This morning I joined Michelle Rook on AgWeb's Markets Now to discuss the corn, wheat, and soybean markets. I also talked about the cattle markets, the recovery in the stock market, the US dollar, and crude oil. WATCH THE INTERVIEW HERE.
Michelle: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior market analyst with Barchart. We are seeing grains quietly mixed this morning. Soybeans have been to the plus side, but both corn and wheat have been on both sides of steady, and we've seen two-sided trade over in the livestock futures as well. Darin, I want to start off with the corn market because we're flirting with the two-year lows, with the recent September low. If we take that out, where do we go? Why are we seeing so much pressure? Is it just because of this big crop that we have?
Darin: Yes. Michelle, I think that has a lot to do with it. You're right. It was interesting. Thursday's close in this corn, I think it was about $470, something like that, was the lowest daily close by that contract since late September 2021. As you said, overnight, we were flirting with this September's low price of $467.75. Got within a quarter-cent, and then it held. I always find that interesting when a contract gets within one tick of its previous low and finds some buying interest.
Now, there hasn't been a lot of activity in corn, certainly still low trade volume, so we'll see how Friday plays out. Where might it go if it takes out that $67.75? I have doubts that there's many algorithm orders sitting below that mark. I think, if anything, we could drift down towards $460 based more on corn's characteristic round number reliance than anything else. Corn likes to drift from round number to round number. Now that we've broken through $470, it certainly opens the door to $460.
Where's the pressure coming from? We've got a little bit of selling coming from the commercial side. We saw the Dec-March close at a carry of $0.15 on Thursday. Basis continues to firm. That's only because merchandisers still need to push the market a little bit, particularly when futures are lower to get enough supplies to meet demand. We've got some exports going on. Not huge, but we've got some exports, and we still have cattle to feed.
I'm not looking for an absolute collapse in the corn market. You can find buying at any time. It's sharply oversold. It just feels like it's still heavy. We do have a larger crop than what some were anticipating. We knew we had more acres going back to last February. Everything we've known for most of this year is just coming into play at this point.
Michelle: I agree with you, harvest and hedge pressure there because the farmers I talk to say corn yields may be under last year, but they are better than they thought they were going to be, so maybe a few extra bushels coming to the marketplace. It's been frustrating as well to watch corn go down, while soybeans this morning are actually making some new highs for this move, took out in the January some resistance area. A lot of this has been because of some of this export business, right?
Darin: Yes. We're making export sales. Every morning we can look at the market and see where January tends to gain on the deferred issues and whether or not it happens initially in the overnight session or like this morning, where overnight was pretty flat till early Friday hours.
Then we saw January spark to life, whether the buyers are coming from the Eastern Hemisphere or the Western Hemisphere. So we are making sales.
Now, the reality is, as of the latest weekly export sales and shipments report, total sales which is total shipments plus unshipped sales is still running 28% behind last year's pace. Last year wasn't anything to brag about. We're still 28% behind that pace. This is our six months. This is the six months when the U.S. tends to make most of its sales and make most of its shipments in soybeans. We expect basis to firm, we expect future spreads to show a commercial-size interest, but the bigger picture is it's still slow. We still don't have a great deal of demand. The world's largest buyer's still predominantly pulling and buying from Brazil. We'll see how long it lasts, and if Brazil starts to run tight on beans.
Michelle: Yes. Of course, there's been a lot of talk this week about China may be washing out some beans from Brazil and maybe buying more beans from the United States. Some of this might just be more trading on the rumor than the fact, right?
Darin: It's possible. Again, if we think about the reality of the situation, China's not going to dump Brazil to buy U.S. beans, it's just not going to happen. There's just too many political reasons. There's too many market reasons for that to occur. China has invested heavily in Brazil and Brazil's soybean crops and supply. They're not just for sake of a few pennies going to change all that. I think a lot of times in this industry, folks look for anything to be bullish about, talk about that could be on the bullish side, and a lot of times it's just not reality.
Michelle: Like you said, we did get 4.8 million bushels confirmed this morning on a flash sale, but those sales or that sale went to unknown. We'll see if we get more China business as we go forward. The fact that we've taken out these resistance areas now on the charts, Darin, can we keep going, or where's the next area we're going to run up into chart resistance?
Darin: What I thought was interesting was January beans taking out the four-week high during the overnight trade. Again, it happened during Friday morning's trade. To me, that was interesting. It should spark some continued non-commercial buying, if not commercial as well. How much higher can it go? it's got some room. It's not an oversold market, excuse me, an overbought market yet. There's still room to the upside for January to run. Then, to me, I find that interesting. We haven't seen a great deal of change in future spreads, but right now this seems to be driven by basis, meaning merchandisers are looking to get some supplies covered to meet some of this export demand that's going on at this point.
Michelle: Good point you make there, but the funds aren't very long. I guess if they want to stretch this thing, technically, they probably could. The wheat market, we were up a little bit yesterday. Like I said, we're seeing mixed trade, a pretty quiet trade in the wheat market here this morning. That
market, I feel like we're a broken record talking about what the problem is in that market. I know there's been some discussion this week about maybe some China business coming in there, and we've seen a little bit of business, but what do we need to get this market going?
Darin: I could use the famous Jack Nicholson line from when he played the Joker and say this market needs an enema. Really, it needs a complete washout. We have way too bearish supply and demand in soft red winter. We have the de-smarts. Even at the higher storage rates and interest rates, that spread's still covering 78%, almost 80% calculated full commercial carry.
