Michelle Rook interviewed me this morning on AgWeb's Markets Now. We discussed the wheat, soybean, and corn markets. In addition, we talked about interest rates, gold, and the cattle market. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior market analyst with Barchart. Multi-lower prices this morning in the ags with the exception of the cattle market. Darin, let's talk a little bit about the grain sector first in terms of corn. We've actually seen a little bit of strength here this week, and some of that has been maybe driven a little bit by demand, maybe a little bit by weather. Do you think we need to put a little more weather premium into this market, and today are we just seeing some profit taking or what's going on?
Darin Newsom: I don't know that the new crop corn market, so if we start with say, I know we can debate the September-December contract, but if we start with the Dec-24 contract, I don't know that we have to build a lot of weather premium in at this point. Looking at the forecast, there's chances of rain across parts of the Midwest on Friday and over the weekend. It seems like most of the forecasts have been relatively beneficial for the-- generally beneficial for the 2024 crop.
We'll see what the extendeds do. If it starts to turn hot and dry for a longer period of time, maybe that gets the market's attention. December corn just seems comfortable right now in the $4.60, $4.80 range, doesn't really want to break out of it, doesn't really have much reason to break out of that range at this point. We'll see what happens. Again, it's a weather derivative, so we'll see what happens with forecasts down the road.
Michelle: there's been a lot made this week about some of these extended forecasts, maybe looking hotter, drier into June, into July, so that was why I asked that question. From an old crop perspective, let's talk about that market because it looked like we got up into chart resistance yesterday, so maybe setting back as a result of that. Is there good demand underlying that market that's holding that market or that July contract together and cash basis levels together? Is it commercial buying interest demand or what is it?
Darin: It's an interesting mix right now. We've got commercial support, we can see that in basis. The July-September spread's a little bit difficult to read. Again, the September contract's a hybrid old crop/new crop issue. We have seen the carry in the July-September whittled away, but I think more importantly in the old crop market is we've seen basis continue to firm. My last count, my last calculation came in at 14 cents under July on Thursday evening, which is 3.75 cents stronger than it was last Friday. We've seen some commercial support and this is despite the fact July has rallied this week, the July futures contract is higher.
That tells us that merchandisers are pushing, trying to source some supplies to meet demand. Does that mean demand has picked up a great deal? Demand has stayed solid. Most notably, this year we've seen an uptick in export demand. It was expected because we actually had the bushels to move this year. Feed demand's still a question mark. Ethanol demand's still relatively constant. We've seen better demand. I wouldn't say it's extraordinary. Basis is still running neutral to weak. It's not like all of a sudden we're looking at a red-hot market like what we were looking at a year or so ago when we just didn't have the supplies. It has changed a bit. We have seen some demand and right now the support is coming from the commercial side.
Michelle: Got you. What about, say, beans? The situation is different there. Export demand is running behind pace, but we've had flash sales the last four out of five sessions. Today, we did not have any. Do the old crop sales that we've had here, does it really make a difference?
Darin: No, it doesn't. If we look at the most recent weekly export sales and shipments update, we see that the US based on shipments is on pace to export about 1.68 billion bushels in 2020 through '24. Right now we're about 70 million bushels short of that for total sales. The US needs to make some sales here over the last quarter of the marketing year. When we see these spot sales, these sales announced it's nice, it's fine. I know a lot of folks get excited about them, but really it's what needs to be seen if we're going to catch up, if we're going to see total sales catch up with the projected pace.
It then comes, as we get deeper into this last quarter, are we actually going to be able to ship 1.68 billion bushels or is it going to continue to come up short of that? It's where we are in the game right now. Export demand isn't very strong. There's still a lot being bet on crushed demand for the next year. We'll have to see. We've heard this story for the last 10, 15 years and it hasn't materialized yet. We'll see if it happens this next time around.
Michelle: Although did some of that business come because China was buying for the reserves or because Brazilian basis levels have actually started to appreciate, haven't they?
Darin: Yes. That tells me that, with Brazilian basis levels strengthened, it means that they're running a little tighter on supplies. I don't know if they're running out of soybeans, but their supply situation's starting to tighten up. To me, the underlying value of the cash market isn't-- when we look at the export market, I don't know that it's that important. I think China is going to buy from Brazil as much as it can.
Then US is still going to be a secondary supplier at best. I think that's what we're seeing right now is China is just adding to some of its secondary supplies, whether or not they're storing them, whether or not it's because of, Brazil starting to run tight, whatever the case might be. Right now, China just views the US as its secondary supplier. That's really all we're seeing at this point.
