Earlier today I was on AgWeb's Markets Now with Michelle Rook. We spoke about the soybean, corn, and wheat markets. In addition, we discussed the U.S. dollar, crude oil, the stock market, and cattle prices. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now, I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. We're seeing a lot of red on the board this morning with a few outliers, including crude oil and the wheat market, which is a little unusual. Darin, when we talk about the grains overall, it has been really quiet, hasn't it.
Darin Newsom: It really has. There's just nothing out there really to get folks excited about, the grain sector in general. I guess as I was watching this morning, the big thing to me was looking at the July corn contract with most of the open interest moving over to July, took out $4.40 and from a technical point of view, that puts its next target down near $4.30. If this market's going to find some buyers, maybe it has to drop that dime again and see if there's anything sitting down there. The commercial side is still providing a little bit of support. We've seen basis continue to firm here through the spring, and I think a lot of that has to do with merchandise. You're still wanting to lock in some supplies, knowing that we're going into a busy planting season. Getting some supplies locked in short term. In the longer term scheme of things, supply and demand still is not bullish. there's still no fresh news out there to spark much interest and certainly not enough to spark a round of short covering by the non-commercial side, which kept thinking it was going to happen and it just doesn't look like it's going to, at least not this week.
Michelle Rook: Yes. Lack of weather issues is really another thing that's allowing especially corn and soybeans to drift, don't you think?
Darin Newsom: I think so. when we look at the latest 6 to 10 day, we get past this cool period here this weekend and things are supposed to warm up and there's supposed to be more rains over much of the plains and the Midwest. As you and I were talking about before, a lot of these storm systems just simply haven't panned out here over the last couple of weeks. As we look at things like the drought monitor and U.S. soil moisture maps and these sorts of things that the problem areas are still showing there are problems. Again, we're getting midway through the spring, meteorological spring here as we hit the midpoint of April. They just haven't we just haven't seen much improvement. As we go forward, I think this is going to get some more attention. Just it isn't right now.
Michelle Rook: Yes, no doubt. We actually got some rain in some of the areas of the Western Corn Belt that were dry. Rain makes rain mentality maybe. Let's talk about weather as well, because do you think that some of the forecast for some of these cool temperatures coming in is part of the reason that the wheat market is higher on its own this morning?
Darin Newsom: I think it could be. I think there's certainly that play in the market. Again, we have to remember wheat is the cockroach of the grain world. You have to kill it a dozen times before it dies. We've seen these frosts before. We've seen freezing temperatures before here in late March and so on. What's happened as we look at the new crop winter wheat spreads, both the July, September, December in both Kansas City and Chicago have moved beyond the bearish 67% threshold calculated for commercial carry. They're both at 70% or more. Both spreads in both markets are above 70% now. What the commercial side saying is, Okay, maybe there's maybe there's been freezes. Maybe there's been drought. Maybe there's been this. There's been that. There's no concern right now on 2024 supply and demand. I think that's the that's the bottom line. In the old crop we've got for both markets, we've got weak basis. In the new crop for both markets, we've got bearish future spread. I think that speaks volumes. Our funds possibly doing some covering here ahead of a possible freeze. Yes, but I don't think it really changes the attitude of the market all that much.
Michelle Rook: Yes. Let's also talk about weekly exports this morning, maybe a little bit low on corn and then wheat. The cancellations that we had in old crop was China. Did the market know about that or not?
Darin Newsom: Oh, sure. Yes, the market knew. These numbers are a week, two weeks old when they're released on Thursday mornings. Remember, this is for business at the end of the week ending Thursday, April the 11th. It's a week ago today. It's all the way up to that. Yes, we could see it in basis. We could see it again and how the new crop spreads were acting because besides weather, besides the possibility of what 2024 production might be, now we're adding bushels with larger carryover from the old crop marketing year. Yes, the market was telling us supply and demand is simply not an issue, be it increased ending stocks, beginning stocks or a larger production in 2024. There's just no concern right now about supply and demand.
Michelle Rook: Yes. I also want to talk about the Middle East conflict and the geopolitical, I guess, money flow moves that we've been seeing. Interestingly enough, grains have not participated in any of that. Are there other markets right now besides crude oil that might have been putting in some of that premium or gold probably as another one?
