Earlier today I joined Michelle Rook on AgWeb's Markets Now to discuss the most recent action in the corn, wheat, and soybean markets. In addition, we talked about oil prices and interest rates. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now, I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Bar Chart. A lot of green on the board today in grain and livestock futures, a few exceptions like spring wheat, but crude oil is even back up a little bit higher this morning. Darin, let's start off talking about grains because we've had a pretty good rally off of the lows. All right, how much of this was fundamental versus just fun chart covering? You and I have talked about this subject before.
Darin Newsom: Yeah, that's a good question, Michelle, and I think it's important here in early September because we've got early harvest just starting to roll along. And so fundamentally, it doesn't really seem like these markets have any significant change. If we look at future spreads, they're still neutral. We haven't seen a change in any of the short-term spreads for the new crops, say Deese March corn or Novgen soybeans. They're still sitting and covering neutral level of calculated for commercial carry. Short-term, same story. We go out to the Deese July forward curve, same Nov-July in beans. There just hasn't been a lot of change. So to me, much of this has come from the non-commercial side. They were holding significant net short futures positions in both markets and all three wheat markets as well. So I do believe here in late August, early September, that's what's been driving these markets. What was interesting to me is as we closed out August, we did see long-term bullish reversal pattern on the Deese corn continuous monthly chart. Didn't get it on the cash index, did not get it on no beans or the soybean index. But as far as the weekly charts, the intermediate term charts, we saw bullish reversals across the board, corn, soybeans, three wheat. So again, it all kind of points to the fact that we've got some fun short covering going on in here fundamentally. It just hasn't changed to that degree yet.
Michelle Rook: Yeah. And we could have higher weekly closes again this week in corn, beans and wheat. And so we'll kind of continue to watch this because another higher weekly close in corn and wheat would actually kind of help confirm this trend, though, wouldn't it?
Darin Newsom: Yeah. In some of these markets, we've seen new four-week highs. And again, from a strictly technical point of view, and this is just a technical observation, is that the old theory is if you go to new four-week highs or lows, it just confirms the change in momentum. So as we see these contracts, particularly in some of the weeks, we've seen it early this week, as we see new four-week highs being posted, I just, again, as you said, it confirms the idea that momentum has changed for whatever reason. And a lot of it right now does seem to be driven by some short covering.
Michelle Rook: Yeah. And so we'll be watching the commitment of traders report out this afternoon to see just how much the funds have actually peeled off of that short, right?
Darin Newsom: That's correct. You know, because again, if we go from Tuesday to Tuesday, we saw Dec corn, Nov beans, the three Dec wheat contracts, all with solid gains for the week. Now, over in wheat, what will be interesting is if we get a, you know, I don't think it'll happen today, but we could see the fund position almost erase its net short that it's held for years and possibly start to move to some net long. This just seems crazy to say that we could almost see a fund net long in one or more of the wheat markets. Probably not this week, but if this sort of pattern continues, then in the not too distant future, I guess it's possible that that's what we start to see.
Michelle Rook: That's kind of the normal seasonal pattern, though. It coincides with when we put our harvest lows in, right?
Darin Newsom: That is correct. One of the markets, and you mentioned it right off the open, where, you know, I think you said Minneapolis was down a little bit. It's not a huge surprise heading into another harvest weekend, but seasonally, the cash index for spring wheat, its seasonal low is this Friday. Now, again, in the cash index, it looks like the actual low this time around came a couple weeks ago, maybe last week, but as you said, we've been building some momentum in here. We've seen the cash spring wheat market starting to move higher. We may have already seen the seasonal low, and so, yes, I mean, from here for the next few months, you know, as we move into planting season for the winter wheat crops and we have the spring wheat crop tucked away, yeah, this is the time of year when the wheat markets start to rally.
Michelle Rook: Gotcha. So, it can't be all technical, though. I mean, when you look at weekly exports, new crop exports for both corn and soybeans this morning, very strong, and so, these lower prices have started to stimulate some demand, right?
Darin Newsom: That's right. I mean, we've seen, again, it's just simple economics, things that people like to not pay attention to, but, you know, low prices tend to bring some buyers in. Now, what's interesting on the corn numbers for new crop, China still doesn't have anything on the books. Soybeans, it's not the case. They're doing their seasonal buying here. Again, remember, the first six months of the marketing year, for those who still believe in marketing years, account in marketing years, from September through February is when the U.S. sells and ships most of its new crop soybeans. That's when most of the business is done, and then at the end of February, interest flips over to corn, so it's not a huge surprise that we're seeing, you know, given the price of the U.S. cash market, particularly in relation to Brazil's export price, it's not that surprising that we've seen some more interest coming in for soybeans. It's nothing overly dramatic, but it certainly is an improvement from what we've seen the last couple of years.
