I joined Michelle Rook on AgWeb's Markets Now this morning to discuss the corn, wheat, and soybean markets. We also spoke about the U.S. dollar and crude oil. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. We see livestock futures mixed this morning in the cattle sector. Hogs have been mostly lower. We've got outside markets like crude oil a bit lower this morning, but the grains are all to the plus side. Darin, let's start off with that. We had a big rally yesterday in soybeans and especially the meal market. We're seeing follow-through buying this morning. How concerned is that market about what's going on in South America right now with weather?
Darin Newsom: I think that's the key, Michelle, because again, as you pointed out, a lot of what's happening now seems to be driven by the old crop market here in the U.S. With soybeans, the market's more than happy to follow the soybean meal market higher. We can see that's the key, the soybean meal market. That's where the forward curve of the future spreads are inverted. That's where the demand is coming from.
It looks like we've got stronger crush demand here domestically. Not only is that helping to support soybeans, it's putting pressure on bean oil. We can look at that crush spread and see what's going on. Right now, everyone wants to crush for soybean meal. Since we don't have strong demand here in the U.S., supposedly cattle market cattle herds are still smaller and hogs aren't going to eat all the way through this. This means it's lining up for the export market. That tells us there's still problems going on in Argentina.
Michelle: You bet. We've also heard about flooding this week in southern Brazil. Obviously, that is going to curb what that crop is in terms of size.
Darin: Depending on how deep they are in the harvest at this point, I would imagine most of the crop has been harvested. I can't say that for sure. I think it also raises the issue of getting some harvested beans to port. Now, I know there's not the same storage situation that there is here in the U.S. where there's a lot of on-farm storage and this sort of thing. A lot of the crop moves to terminals almost immediately after harvest.
For those trucks still trying to make it across those somewhat questionable roads, the best of times, this is going to make getting to port more difficult. What we really have to keep an eye on now is when does China come back and start knocking on the door for some secondary supplies? We haven't seen it yet. The latest sales and shipments update for the weekend in April 25th, late in April showed that China only had 11 million bushels on the books for the balance of 2023-'24. It hasn't been active. We haven't been shipping much to China either. We'll have to see if that changes over the coming weeks.
Michelle: You're not getting real excited this morning about the flash sale of soybeans to unknown destinations?
Darin: No. Again, if we go back to our latest update, the pace projection for shipments just based on what we've shipped so far, we're still running about a quarter of a million bushels behind as far as total sales go. We've got some work to do. The U.S. has to make some sales just to get up to that shipment pace. When we see these four or five million bushel sales, yes, they're nice. I don't think it's anything game-changing or anything like that. We need to see these consistently more than just once a week.
Michelle: We've also had this on-again, off-again Argentina strike may be a little supportive to the soybean meal market, you think?
Darin: I think so. I appreciate you updating me that this has been on-again, off-again. I had missed that piece of the news and thinking it was still on again. It doesn't seem to be quite as consistent as the usual Brazilian strikes, which tend to last a couple of weeks. Then they get everything worked out. It used to be an annual event. This one seems to be a bit different, but it will be interesting to watch how this progresses heading into the weekend.
Michelle: Darin, is the corn market also maybe trying to put in a little weather premium? Is it too early to be concerned about planting delays or is there a little bit of that fear?
Darin: I think it's way too early to be talking about planting delays and this sort of thing. We know U.S. producers can plant a great deal of a lot of ground in a short period of time. Again, if we look at it, this rally has been driven by the old crop market. We've seen basis firming, we've seen future spreads firming. We've got some commercial buying going on in the old crop market that's pushing say the July and even the September contract higher, and December's going along for the ride. From the fundamental side, I don't think we're going to get into a tight old crop supply and demand situation, but there certainly seems to be some interest out there right now.
From a technical point of view, what I find interesting is that Thursday's session saw July take out its previous high of 460. That's a good technical indicator that the market's got some more room to the upside. New crop December did the same thing here on early Friday, took out its previous high of 481. Now it looks like it could be moving into more of a seasonal uptrend pattern that tends to last into mid-June.
Michelle: Do you think those technical points are enough to get the funds to continue to cover their shorts here?
Darin: I like the way you asked that because, to me, that's what's going on. So much of what I'm seeing is, oh, funds are rolling out of the soft sector and going long grains. I don't see that happening, at least not right now. I do think it is more short covering at this point. Now, if fundamentals continue to grow more bullish, we've already seen the July-August spread for what that's worth with August soybeans, but it's threatening to go inverted here at the end of this week. That could actually start to lead to some actual buying interest where they start to add longs.
I think it is going to be fun to watch over the next couple of weeks, but for now, it looks to be mostly short covering.
Michelle: What about the wheat market? Since we've been on this weather theme, obviously we've put some weather premium in there, not just because of our dry HRW areas in the Southwest, but I know Russia, Black Sea areas have been a little dry, and they've missed some of these rains, haven't they?
