Last Friday I joined Michelle Rook on AgWeb's Markets Now to discuss the recent action in the corn, wheat, and soybean markets. I also spoke about 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. We are seeing mostly higher prices with the exception of the cattle market this morning in terms of the ag sector. Darin, we had a three-day correction in the grains. We're back up here today. The question is, is this just technical or some money flow issues that have us up this morning or is there something fundamental going on again?
Darin Newsom: I haven't seen anything fundamental in these markets, and I think anything that happens here on Friday has to come with an asterisk. What we're looking at here, it's the end of the week, it's the end of the month, it's the end of the quarter for corn and soybeans, it's the end of the marketing year in wheat, and it's the end of meteorological spring, so there's a lot that's going to happen today that outside influences on these markets.
As you said, they've been under pressure here for most of this week, so we'll see. We'll see if the bounce back can hold. I think by the end of the session, particularly in new crop corn and soybeans, maybe even new crop wheat, traders are going to be looking more at extended weather forecasts. Then we'll just see how we finish up and what it leaves us on daily, weekly, and monthly charts.
Michelle: Yes. Let's talk about the weather because it did look like we were removing weather premium in the last couple of days because this concern about maybe not getting planted. There's really no concern there anymore, is there?
Darin: There isn't to me, and I thought the whole thing was silly and overblown to begin with. If we want to watch what the market really thinks about weather and adding or subtracting weather premium, in the case of corn, let's look at the new crop forward curve, the Dec 24 to July 25. Last week, it closed covering 30% calculated full commercial carry, which is bullish. They've moved from neutral to bullish. Then this week, they moved back to neutral. The spread heading into Friday session was covering 34% with 33% the threshold. It's not like they're saying, "Oh, look, everything's perfect and everything's great."
It's something that they're watching. It's just this week, they did take some of the weather premium out. It could certainly go back in if we turn into a hot, dry situation at some point. I think that's how we need to watch it. Similar situation in soybeans, except for the Nov 24-July 25 is still just bullish. It's not covering a lot of carry. We do have some open interest and some volume issues out for deferred futures contracts. Still, the commercial view is still bullish longer term in soybeans, indicating there is still some concern out there about supply and demand longer term.
Michelle: Yes, in the wheat market, obviously, we have a hot, dry forecast in Russia, but are we more keyed into the fact that it's still dry in the southwestern plains? We still have, what, 25% of HRW country that is still in drought?
Darin: I think so. The whole Russian thing to me is about as silly as anything that's been talked about for quite some time. Has it changed the US supply and demand situation? Absolutely not. Soft red winter basis is incredibly weak. Hard red winter basis is incredibly weak. Hard red spring basis is weakening as we come to the end of the marketing year. In the future spreads, we can see there's been a little bit of commercial buying in the hard red winter market, but it's still not bullish. We're still looking at a very strong carry, particularly in the July-September, and starts to weaken off a bit in the September-December.
I think the key to the entire wheat complex when everyone wants to make a big deal out of nothing with Russia, is let's look at the Chicago July-September. It's covering over 80% calculated full commercial carry. It's in another variable storage rate pricing period where if that July-September spread on a daily average, it's covering more than 80% at the end of June 21st, storage goes up again. There is nothing about that that is bullish fundamentally for US soft red winter wheat or the wheat market as a whole.
Michelle: We should also point out, you and I have talked about this before, it's not necessarily translating this Russian or Black Sea situation into export business for the US. We had cancellations net on old crop this morning, only 14 million bushels new crop. That's nothing to write home about, is it?
Darin: No, not at all. We're not seeing any demand increase for US wheat. One of the things I track each week is not only what the pace of shipments are for this marketing year against last marketing year, but in wheat, let's go back two years. We're barely making it back to where we were two years ago. All of this hubbub over Russia this and Russia that, Ukraine and so on, the bottom line is US supply and demand for the wheat sector is not changing.
Now, let's say it stays hot and dry and the drought continues to spread across the US southern plains, that is going to reduce the production of hard red winter wheat this year. Will it make a big difference? We'll see. We'll see if those spreads start to change. We'll see if basis starts to firm, but until then, we have to go with the old idea on wheat, one bushel left over is too many, and that certainly seems to be the case.
