This morning I was interviewed by Michelle Rook on AgWeb's Markets Now. We discussed the most recent action in the soybean, corn, and wheat markets. In addition, we talked about the cattle market and the stock market. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. Well, grains are mostly lower this morning, slightly lower I would say. We're mixed to lower over in the livestock as well. I don't know, will we stay down throughout the day here today, Darin, in the grains? That market, we can't go down. We've been very resilient, but yet we can't get above some of these resistance levels on the charts.
Darin Newsom: It's an interesting mix right now. We've seen these markets try to rally, but let's take December corn. It moves from round number to round number and it couldn't get through $4.20, and so we've dropped back to $4.10, dipped our toes back below that. We've got non-commercial short covering coming in, so we've got some buying there. This group's not really willing to go long at this point, but they're just getting out of the short positions they've held for a couple of years. We've got that support.
On the other side, we've got a sizable harvest continuing to come in, so that's putting commercial pressure on the market. What it leads to, it's just a stalemate. We can see that in corn, soybeans, and even though it's not harvest time, we can see it in the wheat markets as well as the Chicago, Kansas City hard red markets, just happy right now to be moving sideways. Now, technically, we could make a bullish argument almost across the board in the grain sector at this point, at least on weekly charts. Again, it's just not drawing new buying in, it's just the covering of old short positions.
Michelle: Yes, and you don't think that the funds have really any interest in going long in the grains here?
Darin: I don't, not right now anyway. all this investment money is being created by the continued uptrends in U.S. stock markets, and that money's going to be looking, if it's pulled out of stocks, if it's rolled out of stocks, some of it's going to wind up over in the commodity sector and the commodity complex. What these investors are going to look for are long-term bullish supply and demand situations. We can see this in forward curves and future spreads. Right now, the grain sector just doesn't have that. It's the soft sector that remains in the spotlight.
We can pull almost any of the markets from cotton to sugar to-- Actually, cotton is probably the least bullish fundamentally, but from sugar to coffee to cocoa and all the rest, they're all showing inverted forward curves. This is going to draw some investment money. Grains, again, they're just not there. It could get there. We could see some changes, particularly as we start to take into account some of the weather events that are expected to happen here over the next week or so, with Tropical Storm Helene moving onshore as a hurricane, and then the remnants of that moving up into the Midwest, delaying harvest potentially.
Michelle: Let's talk about weather, because all the grains are off of their contract lows, and we've had a pretty good rally here prior to harvest in the row crop sector. I guess, has that market been putting in weather premium, and what is the Brazilian situation or how much of that has been the Brazilian drought?
Darin: I don't know that there's been a lot of weather premium built into these markets. I think what we're seeing again is just funds getting out of some of the grains markets because they're going to make money elsewhere. They've had a very profitable last few years riding these long-term downtrends. At the end of August, we saw them starting to get out and that's continued here through September. Now, as we start to talk about the La Nina and Brazil and possible drought and adverse weather, we can see the effects of this in the May-July spreads for both soybeans and corn.
In the corn market, it's still bullish. It's still covering a bullish level of calculated full commercial carry, less than 33%. In the soybean market, it's just outside that bullish range, I think covering something 34 or 35%. This is where the market is indicating that there is some concern. The commercial traders are keeping a close eye on what's going on in Brazil as we get through planting season and moving into growing season, south of the equator. I do think that's where the interest is going to be. If it continues to worsen, if we see those spreads grow more bullish, then I think that could potentially draw some of this investment money into the corn and soybean markets.
Michelle: Yes. You think the Brazil weather situation is important. You mentioned the hurricane. Obviously, it could slow the harvest of corn and soybeans, maybe because some damage there. Is that something that the market's even trading or should it be trading it?
Darin: They're not trading it right now. In corn, we've seen the Dec-March move out to something like a 60% calculated full commercial carry with bearish levels at 67%. In soybeans, that Nov-Jan spread's moved out to 62%. Right now, the commercial side is not overly concerned about-- They're not really looking and talking about production reductions and all these sorts of things. We still see basis hanging around lower levels over the last five years.
