view, it looks like the funds want to continue to build, fundamentals want to continue to strengthen, so that's pretty good support for the hog market at this point.
Michelle: Anything you're watching from an outside market perspective that mean we still continue to hear all these rumblings about two more rate hikes by the Fed at some point? We continue to hear about China's economic slowdown and their GDP maybe being downgraded. Of course, crude oil had a lower week last week. What do you make of all that?
Darin: It's hard to make much of anything of it. We've known for quite a while that there's probably going to be more interest rate increases. Chairman Powell hasn't been vague about it at all, and immediately after this last meeting, he's come out and said already to expect these two more hikes during 2023, and the dollar might bounce initially, but then it just still can't find a lot of buying interest. I don't think the situation has changed there all that much. I was watching Gold over the weekend to see if it had any reaction to what was going on in Russia. It didn't really seem to affect it all that much. Then, of course, we've got the US stock indexes as well, which remain in long-term uptrends, but could also take a breather here as we come to the end of June.
Michelle: Yes, definitely due for maybe a little correction there. All right. Thanks for joining us, 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.