Michelle: Since we are talking about exports, let's also talk about, we had a push in the soybean market because there was rumors of maybe two up to eight cargoes of China business in the old crop category. That did not really show up in the export report this morning, did it?
Darin: No. Again, we've got all this chatter and rumors and everything else, but what's the reality? Reality is basis is still relatively weak. Future spreads, I mean, we can't really count on future spreads right now because it includes the August and September contracts, which are useless. What we're left with is the fact that we can see through basis that there isn't a big push right now. Futures dropped, what, 50 cents from last Thursday's high to this Thursday's low, and basis didn't change.
It strengthened a quarter of a cent. That tells us merchandisers are not worried about supplies to meet demand. Doesn't matter if it's exports, doesn't matter if it's crush. There's plenty of soybeans to go around right now, and that's even with supposedly less production back in 202-- what was it, 2023, so, yes, I just don't see all the hand-wringing and gnashing of teeth over this. It's just not showing up anywhere.
Michelle: Are the greens trading any geopolitical concerns, do you think?
Darin: I think they should be. If they're not, they certainly should be. I think it's going to be an interesting weekend, and I think as we move into a meteorological summer, I think geopolitical situation is going to move into the spotlight again, given recent developments. Never quite know what cards China and Russia are holding right now to continue to try to destabilize global politics and economics and so on, but, again, given some of the recent developments, it certainly looks like something else is going to have to happen. Some major event, some big piece of chaos is going to have to come through here, probably sooner rather than later.
Michelle: First, we did get trade numbers out for the quarter yesterday showing a record trade deficit of $32 billion, and China has now moved to like our third export customer behind Mexico and Canada. Do you think that is a coincidence?
Darin: No, I think it all fits in. We still find ourselves in a trade war, and so if we're not shipping anything to China, yet we continue to import from China and the US consumer pays the tariffs, yes, it's no surprise at all that we continue to lose ground as far as imports versus exports, so it's not a surprise at all given the situation that we got ourselves into.
Michelle: Not only that, but do you think this is also part of the play that Russia and China are making together here from a geopolitical or world-dominant standpoint?
Darin: It certainly could be, and again, it ties into the much talked about, it's like some of the other stuff that we've mentioned this morning, the much talked about getting away from the dollar on the global stage, that's not going to happen anytime soon, but certainly, this is all part of the puzzle that some of these countries who are not necessarily looking for global stability are putting together, all part of the bigger plan. Again, some of it's going to be very hard to pull off. You can play games with the exports, imports, but when it comes to actual value and dollar and this sort of thing, that's a little bit more difficult to do.
Michelle: Let's round out the discussion with the cattle market. Third day down here, obviously, we had the China news of them delisting the JBS plant in Greeley, Colorado due to ractopamine started it, but, really, we were due for a correction here, right?
Darin: We were. From a technical point of view, it certainly looked like both live cattle and feeder cattle were getting a bit top heavy up at these levels, could certainly run out of some buying interest. Now, that was offset at least towards the end of last week with the strength of the cash market coming in. I believe it was Friday. Then we really haven't seen a lot till here later this week where the cash market started to develop, and I think if you told me, as you told me, it was a little bit weaker here as we head into Friday session. We're seeing some of the pieces again come into place, weaker cash. We're certainly seeing some outside markets, most notably US stock index is coming under pressure here as we close out the month. There are some influences that are putting some pressure, putting some weight on the cattle markets here as we finish off May.
Michelle: Yes, absolutely, but with the futures at such a big discount to the cash, that should be somewhat supportive, shouldn't it?
Darin: Yes, it should. This is something that the market's been dealing with. It's a strong basis in the live cattle market. At some point something's going to have to break, and I thought maybe this week we would see futures try to catch up with the cash. It just hasn't played out that way. What it lends itself to is the idea that maybe cash is going to start to break down a little bit now. We're moving into that time of year where cash normally tops out, starts to move lower as we get past the bulk of the buying season for grilling for the US summer, so we'll see if the cash actually starts to weaken a little bit in here. On top of that, we also have to consider what US consumers are going to do. I know that's been a major topic of interest. At what point do they start to break down and demand start to go away as well?
Michelle: Thanks for joining us, Darin Newsom, Senior Market Analyst with Barchart with 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.
