This morning I joined Michelle Rook on AgWeb's Markets Now to discuss this past weekend's disappointing rains and how it's affecting the corn, soybean, and wheat markets. In addition, I discussed the cattle market, the U.S. dollar, and the Federal Reserve's probable interest rate hike later this month. Watch my interview here.
Michelle: Welcome to Markets Now. I'm Michelle Rook along with Darin Newsom, senior market analyst with Barchart. We're seeing mostly higher prices this morning except for the cattle complex. Let's talk about the grain trade first of all, Darin. Soybean's the leader here. Corn, I don't know if it's a follower, but both seem to be trading or maybe disappointed about some of these weekend rains.
Darin: Yes, it certainly seems to be what it looks like. I think you're right when you say corn's probably a follower overnight through early Monday morning. The bulk of the rally did seem to come initially from the soybean market. It's always interesting this time of year. We can watch what happens on Friday as markets trade forecast going into the weekend, and Sunday night into Monday. They trade what actually happened over the weekend. At first glance, it certainly looks to be some disappointment over the rains that did occur this weekend.
Now, we'll settle back in to where we're looking at forecasts. The latest 6 to 10 day that I saw still calls for cooler-than-normal temperatures and at least normal precipitation for much of the Midwest. At some point, I think we're going to turn the page on this past weekend. Overnight trade volume wasn't heavy. That's also something that we have to keep an eye on. It wasn't one of those like we've seen recently where all the traders were anxious to get back into the market Sunday night. This didn't seem to be the case this time around.
Michelle: Is the sense right now that this crop is at least stabilized for the time being, especially when you see what's happened now with the fund community coming in and taking a lot of that length back out of the corn market?
Darin: Yes, that was interesting. Last Friday, CFTC's propositions as of Tuesday, July 4th, showed non-commercial traders reduced their net long in corn by 67,000 contracts or something like that. 40-some thousand of that was new short positions being added. This is different than if it had just been long liquidation. When they're adding new shorts, it means they are indeed growing more comfortable.
Who knows what the supply is actually going to be. Maybe we have more acres, and certainly looks like weather's been beneficial, but I think demand is still a key issue. We're just not seeing that much of an upswing in demand. Again, if we look at all three legs of domestic demand heading into the next marketing year, I think there's serious question marks on all three of them being exports, ethanol, and feed.
Michelle: Yes, absolutely. Exports were again not very good on Friday's report. Let's talk about soybeans as well, though. Is the market maybe a little bit more nervous about that market just because, supposedly, we have less acres that we planted here now, and maybe this stock situation is going to be a little bit tighter?
Darin: Yes, it's possible. If we look at the future spreads, soybeans are by far in a way more bullish than corn. The only spread in soybeans that has any bit of carry is the Nov-Jan, and that's still a small carry. Everything else is inverted, so there's still some concern at least for the 2023/24 marketing year.
That acreage number, who knows if it's right. It certainly seemed to catch the market off guard whenever it was released there at the end of June. I do think that's been a consideration. The market while bullish, fundamentally, I don't know if it's that bullish, 4 million acres less than last year bullish, but we'll see how it all plays out. Weather-wise, it still looks like the long-term forecast is favorable for soybeans. Certainly looks like El Nino has moved in. Again, that would indicate that yields should be better. It does come down to what was actually planted and what gets harvested.
Michelle: No doubt. Demand picture's just a little bit better there. The products have certainly been driving this. At least the soybean oil market has been very strong, hasn't it?
Darin: Yes. We've seen the handoff of the baton back and forth between soybean oil and soybean meal every other week or so, every couple of weeks. It does look like it's a product, a lead rally at this point. We have seen crush picking up. Export, still a little bit questionable. We seem to be falling further behind last year's pace with each week that goes by. Pretty soon, we're just going to run out of weeks here in 2022/23.
Even though we do have tight supplies, there's not a lot of demand again except for some domestic crush that does seem to be picking up as we're looking to move more soybean meal and produce more soybean oil.
