Earlier today I was interviewed by Michelle Rook on AgWeb's Markets Now. I discuss the reasons why the wheat, soybean, and corn market remain weak. I also spoke about the cattle market, interest rates, 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. Are grains back lower here this morning and the livestock futures leaning lower except for feeder cattle? Futures have seen a little bit of two-sided action. Darin, I want to start off with the wheat market only because that market has been making new contract lows. Let's talk about the pressuring features. Obviously, we still have pressure from Russia in the market. Is weather part of it or not?
Darin Newsom: I think weather is probably the biggest part of it. I think the world has adjusted to the fact that Russia invaded Ukraine. They're not going to leave, they're going to stay there, they're going to continue to do what they've been doing for the last couple of years. The weather really seems to be the issue now. Much so, we've seen a good crop come out of Australia. I can't remember if I actually heard it was a record crop, but I did hear that it was a good crop coming out of Australia. That's immediately going to put some pressure on the US soft red winter market.
Now, we look at the weather forecast and there are rains expected, stretching from the US Southern Plains all the way up through the Midwest. That'll cover both, at least parts of the hard red winter and soft red winter growing areas over the next few days, possibly through the weekend. I think all of this has worked together to push July Kansas City and July Chicago wheat markets to new contract lows here at midweek.
Michelle: No doubt, plus we're following [unintelligible 00:01:25] milling wheat futures, which have also hit new lows. I think Russia's selling for now under $200 a metric ton. We were waiting for that to happen. They're pretty relentless. The low prices, they don't care how low we go, do they?
Darin: Not at all because some of that grain, obviously, they didn't grow themselves. They have no cost in it except for what it takes to transport it out of Ukraine. They're going to move it. They're going to dump it to their friends on the global market. It's just not going to change. As we've talked about before, the global supply and demand situation, the cards were reshuffled and dealt out. The US still seems to be largely left out of the hand.
Michelle: Corn market lower yesterday. It looks like we're drifting here this morning. That's after we did have a higher week last week. Is wheat part of the drag on the corn market or is there just no reason for that market to rally?
Darin: All the way around and well said. There's no reason for the corn market to rally at this point. We've got a pretty good handle on what the old crop supply and demand situation is at the end of February. We saw our available stocks to use had grown considerably from not only the previous month, but well beyond what we saw a year ago at this time. We know we've got plenty of supplies to meet demand at this point. Are exports still solid? Yes, but then we also have to take into account ethanol and feed. Those are the two bigger demand categories. Then when you figure in, you've got wheat putting pressure on the market as well. There's no golden lining to this. It's going to all of a sudden rally corn, 15, 20 cents at a time. There's just no reason for it to move. As we look out towards new crop, that same weather pattern, we have seen some soil moisture deficits continue to grow across the Midwest, particularly east of the Missouri river. Now, that's the area that's supposed to see most of the rain over the coming day. That could put a little bit of pressure here on the new crop market. We'll have to keep a close eye on the Dec-March future spread to see if they start to build some carry.
Michelle: I was just going to ask you if weather was part of that, you answered that. That may be a little bit of what we're seeing in soybeans. Also soybeans, a big part of it is just that Brazil, we keep seeing harvest pressure from them. At the same time, we're not selling really exports of behind, we're not selling to China either, are we?
Darin: No, we're not. We could compare this back to last year in the corn market, except for there's a big different. Last year in corn, we didn't have as much production, so we didn't have the supplies. We could say the same thing about US soybeans this time around. The difference is basis in corn last year was very strong, basis is not strong in the US soybean market at this point of the year.
That tells us that there's really still no demand, even though we have tighter supplies. Again, the available stocks to use at the end of February had climbed. China's buying everything they need right now from Brazil. Brazil had a good size crop, so they don't need to buy from the United States. There's still this silly trade war in place. As long as that continues, China has no incentive whatsoever to buy from the United States.
Michelle: The meal market has lost a lot of its ground as well, which was part of the reason we had the rally last year, wasn't it?
