This morning I joined Michelle Rook on AgWeb's Markets Now to discuss the action in the corn, wheat, and soybean markets. I also spoke about palm oil, the cattle market, and the energy market. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst for Barchart. Grains mixed this morning with corn and wheat lower, the soybeans are a little bit higher, and so is the cattle market and crude oil. Darin, let's talk about soybeans first, finally getting above the $12 mark here on the May contract. Has this all been fun, short-covering activity in that market or not?
Darin Newsom: I'm going to say the bulk of it has been. We've seen a nice rally. We saw some technical bullish signals established over the last couple of weeks, both on the short-term daily and intermediate-term weekly charts. I think we've got a little bit of money changing hands, mostly just covering the short positions at this point. We can see commercial traders continue to sell. If we look at the May-July spread in the soybean market, we've taken out its technical target of 12.5 cents carry. It's moved out to 13.5 cents carry at Wednesday's close. Still covering a neutral level of calculated full commercial carry, but it's getting further away from a bullish reading.
Michelle: Bean oil seeing just a little bit of a pullback today, but has that also been part of this rally, Darin, because we have had quite a run here following probably palm oil.
Darin: Yes, that gets lost in the shuffle quite a bit. It's what's going on in the rest of the oil seed complex. They do seem to be sharing the baton. They hand it off one to the next. We've got palm oil that's made a good move. Then it was followed by bean oil. Occasionally, bean meal will step in. Canola continues to act strong. We know that soybeans are the largest market, and that's the one that everybody looks at. It's not as bullish in soybeans, but it could still ride the coattails or still follow these other markets, at least short-term, once they start to move higher.
Michelle: Yes, and as we speak, we are seeing bean oil try to push back into the green, and meal is higher this morning as well, so products are probably helping out. Let's talk about the wheat market. We are down this morning, and certainly, there's been talk of China cancellations. Is that it, or is it just that Russia continues to dump wheat on this market at bargain barrel prices?
Darin: I think it's all of the above. We have seen some cancellations by China. Last week they were doing some US soft red winter. They were canceling. There's rumors that they're going to be doing some hard red winter, as you told me before we went on. There's also the possibility they're canceling some Australian wheat and some other purchases that they've made, some French wheat possibly. It's just in the name of the game. We know it's closely tied to Russia. Russia's got not only its wheat supplies but also what it's stolen from Ukraine that they're dumping on the market at bargain basement costs. World's buyers are going to take notice of that, and they certainly seem to be.
Michelle: Of course, weekly exports this morning, a marketing year low, I think just a little over 3 million bushels. We knew that with the cancellations that we had last week though, didn't we?
Darin: Yes, we could see last week when some of the markets were really struggling beyond the news of the cancellations. We've still got a weak basis, particularly in the two winter markets, so we know that export business isn't all of a sudden just screaming higher, and it is struggling. We're into the last quarter of the marketing year for the wheat market, so yes, I'm just not seeing anything outstanding, as far as what's going to be, this next bullish wave in wheat, where the buying interest or anything that's going to come from.
Again, with so many markets, it seems like most of the support has come from non-commercial short covering, and that may have run its course. We've seen them reduce their net short futures position in Chicago by a great deal, and so now they may feel like, they can either move to the sidelines or start putting some of that back on.
Michelle: Yes, so since you mentioned that, corn market is obviously seeing some fun short covering as well, but we've gotten up into some chart resistance areas we couldn't take out. Is that the reason that we're setting back here today, or has wheat dragged this corn market down?
Darin: It's possible that wheat is weighing on corn. Corn is such a larger market, so much larger than the wheat market, and you're right, we've seen the different corn contracts rally. We've seen both the May-July, and I believe the December, testing 50-day moving averages. Now, whether or not that actually means anything anymore, I don't know. It all depends on what's written into algorithms, but from a technical point of view, they've gone up there, they couldn't break through them, they couldn't close above those marks, and it's left, short term, it's left in the market overbought, which does open the door again to a little bit of pressure.