Michelle: Darin, the wheat market has had a pretty good correction from the highs. Has this all been harvest and hedge pressure?
Darin: To me, this is a seasonal harvest move. We may have goosed the markets, both winter market's a bit too high, given that basis was still incredibly weak for both Chicago and Kansas City wheat. We've seen them free fall in here, come under a lot of pressure. What's interesting now is that the focus has moved, at least in the market's eyes, out to the September-December spreads, and so we need to keep a close watch on those. What really stands out to me is that the Chicago market, the soft red winter markets, in another variable storage rate tracking period, and it ends a week from today, on Friday, June 21st.
It depends on, by the CME's calculation, if that July-September spread's covering more than 80%, if the daily running average is covering more than 80% of full carry. At Thursday's close, given what we've seen in the July-September spread of late, with some short covering going on in July, that spread's sitting right at 80%. That running average is right at 80%. We've got a week left. This last week is going to be interesting, because if it's at or above 80% next Friday, at next Friday's close, we would see soft red winter storage, the storage rate go up to roughly 11 cents per bushel per month. That's getting pretty steep, and certainly not a bullish indicator.
Michelle: The dollar is back higher again today. Of course that may be putting some pressure on the grains here, as well. Let's talk about the whole inflation climate right now, the interest rate climate. It sounds like maybe we're looking at maybe one cut by the end of the year. What does this inflation cooling mean for outside market money, investment money, and the ag sector?
Darin: To begin with, I know this week was a big week for consumer price indexes and producer price indexes, and all that sort of thing. I don't put any more stock in those than I do, say, grain, government grain numbers, or anything like that. If we look at the market, if we look at the Fed Fund Futures market, we can see that the market is pricing in one, if not two, rate cuts yet in 2024, possibly at the end of the September meeting, if not at the end of November.
There's only four meetings left of the FOMC this year. If there's going to be two rate cuts, they're going to have to start making a move. As far as inflation, we know inflation is still there. Theoretically, it's not as horrible as what we lived through in the '70s and '80s, for different reasons. What it might mean for long-term investors, we've seen the NASDAQ and S&P 500 continue to go to new highs. I know this makes folks nervous when we just continue to churn out new highs in these index numbers.
There's this idea that they're going to start getting a little top-heavy. The bottom line, the US dollar index is still in a long-term uptrend. We've got the US 10-year treasury notes still in a long-term uptrend. It seems like things are moving along relatively well right now, taking inflation into and out of account. Again, we'll see what happens with the Fed, but I think the market's doing a good job of pricing it all in.
Michelle: You say some of the inflation reads that you're watching are more things like metals and crude oil and that, right?
Darin: I don't think grains are a great inflation read because commodity markets have varying degrees of elastic demand and inelastic demand. Quite honestly, folks around the world need to eat. There's always that underpinning of support for global grain. Then you get into the metals, particularly with something like gold, where it's also a safe haven market at this time of great uncertainty. We're seeing some political upheaval in France, where more is expected around the world as we make our way through 2024.
I think gold, again, is a safe haven play as well as an inflationary play. Usually it tends to move the opposite direction of the dollar. Doesn't necessarily have to, but it tends to. Then we've got copper which is another economic indicator, and silver, which is a hybrid of the two. Also, looking at crude oil, crude oil hasn't done anything despite all of the bullish headlines that have been thrown at it. The West Texas intermediate market's still just sitting there. It hasn't done anything for the last number of months.
Michelle: It's been interesting. Cattle market is back up here, but it looks like the stock market, I know being up at these levels helps out, but it looks like this has been a cash play with some higher cash trade this week.
Darin: Agree. I think the cash market has certainly been helping futures. We can see that started off early, right off the bat on Monday where we saw some commercial buying coming into the live cattle market. Even though we did see some commercial pressure on Tuesday, for the most part, live cattle have been supported by the commercial side, which is an indicator the cash has stayed firm.
Is it getting some support from the US stock indexes? Sure. There is that historic tie, but I think there's just the continued strength of the cash market right now. It seems like there's still solid consumer demand for beef coming out the other side of the plant. How long this lasts is the question mark at this point. Seasonally, we're in a time where we start to see some cracks coming in the box beef market. So far, we've run through it pretty well. Now we watch the spreads and now we watch the cash markets, and they're holding together relatively well.
Michelle: No doubt. Thanks for joining us, Darin Newsom, senior market analyst with Barchart.
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.
