Earlier today I joined Michelle Rook on AgWeb's Markets Now. We discussed the soybean, corn, and wheat. In addition, we talked about interest rates and gold. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Roque with Darren Newsom, Senior Market Analyst with Bar Chart. We're seeing grains and cotton all lower this morning. We're mixed over in the livestock futures. We have the stock market back up and crude oil lower. Darren, let's talk first of all about the grain trade. Corn and soybeans have been putting in some weather premium, but we're down pretty hard this morning. Is that a change in the forecast or just some end of week profit taking, do you think?
Darin Newsom: It's been an interesting week. I know there's been a lot of chatter about building weather premium back in, but I would counter that with a lot of what we have seen has not come from the commercial side, but it's come from the fund side. They were holding a sizable net short futures position pretty much in the grains sector as a whole. Last Friday's CFTC report, legacy futures only, showed that they had moved to a record large short futures position in soybeans. I think almost regardless of whether the stage was set for some short covering to occur in the soybean market, they pushed it quite a ways. Again, we haven't seen the commercial buying indicating that all of a sudden there's this huge concern over production and longer term supply and demand. There is still some concern, obviously, because we're just moving out of July and into August. I don't know that it was as widespread. Here we have Friday's session. We're seeing a little bit weaker. Again, fits the tone with what beans have been doing, up double digits, down double digits, and so on with that pattern. What really matters is where we close today, because that will set the tone. That will set the stage for the end of July numbers or the end of July settlements, which to me is going to be key this time around for both these corn and November soybeans.
Michelle Rook: Yes, and there is a possibility that they could close higher for the month, depending on what we do here next week. If they do, what would that signal to the market, do you think?
Darin Newsom: This is where things would get pretty interesting as far as from a technical point of view, because we saw both Nov beans and Dec corn set new lows for this long term downtrend that began back in the late spring, early summer of 2022. They've both extended those moves this month. Now if we see Dec corn close back above $4.20 and three-quarter at the end of the month, I know that's where it closed on Thursday, but what matters is if that's where it closes above at the end of the month and November soybeans above $11.04, then we've got some technically bullish reversal patterns that would tell us the long-term trends have changed, that we've gone from long-term downtrends and rolled over into long-term uptrends, which would be quite a switch. The last time we saw something like this, I think we could go all the way back to 2014, even though we did also see some longer-term uptrends begin, say in 2020 as well. This is more reminiscent of what we saw a decade ago.
Michelle Rook: Yes, no doubt. You're talking about the technicals and getting the funds to cover those short positions, but weather's going to be part of that. Even if we take profits today, maybe on a little water forecast, is it possible Sunday night, if this thing goes back to hot and dry, we could be off to the races Sunday night?
Darin Newsom: Absolutely. You and I have talked about many times, as I've said many times over the years, these markets are weather derivative. If funds are wanting to trade the weather, this is certainly where they'll position themselves. Theoretically, or as the old history goes, August is the month that soybeans are magically made. If all of a sudden we're looking deeper into August in the 6 to 10 day, 8 to 14 day and so on, forecasts continue to call for hot and dry, I do think that's going to lead to some additional short covering by funds. really, they've pushed this market. They push both markets about as far as they can right now, hitting some technical targets that have been in place. If we look at Dec corn, it hit a low of 403 this month. There's really no reason for it to go below four. There really wasn't much left there in the soybeans. The National Soybean Index had a long term target of 1026 over the last couple of years. We got down to 1036 here earlier this month. Again, looks like most of what was said and most of what the targeted prices have been have been achieved. If that leads to some short covering and possibly even some increased commercial demand, certainly seems like that's the stage that's been set.
Michelle Rook: Has there been farmer selling on this little rally that we've had here? What does the cash basis tell us?
Darin Newsom: Yes, a couple of different questions there. The cash basis for the old crop market. I'm going to go out on a limb here and say that there's probably still some old crop corn yet to move. We've seen some solid basis. We've seen merchandisers trying to wrestle some of those old crop corn bushels out of hands. Now, this past week, we've seen basis weakened, at least the national average basis weakened ever so slightly. Possibly as we get deeper into the summer, we're going to start seeing more of those leftover bushels moving to town, could possibly start putting some pressure on the on the corn basis. Soybean basis is a real mess right now. you're going to get reports of all kinds of things because we've got three different futures contracts working with August, September and November. the old merchandiser in me would probably just roll straight out to the November and then just track it from there. We haven't seen a great deal of strength in the soybean basis market and soybean fundamentals as a whole. Again, the cash index has improved 40 cents over the last couple of weeks. That really tells us everything we need to know about fundamentals.
