This morning I joined Michelle Rook on AgWeb's Markets Now to discuss the recent action in the corn, soybean, and wheat markets. We also talked about surging crude oil prices and the cattle markets. Watch my interview here.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, along with, Darin Newsom, Senior Market Analyst for Barchart. We are seeing mostly lower prices here as we go through the early portion of this session, with the exception of the wheat market. Darin, post WASDE now, this market, as far as corn and soybeans, really focused in on what we're going to get off the combine, right?
Darin Newsom: Yes, that to me is the key here. We haven't done much of anything this week. We've got futures under a little bit of pressure. We've seen future spreads hold steady for the most part, and basis has been weakening in both corn and soybeans. It just seems like everybody's gearing up for harvest to see what actually starts coming in off the combines, and in short-term, merchandisers are expecting some bushels to be sold.
We can see that again in what's going on in the basis markets, and demand remains slow. Right now, we are in that time frame, particularly in soybeans, where we do tend to see export business pick up, but it has to happen. If it doesn't happen here over the next six months, US is probably looking at quite a-- We're looking in a far more bearish situation, once we get past February.
Michelle: How much harvest pressure do you anticipate we're going to see? Have we put in a pre-harvest low now, or are we yet to find that?
Darin: I don't think we found it yet. If I look at the cash charts, again, one of them that I've talked about for quite some time, even though I don't believe in analogous years, the cash corn index is following relatively closely a very similar pattern to what it did between 2010 and '14, here so far between 2020, and so far in 2023. If that's the case in 2014, the cash market didn't bottom out until July.
We didn't post a low monthly close until July. That tells us that there's time and space, possibly, for cash corn to continue to move lower. Why would this be? Well, again, we've got bushels coming in. We knew we had more acres planted again at the end of February. We knew corn acres were going to go up. Now, if we still don't have demand, if we don't have a lot of feed demand, if ethanol demand is in question, and we can't get exports rolling here over the next few months, then I just think there's going to be continued pressure.
It just looks like it's flattening out here. It's looking for a reason to move lower, and if the December contract takes out its contract low of 473-and-half, then I think it opens the downside.
Michelle: I was just going to ask you about that 473-and-a-half-low because we went down, tested it our report day, and we held, but you don't think it's going to hold?
Darin: No. It's an interesting technical pattern. We've got a flat bottom around there at 473-and-half, and we've got descending tops. Now, I know technical analysts will argue that it's a bullish wedge. Some will say it's a bearish wedge. To me, we're just chewing through those buy orders, as sell orders continue to accumulate on top of this market, and eventually, you run out of buy orders there at the lows, and so you break it down.
If we look at what the range was between the 507-and-a-half and 473-and-half, we've got 34 cents. From a technical point of view, that if we break that support, then we-- Again, a technician would say, "We've got 34 cents quickly to come off this market."
Michelle: Yes, I know 450 has been pretty long-term support area too, so we'll see if that would hold as well. What do you think about yield? Obviously, there's a lot of farmers that felt like yield came down Tuesday in the WASDE, but that it needs to come down more. Do you think that's the case?
Darin: I don't think it matters. Heck, I'll say, "Okay, let's make everyone happy." I'll say, I mean, national average yield is 120 bushels per acre. It doesn't make any difference. What matters is, how the market views it. Right now, we've seen that these Dec-March future spread hold pretty steady at about that 14 cent carry level, covering about 44%, 45% full carry.
If we were really concerned about yield, I think we would see some commercial buying coming into these spreads. We would see merchandisers pushing to try to get some coverage for deferred spreads, and later on in the marketing year, and we're just not seeing it. Again, yield doesn't matter. Overall production numbers doesn't matter. What does matter, is the supply and demand situation as a whole.
We don't get those numbers from USDA. We do, but what we get from USDA is just imaginary. If we look at what the market's telling us, they're not overly concerned with what national average yield is or acres, or this sort of thing. They're looking at the big picture. How does supply relate to demand?
Michelle: Right now, demand, we have some work to do, don't we?
Darin: Yes, we really do. As we came out of the 2022, 2023 marketing year, it wasn't going all that well. Exports came up way short of last year. We knew they would. Now, as we head off into the new year, there's not a lot of sales on the books. In corn, we still haven't seen a much of a rebuild on the cattle herd. Feed demand's still in question, and ethanol demand.
If gasoline continues to go up, following crude oil, and then distillates, what's going to happen with ethanol demand over the next three to six months as well? It's a pretty tricky picture right now for corn demand domestically, and in exports.
Michelle: What about soybean demand, though, Darin? Do you think that it is good enough right now to keep us above $13, or do we stay above that level, at least, till we start seeing, if South America's going to get planted, and then we wipe this thing out?