Michelle: Yes. Brazil continues to be a pretty tough competitor for us with that big crop down there, doesn't it?
Darin: Yes, it does. We knew this was going to be coming along because, again, this is the effects of El Nino. We saw the rains move into South America late in their growing season. It produced what's been called a record crop. If the weather patterns now have changed for North America as well, I think the idea is maybe we're not going to have record production but we are going to have increased production over what we've seen in the last few years when it's been hot and dry. That'll be interesting to see what actually plays out over the coming months, but it certainly has had an effect with soybeans supplies and their availability to move it.
Michelle: Soybeans always keeping an eye in as well on what's going on with China. They've been buying from Brazil, but our relations with China have not been very good either. Obviously, we've had a meeting with Yellen over there. What was your take on the outcome of that?
Darin: One of the things that we do know, the situation between the US and China probably can't get any worse given the ongoing trade war and the falsehood of Phase I. Any steps might be viewed as progress. I just didn't see a lot coming out of the weekend, out of the meetings last week. There was some chatter about how things could be getting a little bit better, but a little bit better still isn't good.
There's still a lot of room to move on both sides, so I don't see a lot happening. Maybe there's some algorithm-buying based on the headlines alone, but as we get deeper into it, I just don't think much has changed. I think that's going to be a longer-term problem.
Michelle: That's right. We'll see if Secretary Yellen in fact can make any progress going forward. All right, what about the wheat market? Is wheat a follower of corn and soybeans this morning or is it putting its own weather premium in here because things are not exactly peachy with the spring wheat crop right now?
Darin: I think it's trading on its own. We saw all three markets rally overnight, and then right before intermission, all three markets moved back into the red. Spring week did seem to find some mine overnight. Again, I think much of the US northern plains missed out on the bigger part of the rain this past weekend. Now, they are expected to get some more here over the next couple of days, so we'll see if that starts weighing on the September contract.
Fundamentally, the Chicago market remains the most bearish of the three. We've seen strong carries in those future spreads, so I don't think that's going to change. I think that's going to keep a little bit of lid possibly on the buying enthusiasm in Chicago wheat, any possible spillover activity from corn and soybeans. In Kansas City, I think we've seen the market react to news of yields just aren't there, then all of a sudden it just turns around like last Friday and falls flat. We'll see what direction the commercial traders want to take it next. If they're doing some edging or if they just stay out of the market for now and give it some room to the upside.
Michelle: We had a big update on Friday in the cattle market. We're not seeing a lot of follow-through this morning, I would assume somewhat because of the corn market being up, Darin, or where do you see that market going right now?
Darin: I think some of it's probably tied with corn. If we look over at the live cattle market, the biggest thing is we continue to see weakness in the box beef. I'm not saying box beef is collapsing, but I think it has tried to establish its normal seasonal top in here. Buying for grilling seasons going to start to slow. We know supplies really aren't there, but it just seems like some of the demand's starting to go away as well. We're seeing losses or lower prices reported almost every day in both choice and select.
If we start to see a top in the box beef market, I think the cash market itself is going to have a tough time pushing higher. If that's the case, futures could be looked as a little bit top-heavy in here as we've talked about before, certainly an opportunity for it to move a little bit lower. There's certainly a lot of room underneath this market given how quickly it rallied.
Michelle: Let's talk about some of the outside markets because the market is starting to at least buy into the idea that maybe we're going to get this fed increase in interest rates later this month.
Darin: I still like the fact that the fed's out front running its meetings by saying, "Look, this is what we talked about. This is what it looks like." Chairman Powell's out saying, "Do not be surprised if the Fed raises rates couple more times, maybe consecutively yet this year," but yet what was interesting is the US dollar fell 90 points on Friday. Maybe it didn't mean much, but it found a little bit of buying overnight through Monday morning.
That was a pretty big selloff. We haven't seen the dollar put in a long-term bottom yet. Maybe it will over the coming months, but it certainly hasn't yet, even though, again, we're talking about more interest rate hikes to come.
Michelle: All right. Thanks for joining us. Darin Newsom, senior market analyst for 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.