Michelle Rook: Yes, and we've got August option expiration today as well. That probably prompts some of that rolling that you just talked about. What about the wheat market? Obviously, we've been struggling here because of, better spring wheat yields that we're seeing out of the wheat tour up in North Dakota. Winter wheat has also struggled because I think just better yields overall, don't you think?
Darin Newsom: Yes, I think there's, just there, that's what I've been hearing over the last number, month or better is that, when I talk to wheat producers, almost to a person, they would say yields were better than expected. That's the way they phrase it. Then, if you go back and, keep in mind what the history of this sort of thing is, wheat producers can be rather pessimistic. A lot of times they expect the worst when it comes to yield and rightfully so, given the conditions wheat's usually grown in. If it's better than expected, it just means it yielded something. If we look at the markets, we have, we still have bearish fundamentals in the soft red winter. In fact, we're making our way through the early part of the latest variable storage rate tracking period and neutral to bearish future spreads in Kansas City. Yes, I do think there's plenty of winter wheat supplies available right now to meet demand.
Michelle Rook: Okay, so let's talk about some bigger picture issues. PCE out this morning, 2.5%. A little bit higher for the month, but still below the 2.6 a year ago. The stock market's reacting to that. Does this give the Fed enough ammunition now to lower interest rates?
Darin Newsom: I don't know. I know, there's all kinds of talk, the Fed's looking at this statistic or it's looking at that statistic. I think the Fed still has its game plan in place. According to what the market thinks, what the market's showing us as far as Fed fund futures forward curve, always fun to say, we can still see that, right now the market's thinking that the initial rate cut will come in at the end of the September meeting, not necessarily next week as the July meeting comes to an end, I believe on the 31st, but pushing it back to the September and then possibly again in November. It just seems like everything's still in place. This really hasn't changed much over the last couple of months. Everything still seems to be in place for some rate cuts here in 2024 with additional cuts coming in 25. Then we can start stacking the statistics as we so choose, always keeping in mind what Mark Twain had to say about statistics.
Michelle Rook: Let's also throw in there the fact that the stock market has had a correction. We'll see how it closed for the month, because you're watching that, because it could be a bearish reversal. What would all of that mean for the ag sector?
Darin Newsom: This is where things could get interesting. Again, there's a lot of things happening here at the end of July. As you said, we're in position to see both the NASDAQ and the S&P 500 possibly post bearish reversals on their long-term monthly charts, just as Dec corn and November soybeans are in position to create, to complete bullish reversals on their monthly charts. What this would suggest, what it could be suggesting is that we start to roll, we start to see investors rolling out of some of their equity investments and into some commodities again. Now we've seen softs have a couple of really good years. We've seen energies haven't done much. Metals have jumped back and forth, possibly starting to weaken a little bit. This could be the opportunity for some investment money to move back into the ag sector, particularly looking at corn and soybeans.
Michelle Rook: Yes, because when you look at, like you talk about the softs, the metals, gold taking a beating here this week, do you feel like there's some reallocation that's already starting to go on?
Darin Newsom: I think so. Yes, I do. It's just because we've got weather changes globally. This is going to play into the softs market. We've seen coffee coming down. We've seen sugar coming under pressure and cocoa and so on. These are the markets that have just been screaming higher for the last three or four years. In the metals, we saw gold push to a new all-time high and then just collapse the last couple of weeks. It looks like there may be a reallocation in the commodity sector, not only in the commodity sector, but in the investment community as a whole. If so, and we happen to see these reversals in place that could occur in both corn and soybeans, it could start to attract some money, could start to attract some attention from investors. The long-term future spreads are not bullish, but they're not bearish. I think that might be enough to start bringing some money back into the ag sector.
Michelle Rook: It's a very interesting discussion, for sure. All right. Thanks, Darren, for your insight as always. Darren Newsom, Senior Market Analyst with Bar Chart with MarketsNow.
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.