Darin: I think if we're going to wipe it out, it's probably going to be before South America gets completely planted. Again, from a purely technical point of view, it looks like November beans should take out the 12-- I think it was a 1,282 low or something like that from a number of weeks ago. That would certainly be the target. Then, we'll see what gets planted? What the early conditions are, as far as weather conditions are down in South America, particularly, Brazil.
The key here, the wildcard was domestic crush, I mean, we were going to need to continue to see a solid domestic crush taking the place in the soybean meal market of Argentina. Now all of a sudden, Argentina is looking at putting its next crop in, and we really haven't seen a huge uptick in exports for soybean meal, it's still solid, but it's not making up all the difference for what we're losing in soybeans.
Then, on the other side, the US crush demand was supposed to pick up for domestic soybean oil use. Again, maybe it happens, maybe it happens this next year, maybe it's the next year down the road, but that's really going to have to be what saves the US soybean industry at this point, is we're going to have to get this increased crush demand going.
Michelle: What about the wheat market? We're up a little bit today, is that all technical in nature? Do you think we have a chance at bottoming this market, or did we on Tuesday with those reversals that we saw off the contract lows?
Darin: Really, the only thing that I've seen in the wheat market, particularly in the Chicago wheat market, is some non-commercial short covering, and that group is still holding a relatively large, short futures position in Chicago. Fundamentally, that market is a train wreck, we've got bases that are almost 88 cents under December futures.
We've got the Dec-March futures spread covering 100% full carry, we've got the CMEs, VSR, the higher maximum storage rate going to go into effect next week.
It's going to move from 5 cents per bushel per month to 8 cents per bushel per month. There is absolutely nothing about that, that is bullish fundamentally. To me, it looks like we bounced about 470 on the weekly chart, this is going to look like a typical-- Wheat had fake, if somehow, Chicago wheat closes higher. I really don't see any reason to get overly excited about the bullish side of wheat at this point.
Michelle: Well, it looks like we've got some better planting conditions for HRW areas too, so that may be part of it. Let's talk about cattle. All-time highs yesterday, and live and feeder cattle futures. That thing has just been methodically correcting, and moving back into those highs. Do you see anything that could stop this rally, because the supply is so, so tight?
Darin: I really don't. It's interesting, you mentioned the supplies, because if we look at the future spreads, they're not overly bullish. This would tell us that there seems to be plenty of supplies, even though, again, we're not seeing the numbers when they're actually released. This continues to be an incredibly strong rally. As you mentioned, every time it looks like it's getting ready to top, it eventually moves to a new high within the next couple of days, next couple of weeks.
It just comes back to something I always say, "A market that can't go down, won't go down," and we might not know why. We can certainly see the cattle don't want to go down right now, and they just can't go down. Again, I don't want to be the one selling this. I'm going to let it run, and if I've got some cash cattle to sell, I'll just sell it into the market. We could also be buying puts, but again, at some point those start to add up as well.
You've got a solid cash market. Last I heard was still in the 179, 180. We do need to keep a closer eye on boxed beef. It's looking a little tired, up at these levels, as we move out of grilling season. We'll see if that starts to put any pressure on the market, but right now, I still don't want to be the first one selling.
Michelle: You mentioned the cash trade, and we actually had some 180 to up to 187 yesterday in the north. Darin, I haven't seen much out of the south, but at least that northern trade is really pushing the market here, or it did yesterday. Hog market, we're going to skip that for this morning, but let's talk about crude oil, because we got above $90. We're back below it at this morning, but is this a chart breakout that we've had here recently, and where do you project us to go from there?
Darin: If we look at the long-term monthly charts, we've seen some bullish breakouts in both. We've obviously gotten gasoline, but we've also had it in crude oil and diesel fuel, which is also jet fuel and so on. They've gone to new four-month highs, and I can't remember if it was late July or early August when that actually happened, but it did confirm that the majority of the energy sector has moved into long-term up trends.
Now, let's see how long it lasts. Again, fundamentally, if we look at the spreads, they're all in backwardation. They're all inverted. We know we have bullish supply and demand heading into fall and winter. We know supplies are still tight in relation to demand, and now it seems to be, we're drawing some investment money in as well. It looks like we've got a pretty bullish structure across the board in the energy sector, and it's going to be hard to put a top in these things.
We also know OPEC+ is not going to stop its production cuts anytime soon. I think right now, they're scheduled to last at least through December, and then they'll probably extend them on some more off in 2024. What will make this interesting is, if the US Federal Reserve raises rates again here in September, but bumps it up another quarter point, and the US dollar continues to firm, will this weigh on some of these commodity sectors?
We've already seen it start to put some pressure on gold. We could argue that some of the grain and oil seed markets have also been struggling, but energies and livestock, and these other markets really have just shrugged it off to this point.
Michelle: Yes, but we had that bear CPI this week, and so that may tip the hand of the feds. We'll see if that happens next week. Thanks so much. Darin Newsom, joining us, 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.