Darin: It was. We did see stronger demand for soybean meal. We know Argentina had a small crop in 2023. It looks like it's improved here in 2024. Soybean meal exports are still running ahead of where we were a year ago, but again, it's not a great measure to look at. Overall crush, if we look at those numbers, we're running somewhat ahead of last year, but it doesn't offset the amount that we're losing in export demand year-over-year.
Michelle: I do want to quickly go back to talking about cash grain just because we do have a lot of grain out in the country yet to sell. Do you think that we're going to have routine selling or are we going to have a washout at some point?
Darin: I think at some point, again, a lot of it it's going to depend on what happens here over the next 30 to 40 days. If we continue to see typically old crop corn, both cash and futures continuing to go to new lows, I think we're probably just going to see a washout. We're going to see some capitulation. Everyone's just going to say, "Okay, we're opening the bin doors, and we're going to haul it to town, and we're just going to get rid of it."
If we start to see a little rally, I think it's going to be a bit slower move. I think there's going to be targets, something like what we've seen over the last week to 10 days, where the corn market gets a little bit of a rally, gets close to those next round numbers that generates some selling, that sort of thing. Also, a lot of this is going to come down to how funds position themselves. I do think it's going to depend on how the market moves. If we continue to go to new lows, I do think it opens door to the washout.
Michelle: What about the cattle market? Obviously, we got up into some chart resistance here earlier this week, but if you look at a chart, we're pretty range-bound right now, aren't we?
Darin: We are. It's a good way of putting it because if I look at the charts and if I take a technical look at particularly live cattle, to me, they look a bit top-heavy in here. We haven't seen the cash indexes or the cash markets move with the nearby futures, so that's created a weak basis. Now, we've seen live cattle shrug this off before, and they've gone ahead and gone higher. To me, it just feels like this market's a bit top-heavy. We're either going to have to see the cash market come up to meet futures or futures come down to meet cash. I'd be a little bit concerned.
If I could lock in some profits with some put options, volatility is still low in the live cattle market, despite everything that's been going on. It looks like there's an opportunity to at least protect some downside if this market starts to break. Then we have to figure in US stock indexes. March is seasonally a downtime of the year. If that starts to put some additional pressure on live cattle, again, just with so many other markets, it seems to open up the downside.
Michelle: I would agree with you that the futures are waiting for the cash to catch up here. There's a little concern as well, don't you think, Darin, with the packers slowing these kills that maybe we back up a few cattle or not?
Darin: It's an interesting situation, packers slowing down their kill at a time when demand for beef tends to pick up. Now, what does this say about US economy? If they feel like they can slow kill, that's going to be an interesting dynamic to watch play out because we've also seen over the last year, maybe two years at this point, where producers themselves are backing up the cattle, they see those stronger deferred futures prices.
They're feeding them, the cattle are getting larger, they're moving them larger, they're holding them longer in the feed yards, and they're trying to take advantage of those deferred futures contracts as best they can. We're seeing it from both sides, and we'll see if that ever catches up with the market.
Michelle: You mentioned outside markets like the stock market having a seasonal correction in March. What else are you watching here? Gold made new highs and backed off, and we're still watching the crude oil market.
Darin: Right. Crude oil is also a seasonal move. What's interesting there is the energy sector as a whole is really struggling to build their seasonal uptrend that we normally see. Future spreads are still showing that a lot of those markets are still bullish. I think that's certainly something to keep an eye on. As you mentioned, gold going to new highs, that's always an interesting read. Just here today, we've heard Fed Chairman, Powell, talking about there's probably little chance of a rate cut.
We know it's probably not coming here in March, and everyone seems to be so shocked by that. If we look at the Fed Fund futures, that's exactly what it's telling us, not to expect a rate cut until at least June. That could change as well, that could back up as well. I'm not really sure where all of the shock and awe is coming from, all of this hand-wringing, but it's fairly evident that the market's not pricing it in, at least the the Fed Fund market isn't pricing it in.
Michelle: Thanks for joining us, Darin Newsom, Senior Market Analyst 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.
