This morning I joined Michelle Rook, on AgWeb's Markets Now, to discuss the wheat, corn, and soybean markets. We also spoke about the energy markets, gold, cattle prices, and interest rates. Watch my interview here.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior market analyst for Barchart. Grains to the plus side this morning were a little bit more mixed over in the livestock futures. Darin, a continuation here, some follow-through buying in the grains after a higher close yesterday after the WASDE and the crop report. What sparked the rally yesterday, first of all? Let's talk about that.
Speaker Darin Newscom: Yes. As I wrote about yesterday and as you and I have talked about, I have no idea. I simply don't know. There really wasn't anything that I saw in the reports. I know others will have different opinions. There wasn't anything that I saw in the reports that were this outstandingly bullish to push soybeans 40-some cents higher, corn and wheat to double-digit gains. To me, it seemed more like a vacuum trade. We had some buy orders come in. Obviously, the algorithms were looking at a specific number, be it ending stocks in corn that came down something 110 million bushels, or whatever the case might be. We saw the orders triggered. With the recent sell-off, we've seen pretty much across the board, there just weren't any sell orders sitting above any of the markets. Once they got into some clear air, there wasn't any putting the brakes on it. Again, there wasn't a single number that jumped out at me. I think probably the most interesting was lowering the old crop, the '22-'23 corn ending stocks number by 91 million bushels. Basically, what it does is it steps back in line with what we saw most of last marketing year with future spreads and basis for the most part.
Just simply, we didn't have the corn. We never had the corn. The production wasn't there in 2022, regardless of how many times USDA said it was. By the time we get to October, when nobody's really looking at old crop anymore, they take it away and it changes the beginning stocks for new crop. That was a big part of the 110 million bushel decrease in new crop ending stocks.
Michelle: Although we did know that 1.36 billion bushel old crop number after the quarterly stock, I guess that shouldn't have been too much of a surprise either but bullish to your point. Regardless, soybeans did score or had put in a reversal yesterday, as we're getting some follow-through this morning. Now where do we go? Can we take out 13? If we do, where do we go?
Speaker Darin: I think it can get above 13. Again, it's a big round number. As I look at the weekly charts and set my monthly charts aside for right now and look at the weekly charts, we're going to get a reversal today. It's going to take something dramatic to keep that from happening across the board. It doesn't matter if we're looking at Nov, Jan, March, wherever. We're going to see a bullish reversal. Then at that point, does that trigger additional investment buying? Yes. I'm old. I look at charts. Algorithms don't necessarily look at technical patterns anymore. They're not overly concerned about a spike reversal or a key reversal or these sorts of things. They're looking at things like momentum.
Some of them are actually based on future spreads, looking at fundamentals, different types of moving averages, and these kinds of things. Just because we get an old-fashioned key reversal on the weekly chart, it could bring some buying in. I think what we're really going to have to see is we're going to have to start to see a shift in the demand side. Right now we're seeing some seasonal sales being made. Our shipments are picking up. We've seen that in both export inspections and weekly export shipments this week. We're still running behind and it's still nothing great. We're going to have to see this demand pick up if we really want to keep some longer-term investment money coming in.
Michelle: To your point, weekly exports this morning just shy of 39 million bushels, but we're still 32% behind. We did get sales though, again, this business to China. Then let's talk about soybean meal because we had 100,000 metric tons sale of soybean meal to an unknown destination. Soybean meal was up over $16 yesterday, up strong here today. What's going on in that market? Is that part of this rally that we're seeing you think?
Darin: Yes, and again, I think it comes back to some of Argentina's buyers. They weren't able to get all their supplies covered due to Argentina's short crop this last year. They're starting to come back into the market and soybean meal was low here in the US, and so they step in, they start buying. Like so many other markets Thursday, I think soybean milk just got caught up and there just weren't any sell orders on top of it and the way it went. Again, it was impressive commercial buying. I'm not doing downplay that at all. Certainly lending to the fact that supply and demand is still bullish for soybean meal and that should continue to provide support going forward.
Michelle: With what you just said about corn, we still couldn't get above the $5 mark, Darin. What is it going to take to get above that level here do you think, and stay above it or close above it, I guess?
Darin: Corn really doesn't have any big reason to post a sizable rally at this point. Yes, we're banging our head up against last week's high of $4.99, just short of $5. Then right on top of that, we've got an old series of highs up around $5.07. For the time being, it's just in a characteristic sideways trend. We've just moved off the low end and we've come back up to the high end. What's it going to take? This is the time of year when most of the bushels get tucked away in storage. What's going to be sold has been sold. Now merchandisers are going to have to push the market a little bit.