If we see some farmers selling or some producers selling coming in after this rally, we could see some commercial pressure start to build. I find it interesting, watching the spreads, as I always do, what's going on with the March-May as the March gets ready to expire today, in relation to what the Dec-March did, as the Dec contract went off the board a couple of months ago. There's a lot of interesting things going on in the spreads, indicating, again, the commercial side of the market's not overly bullish, and they're actually leaning a little bit more towards the bearish side, meaning we've still got plenty of supplies to meet demand.
Michelle: It's interesting that you say that, because when we talk about the commercial side of the market, the end users, we did have exports this morning, 50.5 million bushels, so that's a pretty good demand factor. Mexico bought almost 4 million bushels this morning. Are we at a level that looks like it's a value for end users, though?
Darin: I think when we saw the cash market drop as far as it did, that certainly brought some buyers back in. Again, if we look at our available stocks to use, we're still well over 13% and far above where we were a year ago at this time. Again, that comes with an asterisk. A year ago, we simply didn't have any corn. We had short production. We know we've got a better crop. We had a better crop in 2023. It's carrying over. As we make our way through 2024, we still have plenty on demand. Exports are the smallest of the three legs of demand for US corn, the major concern continues to be feed demand, and ethanol is a constant, but we really aren't seeing anything extraordinary there either.
Michelle: Yes, so we do have some acreage estimates that have started to come out now, Darin, ahead of the big reports at the end of the month. What are your thoughts about acreage and the shifts that we might see? You and I don't think have talked about that.
Darin: Yes, the acreage is actually pretty simple and I don't really consider them big reports. I consider them funny reports at the end of this month. If we watched the Nov 24 soybean, Dec 24 corn spread from the beginning of September through the end of February, we saw that soybeans were buying acres away. It was just that simple. The spread was strong. It favored soybeans, and in fact, the closest year, and I don't believe strongly in analogous years due to chaos theory, but the closest fit of a year to what we've seen in 2024 spread is 2014. At that point, back then, a decade ago, we saw US producers plant 8.5% more soybean acres and 5% less corn. Am I saying that's what we're going to see this year? No. Do I think we're going to see more soybean acres in relation to corn? Yes, because that's what the market was telling us all fall and winter long.
Michelle: Interesting way to look at it as always. Okay, the cattle market, we've made some new highs for the move again here in the live cattle futures. Obviously, we know supply has been part of the push here, but really we are seeing demand push this market too, aren't we?
Darin: We are. We've still got good demand, going on. We can see that in boxed beef. We've got select gaining on choice, which again hints at the idea we're getting into grilling season. We're looking more towards the hamburgers and lower cost of cuts of beef. Again, we also know that inflation is still a little bit of a bugaboo that folks are fighting, and so that is going to favor the lower-priced beef.
Bottom line, demand is still strong. Packers have cut kill rates, so supplies are tightening a little bit. We also see, producers holding cattle longer in the yards. Still, they've been doing this for over a year, because they like those deferred futures prices more than the nearby. That's been attracting, pushing these cattle back as much as they can. It's an interesting mix of supply and demand factors right now, but the bottom line is, yes, demand stays strong, and we're entering that time of year where it simply continues to strengthen.
Michelle: Yes, definitely there's a seasonal play there, and since we're talking about seasonals, crude oil moving above $80. Is that all a seasonal play too, and how much farther will that market go?
Darin: I think it's a majority of a seasonal play and we've just entered that time of year, there's more driving season, there's more demand for crude oil products at this point. There's also, obviously, some global activity going on. As you mentioned, Ukraine is striking Russia with drones, and so that could possibly disrupt some of the global energy markets as well.
From a domestic point of view, yes, this looks to be a seasonal play. We've seen RBOB Gasoline lead the charge. It's been the most consistent mover as far as to the upside, both crude oil and diesel fuel, which is the distillates market. We have one big week up, and then we sell off, and then another big week up. The end result is the markets continue to go higher as it's its normal pattern, but it's just been very choppy, much choppier than usual.
Michelle: Yes, no doubt, kind of a grind. All right, thanks for joining us. Darin Newsom, Senior Market Analyst for 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.