The March-May is out, more than 70%. It's 72% as of Thursday's close. The bottom line is we just have too much wheat at this point in the U.S., we don't have much demand. Exports are still basically non-existent. We have to see some sort of global change where all of a sudden there's demand for U.S. wheat again. We see it spot here and there, but as long as the Chicago soft red winter picture remains this bearish, it's going to be hard to get anything to move in either Kansas City or Minneapolis.
Michelle: We actually scored contract lows earlier this week in both of those other classes you mentioned, right?
Darin: Yes, we did. I know there's a lot of folks that, again, they can't help themselves. They always have to find something bullish about everything. When you've got a contract like December Kansas City and December Minneapolis, both making new contract lows, the bullish argument falls a little bit flat. We aren't seeing a lot of commercial buying coming into the market.
We're not seeing a lot of spread activity. The one outlier that I'll say is Minneapolis spring wheat basis has firmed considerably. It's jumped here the last couple of weeks. This tells me that some spot demand, milling demand, whatever it might be now that harvest is done has been picking up and merchandisers are pushing this market trying to get some of those supplies to meet demand.
Michelle: This market has given no respect to either of the conflicts that we have going on in the globe.
Darin: Yes, and it shouldn't. The global supply and demand situation, the deck has been reshuffled and, so far, the U.S. has been left out. All we have to do is look at our latest weekly export sales and shipments and there's just nothing moving out of the United States. The world is happy to source its wheat from somewhere else. Wheat can be grown just about anywhere, and right now the U.S. is basically just left out of the picture. Until that changes, it's going to be hard to switch the mood of the market from bearish to bullish.
Michelle: Yes, so demand, demand, demand, or poor demand. Cattle market. We had a nice close yesterday, filled the chart gap areas, and actually closed above those areas, but we're struggling just a little bit this morning. We're waiting for cash trade there, right?
Darin: It looks that way to me. Cash market's been very slow to develop. I had a friend in the industry tell me earlier this week, it may not happen until after
Friday's close, which isn't hugely unusual for the cattle markets, particularly this time of year. We have seen some movement in the boxed beef. I found Thursday's price is interesting where choice added a couple of dollars and select was down three to four dollars.
This put the spread at I think something like $31 between the two. That's one of the larger spreads that we've seen recently. It certainly tells us, as strange as it sounds, with all of the gloomy talk about the economy that right now steaks are in and hamburger is out at least short-term. We'll see how long that lasts as we come up on holiday season. Maybe the mood there changes.
Michelle: Yes, no doubt. Choice-Select spread, as you point out, a little over $30 yesterday. What about the stock market recovery, though? That seems to have helped fuel some of the psychology to be a little bit more bullish for that market.
Darin: Yes, it certainly does. We had three monthly lower closes in the three major U.S. stock indexes. It's what I like to call the Benjamin Franklin's fish similarity where the fish and gas markets start to stink three months going against the trend. The trend is still up. The long-term trend of the U.S. stock indexes are still up. The fact that it was down three months didn't really surprise me all that much. Now what matters is what happens here in November.
If we can continue to build some momentum here, I know it seems like investors were-- they liked the news coming out of the U.S. Federal Open Market Committee meeting where they put interest rate hikes on hold for now. Then the language associated at the end of that meeting saying, if the economy starts to struggle, we could be looking possibly at the end of rate hikes. We're not talking about rate cuts anytime soon. There were some things that lit the fire here in early November. Again, the key will be if it can maintain this sort of momentum, this sort of enthusiasm. Again, it's November 3rd. There's a lot of month ahead of us.
Michelle: No doubt. The Fed decision also seemed to have an impact on the dollar reversing. We're down hard this morning. Do you see that trend continuing as far as some pressure on the dollar?
Darin: It could. I've been bullish the dollar for a while, and here early in November. If certainly looks like, if nothing else, it's putting in an intermediate-term top and dropping quickly. Now we'll have to keep an eye from a technical point of view. I don't have the number in front of me, but as it gets close to its four-month low, that would be a key reversal to me, particularly when we're talking about a long-term investment market like the US dollar, like the euro on the flip side of the coin.
We're going to have to keep a close eye on this because maybe this caught traders, maybe this caught investors a little bit off guard, the fact that the Fed was willing to wait, even though that was the general consensus. Now we'll see what happens in December. There's already talk the Fed might not do anything in December either. If so, I do think that is going to keep some pressure on the dollar to close out the year.
Michelle: It seems unlikely that they would just take another pause here, but we'll see. Crude oil in the meantime
has really had a big retracement as well. Do you see that trend continuing?
Darin: The biggest thing in the crude oil market to me is it's bouncing all over the place. We'll see days when it's down a couple of dollars and then it's up two to three dollars. It really hasn't been one of the leaders given all the conflicts going on in the Middle East and so on. What is really interesting to me with the crude oil market is, when it rallies, it's not coming from the commercial side. In fact, we're seeing the inverse in future spread and the back spreads as well actually starting to weaken. I think yesterday they dropped. They were two dollars. The inverse was at two dollars a month or so ago and it's down to 30 cents.
This tells me that supply and demand has eased a little bit despite, again, all the global tension. Not hugely surprising this time of year, but what's going to happen is we get deeper into the winter. If there actually gets to be some concern over supplies in relation to demand, that will change. Right now it's just showing traders the commercial side really isn't concerned about it at this point.
Michelle: Been interesting to watch that market fall with what's been going on over in the Middle East, though, for sure. Thanks for joining us. Darin Newsom, senior market analyst with Barchart, and 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.