The market's not overly concerned at this point. Could it be? Yes. If this thing turns out to be worse than expected, if the remnants change course and go further west than what's being projected right now, then yes, these are all things that could happen. We'll certainly have a better read on it going into the weekend and then coming out Sunday night into Monday morning.
Michelle: Yes. Like we've said, we haven't seen a ton of harvest pressure. We're early in the growing season, but since we were talking about weather with the flash drought that we had in a lot of areas to end the season, we are getting some reports, at least on soybeans, of yields that maybe aren't as good as expected. Do you think the market is trying to price some of that in right now?
Darin: No, not at all. I don't think it cares. these are all just reports. Again, we're actually seeing the Nov-Jan spread cover more calculated for commercial carriers. That's the answer right there. Basis is still neutral to weak. We've got the Nov-Jan future spread and the Jan-March not doing much either. We can say, "Oh no, yield isn't going to be as good as it was expected to be." So what? What's demand doing? What's the overall supply and demand situation? What this is telling us is, okay, maybe we're not going to have the production, but we also don't have the demand right now.
Now, as having said that, I do know that the US is making sales. We can see that in the weekly US sales and shipments updates. Again, the world's largest buyer is simply just getting some of its secondary supplies covered, certainly not doing anything extraordinary at this point, waiting to see, again, what develops in its main supplier down in Brazil, what that situation turns out to be.
Michelle: You bet. China and their economic stimulus package, since you just mentioned them, do you think it is going to have much bearing on the market? Will it bring demand to the market? I know we tried to trade it in cotton, soybeans, and hogs already this week.
Darin: We saw a non-commercial reaction where we saw some investor buying coming in on these three markets. Again, they weren't going long in these three markets, but they were covering some existing short positions. We didn't see anything change fundamentally. What that tells us is right now the commercial side just doesn't think it's going to lead to a great deal of purchases.
We have to remember, we found ourselves in a silly trade war, and that doesn't change just because China's trying to stimulate its economy. It's going to be buying things, but it's going to be buying commodities from other places. It's going to be getting its secondary supplies from the US. Let's remember, it has a dismally small amount of corn on the books for 2024/'25. It's basically non-existent. This could change, but it's all going to depend on Brazilian weather. I don't see it as a big commercial play, at least not at this point, unless something changes again in Brazil.
Michelle: Got you. The cattle market has had a nice run here. Like I said, we're mixed here today, or we've been back and forth, but the fact that the stock market has been rallying, it looks like the meat sector has been tied to that. Do you expect the meats to be pretty well supported here?
Darin: This is an interesting development. One of the things that I always find interesting when it starts to happen, this is what I call a Rubber Band Disposition. We've got funds buying into cattle, particularly live cattle, on the idea that it is going to find some support from the extended uptrends in the U.S. stock indexes. There is a link between those two sectors. On the other side, we've had commercial traders selling. We've seen the cash market struggling a little bit. After testing 190 for the last number of months, the live cattle index dropped down to 181. I think it's climbed back to 183, 184 over the last couple of weeks, but still showing signs of a long-term downtrend.
We've got the commercial side turning a little more bearish, and we've got the non-commercial side trying to be bullish. This is stretching the proverbial rubber band, and eventually that rubber band breaks. When that happens, it tends to snap back to its base, which is the fundamental side. The further these two sides get apart from each other, the more dramatic the break could ultimately be.
Michelle: Do you think we're going to see a lot more money pile, since you mentioned the stock market, a lot more money pile into the stock market as these interest rates continue to go down?
Darin: I think it's a possibility. It's going to be a self-feeding effect at this point. Some of that money is also going to be looking to go over into the commodity complex, just to spread it out, not to put all of the eggs in one basket. When that starts to happen, these investors are going to be looking at markets that have long-term bullish fundamentals. In that, we'll hear what we're looking at simply is future spreads and forward curves. Right now, it's the soft sector that's dominating, is again, most of those markets are showing some sort of inverted forward curve. We can also look at crude oil. Crude oil has a very strong inverse backwardation, for those of you in the New York area. Again, it's going to draw some attention and it's going to start to bring some of that investment money being created by U.S. stock index uptrends. It's going to bring some of that over into commodities, just not grains at this point.
Michelle: All right. It'll be interesting to watch where the money does flow. Thanks so much, 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.