Michelle Rook: Yeah, and hopefully, well, I mean, there's so many rumors about more China business coming at the soybean market, so hopefully some of that will be confirmed, but like you said, we are behind. We have a little bit of work to do there. The other thing is, as we start going into harvest now, we've got some early harvest coming out in both corn and soybeans. How hard will it be for the corn and bean market to get above some of these technical resistance areas we're now running into, because you also get harvest pressure, don't you?
Darin Newsom: Yes, you do, and so that's what will be interesting, and in the corn, it's basically every round number. So, you know, at the end of August, we were able to get back above 4. This week, we've gotten back above 4.10, so, you know, the next upside target is the next round number of 4.20, and I do think there's going to be some new crop selling as we go along. So, what will be interesting is what happens with future spreads, how much, say, on a Friday like today, how much pre-weekend commercial hedge pressure do we see? Do we see it kind of limit the amount of rally that we have on a Friday, and then we come back in on Monday after the hedging is done, after the weekend harvesting is done, and we see the markets push higher, maybe targeting the next round number? Similar situation in soybeans, though I think the hedge pressure is probably going to be a little bit heavier in soybeans as we go along week to week, at least over the next, you know, month or so.
Michelle Rook: The other discussion this week has been about South America and weather and dryness and like Brazil as they start planting soybeans versus crop corn. Is it too early to be concerned about that, Darin?
Darin Newsom: Concerned maybe, but is it too early to be paying attention to it? No, and we can see, and I know this is a very unpopular topic, but we can see what the market thinks, what the commercial side of the market thinks about or is registering its thoughts about Brazil's next crop if we watch, simply watch the May-July soybean spread. And that spread is still bullish, it's still covering less than 33% calculated full commercial carry. So, you know, if the U.S. is going to have a big crop and if we're going to see an uptick in demand for the first six months of the marketing year, what does a bullish May-July future spread then tell us about Brazil's crop? Well, there's some concern. I mean, there is some weather concern. There is some possible production concern, particularly knowing, you know, the U.S. and China are still in a silly trade war. So China is still going to be watching and keeping a close track of what Brazil's production is going to look like for 25. And so if the futures market and future spreads are registering, there's some concern. That tells us that maybe demand for U.S. soybeans is going to extend a little longer than its normal six-month window.
Michelle Rook: Gotcha. And let's talk about a couple of outside market things. One, crude oil. We did fall below $70 here in most of these WTI contracts. You know, is that something that we need to be keeping our eye on as well? I know it helps the inflation cause or the inflation argument, but what does it mean for corn? What does it mean for bean oil, biofuels?
Darin Newsom: The interesting thing to me about crude oil is that it is following its seasonal pattern just earlier and more dramatic than a normal move. If we look at, you know, both time and distance that the West, the West Texas Intermediate Market has moved so far, you know, it projects a potential low down near 66. So what is this with pressure coming from both fund selling and some commercial pressure as well? We've seen the we've seen the inverse in the nearby future spread week and dramatic over the last week, meaning, meaning that commercial selling it, despite the fact OPEC plus has pushed back its production, you know, potential production increases at least a couple of months. They're not going to be in any hurry, particularly before the U.S. election. That just isn't going to happen. So, you know, we have all these things coming into play, yet pressure continues to build. Seasonal pressure continues to build on the crude oil market. What might this mean for you, for the other markets, for the other grains, say for the grain sector? I think the biggest role that it could play is if we if we're seeing funds moving money around and they've grown tired of trying to get something moving in the energy complex and, you know, we're still we're still a number of months away from crude oil putting in a seasonal low. It could certainly bring some more money over into grains, particularly if we have those May July future spreads in both corn and soybeans, you know, leaning towards bullish long term fundamentals. That could certainly attract some some of the money that's been going into into the energies now to come out of energies and over into things like corn and soybeans.
Michelle Rook: Yeah, definitely. Money flow is something to watch. OK, finally, jobs out this morning, only one hundred and forty two thousand jobs created below expectations. Unemployment, 4.2 percent. We've had all of this economic data that the Fed's going to be using here this month to determine whether they're going to lower rates. Is it kind of a given? It's just how much they lower rates or what do you think?
Darin Newsom: Yes, to begin with, you know, I think the jobs debt is kind of the comic relief of the month in the financial markets. And we can always go back to what, you know, it's just statistics and we can always go back to what Mark Twain said about statistics. As for the upcoming federal open market committee meeting here on the 17th and 18th, the market has been telling us for months that it's expecting a rate cut in September. Is it going to be twenty five basis points? Is going to be 50 basis points at this time? It is kind of a this is kind of a draw. But if we look at the if we look at the Fed funds futures forward curve, always fun to say. But if we look at that, it's indicating it's most likely going to be a twenty five basis point cut. But with three cuts possible here in twenty twenty four, one at the end of each of the meetings in September, November and December. So certainly something to keep an eye on that. That's what the market's indicating at this point.
Michelle Rook: Right. Always appreciate your insight there, Darin Newsom, 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.
