This morning I spoke to Michelle Rook on AgWeb's Markets Now about the corn, wheat, and soybean markets. We also discussed today's U.S. jobs report, gold, crude oil, interest rates, cattle market, and the hog market.
Michelle Rook: Welcome to Markets Now, I'm Michelle Rook, with Darin Newsom, senior market analyst with Barchart. A lot of green on the board this morning with the exception of the cattle futures. Darin, let's talk first of all about the grains. Corn market is higher this morning, but how much of that is the wheat market and how much of both of those markets are just seeing short covering?
Darin Newsom: I think most of it's short covering, Michelle. I don't see any fundamental change in these markets. Today, Friday, is the first day of Goldman Roll. A lot is made of that, sometimes more than necessary, but certainly with funds holding net short positions across the board in the grain sector basically, there's going to be some short covering. We've seen it by looking at open interest changes.
I think corn, the last two sessions on Wednesday and Thursday, lost 25,000, almost 26,000 contracts of open interest, similarly in wheat. Again, I just see this as some short covering, nothing to get overly excited about. We'll see how long it lasts, because again, we just haven't seen a fundamental shift. Future spreads, neutral at best in corn, bearish in wheat. We're probably going to stay that way heading into the weekend.
Michelle: If you look at both corn and wheat, since we're talking about this being a short covering push, we have not been able to get above the 50-day moving averages here in the corn market. I think we're above the 20, but we keep hitting resistance is all I'm trying to point out, on the charts?
Darin: Be it real or not, real or imaginary, it's always fun to talk about. The algo writers that I've chatted with, I've visited with, they don't really look at the 50-day, they look at a lot of things. It is interesting, the way that the 50-day has acted as resistance for the corn market in particular. If nothing else, we don't have a lot to watch on Friday, so if nothing else, we can certainly see how the May and July contracts act in regard to those 50-day moving averages and give us something to visit about over the weekend.
Michelle: Of course soybeans were down yesterday, were up a little today, probably what, following corn and wheat? Because part of yesterday's problem seemed to be poor exports again.
Darin: Those export numbers that we got yesterday, they were for actually the previous Thursday, so pretty much baked into the markets. We just know that there's not much demand, it's seasonal, that we're seeing a slowdown. Again, that doesn't take anyone-- it wasn't a huge surprise to see that we're not moving many soybeans. What I found interesting about Thursday's session in the soybean market, with the lower close, we also saw open interest increase. With funds rolling and with all that's going on over the next few days and as far as the non-commercial side goes, it still seemed like there was some fund selling in soybeans.
Again, that's just not bullish. Maybe early Friday at least, I like to call it what looks like a vacuum trade, particularly in wheat, but also in soybeans. There's just no sellers right now. You get a few buy orders come in and you just find this area where it just is able to pop a little bit. It doesn't really change anything, but what it would probably do, particularly on the soybean side, is find some commercial selling.
Michelle: No doubt. What about weather? Because we do have some rains forecasted for the weekend in portions of the Southern Plains and Midwest, but really it does look like we're going to get a pretty open window after that for planting. That should start being maybe a little bit negative to the market or not?
Darin: I would think so. I think it could start to put some pressure on the new crop markets, particularly beans and corn. Again, everyone's going to be watching to see what happens. We know the Southern Plains is going to get some rain. We know the conditions there for the hard-ready winter crop has been better than what we've seen in years past. We can see that in the future spreads, both the July CEP and CEPDs running at bearish levels of calculated full commercial carry. The interest will be in what happens with corn and soybeans now.
Because we still have some drought readings running from northern Minnesota down through northern Missouri, and over into Wisconsin as well. Will these storms, if we see enough of them line up, will they start to alleviate some of those readings? Will they stay in place? Will we continue to have some soil moisture problems? I think these are going to be the issues that are going to be either helping to support these corn and beans over the coming weeks and months, or starting to put pressure on them again.
Michelle: Let's also talk about some of the outside market influences on the grains today, perhaps. Although the dollar index is higher today, is that in reaction to this jobs data, which came in a little bit, maybe hotter than expected, do you think?
Darin: The jobs data is always good for entertainment and not really much information, particularly when you measure it against what the "experts" are always guessing [crosstalk]
Michelle: You know I'm poking at you, right?