We've already seen basis starting to firm ever so slightly. Even with futures markets holding together pretty well, we've seen basis starting to firm. Again, as I've said over and over, it's going to be a demand issue. If we see increased demand for US corn, then that could be what ultimately kicks it into the next level of higher prices.
Now, we did see in some of the numbers in the reports yesterday, that there's a possibility that folks could be looking for stronger feed demand this year in some markets. That's going to be something if we start to rebuild the cash, start rebuilding the cattle herd, maybe that could provide some of that support to corn.
Michelle: Yes. Exports are actually now, for this marketing year anyway, starting to run ahead of last year's pace. Maybe that will help as well. The wheat market, we actually scored a reversal there yesterday, but today some follow-through buying as wheat got China business or is this just some short covering or is it the conflict in the Middle East? What do you think?
Darin: It could be a number of things or all of the above. I was of the belief that it looked like short covering, and I went back and checked open interest and open interest has actually climbed this past week. It threw some cold water on that idea. I still see [unintelligible 00:06:55] winners and incredibly bearish fundamentally bearish market, and that's simply not going to change. We've got weak basis. We've got big carries and future spread. I don't see that market changing anytime soon. I did find it interesting. The last couple of days, there's been a small amount of commercial buying coming in and this was followed by the announcement of a sale to China. We're going to need to see more of that overall wheat exports, regardless of class, are still down compared to last year. Again, it comes down to demand. We're going to have to see these exports pick up and right now it just doesn't look like it's going to.
Michelle: Yes. Since we were talking about the Middle East conflict, talk about the impact that's having here on this big spike in the crude oil market today. Gold has been responding too, hasn't it?
Darin: Yes. It's been an interesting week for both gold and crude oil. Crude oil gapped higher Sunday night through Monday and then posted a high Monday and then fell back and closed lower Tuesday, Wednesday, Thursday. Now all of a sudden here on Friday, we've got the buyers coming back in. Now, this is a combination. I think there's some connection here, but it's a combination of not only what's going on in the Middle East, but there were headlines of new US sanctions against Russia, which were also attributed to the 4% rally in crude oil overnight.
Gold just looks to be-- it's returning to its role as a safe haven market. I actually thought crude oil would outperform gold this week, but it hasn't. Now as we head into the weekend, I think you're going to continue to see some support in gold because it's very uncertain what could happen in the Middle East this weekend, where the next shoe is going to drop around the world. I think you're going to continue to see investors supporting gold. It's quickly getting overbought, but at times like this, I think you can set that aside.
Michelle: The cattle market yesterday did close higher with some higher cash trade, one to three better. We started off with a little follow-through buying here this morning, but as the morning wears on here, we're starting to see the market drift. Do you think that market has been able
to get rid of the noise or ignore the noise here from these outside markets and can it keep going?
Darin: I think it has for the most part. The one set of markets that probably is still providing some influence is the US stock indexes. I think we do need to keep an eye on that. Boxed beef hasn't done much of anything this month but yet the cash market continues to edge higher as you mentioned. We saw $1 to $2 stronger markets reported Thursday, which I found interesting trading 184 in Kansas and in the southern market as a whole. I think that's going to be the key. Will packers continue to pay up if the beef coming out the other side of the house starts to flatten out again?
Michelle: The $3 higher that I mentioned that was actually up in the north for folks, so they're just not confused. We don't know what's going on. Let's also talk about the fact that we do have all this outside market activity going on, and we have the CPI data out this week. What is the general mood here in terms of what the Fed is going to be doing here this next month? Is it going to be hired longer? Is that what has been shaking up the equity markets for the most part?
Darin: I think there's a general feeling that the US Is going to see another rate hike here in 2023. Chairman Powell said that back in June to expect more than one rate hike. We got one in July, nothing in August September, and now the next meeting is October 31st through November 1st. I think at least there's a 50-50 chance that we're going to see another rate hike because if not, then it falls to December. I think at some point we are going to see that next rate hike. It would not be overly shocking for it to happen at the end of this month. The data both supports it and does not support it depending on which economists you talk to it at the time, whichever piece of data comes out. It looks like that's where we're headed, but I don't see a lot of additional hikes coming down the road, even though that tone has changed as well. Here, I can't remember if it was in the September-- I think it was after the September meeting when the talk was maybe we continue to see some hikes in early 2024 before cuts start being made.
Michelle: I think we're all watching that. All right, thanks for joining us. That's Darin Newscom, senior market analyst for 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.