Darin Newsom: Yes, those are the two plays. What's interesting here, Thursday, we're seeing both of them rally. U.S. dollar index is stronger. I find it a very interesting combination with the U.S. dollar index stronger, wheat going up, gold going up and crude oil showing gain here early Thursday morning. I think as we get closer to the weekend, I think you're seeing some of these funds and some investors in general looking for some sort of hedge against the possibility of renewed chaos over the weekend. What they're doing is they're buying some crude oil. They're buying some gold. We tend to see this towards the end of the week and then hold it through the weekend, see what happens. What's been the standard operating procedure is getting out of the crude oil contracts once the next week starts. The headlines are either as bad as what everyone was afraid of or didn't quite match up with what was expected. Then they start getting out of those crude oil contracts again. On the other hand, they just keep buying gold. What's interesting here is that it's central banks around the world, but particularly in China and Russia that continue to buy gold. This tells us we have to that we also have to look for more chaos, more turmoil, more geopolitical problems around the globe. I guess that makes sense, geopolitical around the globe. We have to look for more of these problems continuing to escalate as we make our way through 2024.
Michelle Rook: Yes. What about though? There have been some contra-seasonal moves. In fact, you put up a chart on X talking about distillates or diesel fuel is starting to make a little bit of a contra-seasonal move, right?
Darin Newsom: Yes, that's interesting to me. That really jumped out at me this morning as we saw a sell-off heading into Thursday and then overnight through Thursday morning that the market extended its break. At that point, the spot month distillates contract was down 15 cents for the week. If we continue to muddle around down here, the market could post its lowest weekly close of 2024. To me, that just that really that really jumps out because, again, this is a time of year when we see the energy sector in general rallying and particularly we also see that in distillates and it just hasn't been able to do it. It's just been capped throughout 2024. The most we haven't hardly been able to string two higher closes based on weekly charts together since the beginning of the year. It's been an interesting development, certainly a fun market to watch.
Michelle Rook: Yes. What's your thoughts about the equity sector? Because we've had a couple of tough down weeks and, some of that could be interest rate concerns again, maybe like you said, this geopolitical thing. Overall, do money flow at some point here coming out of the equities, maybe going over into the grains or where is it going to go?
Darin Newsom: Right now, could we see a few weeks, if not months of the of the U.S. equities moving lower? Yes, they got a little bit top heavy up here. Everything was hitting new all time highs. At some point, the money does start to slow down coming into the market. It's just making money on itself. Now, as far as rolling money out of equities into other markets, I think some of the money that's being made in equities is moving to other homes. When they start looking at the commodity complex, they look for those markets that have long term bullish fundamentals. By that, which ones have inverted forward curves. Really, it's been the soft market, their weather derivatives, just like grains of weather derivatives. We've seen we've seen cocoa move. We've seen coffee move. We've seen sugar move in the past, all of these markets related in some sort of some degree to weather problems around the world. Will it go over into grains right now? It doesn't look that way, even though if we look at some of the other markets in the oil seed sector, say soybean oil and soybean meal, at times they show pretty good inverses in their forward curve as well. I think there's a possibility of some of it moving over into the grains sector. There just isn't a market right now that just jumps out and says, look, we're going to we're going to take money away from this soft sector move and could always go over into energies and certainly seems to be finding home in metals as well. Grains are just a distant thought at this point.
Michelle Rook: Yes. Darin, do you think that the meats are vulnerable to maybe liquidation because the funds are still long there with what's all going on in the market?
Darin Newsom: I think the meats are a bit vulnerable, again, similar to the stock indexes. I think they got a bit top heavy. In fact, on some of their long term monthly charts, they are showing that they've established the long term downtrend. I think we have to be careful here with funds still holding a large net long futures position, particularly in live cattle. We've seen cash weakened. We've seen boxed beef weakened. It looks like even though this again, similar to what we were talking about with this, even though this is a time of year when demand for beef is that, is at its strongest with grilling season and all that here in the United States, it seems like demand may finally be slowing. These higher prices of beef are finally starting to have an effect. We have to be very careful with the markets up here as it looks like there is some downside risk.
Michelle Rook: Yes. The meats don't like uncertainty either. We have plenty of that creating volatility. All right. 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.