Darin: Yes, I know. You know me well, Michelle. I get a huge chuckle out of these numbers. Do I really think it's moving the dollar? No, I think the dollar's been under pressure the last couple of days. Again, we could head into the weekend with a little bit of buying. There hasn't been anything changed in the market. The Fed governors are still saying the same things they have been saying for the last number of months.
We'll see how it all plays out. Gold has been incredible, has had an incredible run. The question is, is it going to try to put in a short-term top, or simply is the trend going to continue to move higher regardless of technicals, regardless of what else is going on in the market? Just trend just extending itself. We'll have to keep a close eye on that. As far as other outside markets, it was interesting that Brent crude got above $90 on Thursday for the first time since last October.
Michelle: Do you think that crude oil market, is it just been putting in some Middle East war premium with concerns about that, or is this an inventory situation? Because I know inventory has been going down a bit, hasn't it?
Darin: I think it's more of a seasonal play than anything else. There always seems to be some sort of issue in the Middle East. The fact that I think the market can absorb most of that, I don't know that it's going to really threaten global supplies all that much. We'll see. There's always the possibility of a chaos event somewhere along the line. To me, this is more of a seasonal play. We're just seeing demand pick up. This is driving season. We see more use of crude oil and crude oil products. The fact that we've got West Texas Intermediate going up, Brent crude going up, and distillates and gasoline as well. It's just really no surprise. It's just that time of year.
Michelle: Darin, I'm going to poke you again. Since crude oil is back up to levels we haven't seen since last October, is that another factor that may throw water on the Fed pulling back on these interest rates as soon as everybody thought?
Darin: It could. Certainly they're taking it into account. Certainly they take some of these moves and commodities into account. I still don't see that as a dramatic move, enough to really change the long-term plans. If we look at the Fed fund futures forward curve, they're still telling us there probably wasn't going to be a move till at least June and that forward curve can change over time.
Last reading, it was showing us that the first cut could come in June. That could change. Again, it doesn't really deviate that much from what the Fed has already said, what Chairman Powell has already said. It'll be interesting to watch. I'm not really going to say, I really don't think that this rally in crude oil, this seasonal move in crude oil, it's going to change the long-term plans all that much.
Michelle: Got you. Usually when we talk about the economy, we talk about the cattle market, but that's not really what's been influencing that market. We're down here today. We continue to see these high path avian influenza concerns in dairy cattle that continue to spread even into humans. Is this the funds taking profits, and will they continue to push this market down here because of the uncertainty?
Darin: I think so. I think that's the risk in live cattle right now, particularly in the live cattle market. What we've seen is live cattle coming under a great deal of pressure. It's the heavier traded of the two. When we watch the spreads throughout the day, when we watch the market throughout the day, we're not seeing nearby contracts. For the most part, we're not seeing nearby contracts lose ground to deferreds. This tells us it's really not coming from the commercial side. There's really not this panic that we're going to lose demand in relation to supply.
This is coming from funds tied to headlines, and they were holding large net-long futures positions in live cattle, and a long futures position in feeders. The fact that they're getting out of some of that based on the headlines isn't a huge surprise. Now I will see how far they drive it, because at the end of March, long-term charts, long-term monthly charts were indicating that trends had turned down. There is that to consider where we have to keep an eye on long-term trends as far as the industry goes, and it looks like the cattle market may have topped out.
Michelle: Yes, and it looks like the funds might be piling over into the hog market, which is currently making new contract highs.
Darin: It's always interesting to watch the flow of money, because again, I think that's key to understanding the trends of these different markets, and it'll move out of one sector or out of one set of markets and into another. It certainly seems like hogs are attracting some buying interest, possibly coming out of cattle. We've seen selling coming in the grain markets and moving over, with money moving over into the energies and softs, and these sorts of things.
These things can switch around and they can change their paths. Right now, it certainly looks like money's coming out of cattle, moving into hogs. It'll skew the spreads, certainly, and we'll have to see how the cash markets react, because a lot of times, what the defense is for the commercial side is to weaken the cash market in relation to what's going on in futures.
Michelle: Cash has been really strong. Cutouts have been really strong on the pork, and so hopefully that's an indication of demand and we can keep going.
Darin: That's right.
Michelle: Thanks for joining us, 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.