Darin: There's certainly some weather issues in wheat, but wheat's grown across the world, and Russia's not going to run out of wheat. What they can take from Ukraine is still going to be there and still going to be taken. Then when we look at the U.S., both the Safford winter and Harvard winter, certainly the Southern Plains drought situation, soil moisture situations, for the most part, have improved. There's still some pockets that have missed over the last couple of weeks. Really the reality of the fundamentals, we have to look at the spreads.
July/September, September/December spreads for both markets are still incredibly bearish, and we have to remember the Chicago market just went through a variable storage rate calculation where they are now moving because of how strong the carry was in the future spreads during April. The official storage fee is going from the lower rate to the higher rate again, and that just simply doesn't happen in a bullish fundamental situation. It just tells us there's a lot of grain still in terminal storage expected to be coming in, and they've got to keep it moving, people not just storing it and holding it, taking advantage of the carry forever.
Michelle: Now, beyond weather, we also have this big pullback on the dollar today. Is that helping maybe support the grain trade as well?
Darin: There will be some talk along that line. I don't really see it. I think this is a knee-jerk reaction to the always hilarious monthly employment numbers. This will pass. In fact, I wouldn't be surprised for the dollar to close stronger today. It's just the nature of the beast. It did break, then it bounced back, and it seems to be under pressure again. I don't see the dollar as having that strong of a role in grain sales at this point. I think it's more political than it is economic. Again, where is the grain available? Do folks not have trade wars in place? That's where the purchases are going to be coming from.
Michelle: Darin, we talked about technicals on corn. Let's go back and talk about them, first of all, on the soybean market. We have gotten above some key moving averages there, but we have not taken out the highs that we put in. What report day at the end of would have been March?
Darin: From my point of view, every technical analyst talks about something different for whatever reason. They just all have their things that they look at. I like to look at previous highs and lows. Again, corn, yes, moved to new highs. Soybeans haven't done that yet. You can say they're still consolidating within this range of lower highs and higher lows, and at some point they're going to break out. It certainly seems to be the case that a bullish breakout is coming, again with the fundamentals growing more bullish, particularly in the spreads. Certainly leaning that direction. We just haven't gotten that actual technical breakout yet.
Michelle: Have we seen a technical breakout in the meal market though?
Darin: Meal is leading the way here, and it's still looking very strong again. What I like about the meal market is that the buying is coming from commercial traders. Again, we're seeing that in the spreads. Again, just like with the other markets, it'll be interesting to see what the latest CFTC report shows us. My guess is we're going to see some pretty solid buying from the non-commercial side as well.
Michelle: What about technicals in the wheat market? Because we've had a nice run here. Are we getting up into some chart resistance areas now that we need to take out to keep funds covering shorts there?
Darin: What's interesting about wheat is, again, we talk about the fundamental situation for both winter markets, and they're about as bearish as anything that I've seen over the last number of years. Yet, if we look at the long-term monthly chart for the Soffred Winter Wheat Cash Index, it was one of the first grain markets to actually establish a long-term bullish reversal.
What we've got here is a classic rubber band disposition where funds could start buying. Not just covering shorts, but they could actually start buying if the algorithms have turned bullish as well, all while fundamentals remain incredibly bearish. You get this divergence in the market. It usually does not end well. It usually means funds are going to start getting back out. It's an interesting play. Is there any resistance up here? No.
We consolidated down here for so long that now we've broken through some of those previous highs, and there's some pretty clear air where we could just say this is where the sellers could be. There's not a lot of indication where that might be at this point.
Michelle: Let's finally talk about crude oil. We've had quite a pullback here this week, and a lot of this is what, due to better supplies? we did get inventory out this week, and that did prove that, didn't it?
Darin: Yes, we could see that. Again, spreads haven't been doing anything. We've been seeing some pressure on nearbys in relation to deferreds. We know even though this is a time of year when we tend to see demand picking up, supplies have increased more than demand, and it's keeping a lid on the market as a whole. Then funds, again, just aren't interested in the energy sector right now. I think this is going to be the key. Where does the fund money move next? It looks like it's coming out of softs.
There was a while there I thought it might go over into energies just for a seasonal play if nothing else. Will it go over to greats? if we continue to see things like the soybean spreads tightening, or the carry going out and going into an inverse and carry getting weaker in the corn spreads and so on, will that be enough to attract some of the attention, not only away from softs, but away from energies as well? Because energies just really don't have a supply-demand situation right now to warrant funds just pouring money into that sector.
Michelle: Crude oil, do you think it has a bigger correction in store?
Darin: I just think it doesn't really want to go much of anywhere. I think it's going to drop down $5, $10, and then bounce back $5, $10. It seems 80 is a sticking point at the top and 70 wants to act as support near the lows. It just seems like a range that the market's comfortable in right now.
Michelle: All right. Good news as always, or good stuff as always. Thanks so much. Darin Newsom with Barchart. 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.
