At the end of last week I joined Michelle Rook, on AgWeb's Markets Now. We discussed the soybean, corn, and wheat and markets. In addition, I spoke about interest rates, the US dollar, gold, and the cattle markets. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior market analyst with Barchart. We ended mostly higher on Friday with the exception of a few of the soybean contracts. Darin, I want to talk about the wheat market. It was the price leader. Was there anything fundamental that pushed that market higher today, or was it just some short-covering activity because we are getting into the end of this year?
Darin Newsom: It's interesting because if we look at the way March/May spread acted, the first thing that jumps out is that this had to be some commercial buying. I'm still not convinced of that. Yes, the March is running away from the May. It has been here for most of the last couple of weeks, but if we look at the open interest numbers, we see that total open interest in Chicago continues to drop. What I'm thinking is going on is the funds held a net short of almost 100,000 contracts just a couple of weeks ago.
What we've got is just some heavy non-commercial short covering here at the end of the year. Fundamentally, we have seen some sales made. We're certainly not in a bullish supply and demand situation, but it's moved away from bearish into neutral so there's really no reason for funds to continue to hold the size of short position that they had. Leads to some covering and in the lower volume holiday-type trade, this allows the market to jump higher.
Michelle: It seems like every time we get these pops too, there's some rumors of China business.
Darin: Yes. I find it interesting ever since we got into a trade war with China that all the talk has been that China's going to save-- First it was going to save our soybean market, then it was going to save our corn market, now it's going to save the US wheat market. So far it hasn't done any of the above. Until we actually see demand for US wheat pick up and there starts to be a shortage worldwide of the various wheat classes, then maybe I'll change my attitude on this a little bit. Right now I don't see it really as a fundamental move. Basis is still a train wreck, national average basis that is. Right now, to me, it just looks to be some fun short covering. Once they get that done, then we'll see which direction they want to go next.
Michelle: Fun short covering. Same is true in the corn market, you think?
Darin: I think so. Again, there's just no reason to really do much in the corn market. Fundamentally, it's neutral. We've got basis neutral to bearish, we've got future spreads holding in neutral territory, we've got enough supply to meet demand. Since it's not a bearish situation in funds, we're already holding a large net short. Again, we're coming up on the end of the year. There's likely some profits in those positions, so they might as well pocket them and then wait to see what happens.
Given what's happened with the Fed and the US dollar this week, we can see that investments are rolling out of cash and they're going to be looking for other homes. Most likely right now, it looks like it's going to be in treasuries and equities, and not so much commodity. If you've got some profits made in the commodity sector and there's really no fundamental reason to continue to hold those positions, you might as well lift them before the end of the year. Then look to get over into equities, into bonds, and into some other market sectors.
Michelle: Yes. The market ended mixed. We did have some early pressure and then came back towards the close. How much of that was just the weather forecast we're watching in Brazil?
Darin: I think most of it was the weather forecast for Brazil. If this had happened in June/July here in the United States I would certainly say it was all driven by weather forecasts. This is that key time in South America as well. It's something I like to call WWW activity, wrap-around weather market weekend, where we see the beginning of it on Friday.
We trade the forecast on Friday for the weekend and then see what actually happens, what actually develops, and then we trade what occurred once the markets open again Sunday through Monday morning. With the pressure that we saw in the soybean market early, certainly looked like they were trading the weather forecast for Brazil. Then as the day went on, it certainly looks like some of that rain was taken out
Michelle: Yes. We also had no crush out record for the month of November. Soybean oil stocks were up a little bit. Then we had this demand news this morning only almost 21 and a half million bushels were sold in the export front with some flash sales. Do you think demand is good enough right now to keep a floor under this market? I know you've looked at exports and said, "We're still behind for the year."
Darin: No, I don't think we're where we need to be on demand at this point. Do we have better crush demand? Yes. Did we know that we were going to? Yes, because of Argentina's crop last year, plus if we look at our weekly export sales and shipments, soybean meal is still running ahead of last year's pace. When it comes to soybeans, in the last report, which was for the week ending, I think, December 7th, so we're into the second quarter of the marketing year, we're more than 300 million bushels behind on total sales just from last year
There's some room that the US has to make up because this is that six-month window of opportunity. My question would be, are we going to see a later round of demand once we get past February if Brazilian production is actually not there, if it's been hurt as much as what a lot of the talk is about? Then I think we push our demand back from this normal September to February time frame, possibly getting it into the third quarter
Michelle: Yes, but a lot of it is really going to be predicated on what happens with weather in Brazil here in the next few weeks, right?
Darin: Absolutely. The US is a secondary player in the soybean market. We know that. Trade wars have made that a reality, but if there's a problem in Brazil, the world's largest buyers are going to have to turn somewhere to get some secondary soybeans, and the US would probably look to be that situation. Now, what could arise is something that we talked about last year with corn when we didn't have the supplies. We started to see the basis market firm even though we weren't getting in the exports. It could be a similar situation this year if the US is actually going to run tight on soybeans. Not seeing it yet, but later in the marketing year, if it starts to happen, that could certainly start to firm basis again.
Michelle: I also want to talk about the Fed meeting this week. They paused, but there was indications maybe we were going to see 75 basis point cut coming into 2024. We had a lot of markets that reacted to that, including the dollar, but it's back up here today. Was there an overreaction initially, do you think, in some of those markets?
Darin: It certainly looks like it. It was crazy watching not only the financial talking heads but the market's reaction themselves. What happened? The dollar just collapsed. It was down over 100 points on Wednesday, under pressure again on Thursday before bouncing back. To the dollar's credit, it did not take out its four-month low. From a technical point of view, I find that interesting. The other market that we saw a lot of activity in was gold where a couple of weeks ago, it put one of the largest bearish reversals on its daily chart that I've seen over the last number of years, and it followed it up with Wednesday's bullish reversal.
We're seeing a lot of overreactions in some of these markets, probably too much because, again, Chairman Powell talked about the possibility of 75 basis point cuts. It didn't say when, didn't say what time of 2024 these could happen. Everyone seemed to think it was going to be January 1st or something like that the way the markets moved. We also have to go back to this past June when the same Chairman Powell said that we should be expecting two more rate hikes. We only got one in July. Then the rest of the year, it sat flat. There was a pause. Things change. The market changed, the market dynamics changed. We have to take it as it comes with each meeting that comes after that.
Michelle: Yes. Don't want to get ahead of our skis here for sure. Cattle market, what about that one? We did end higher today, Darin, and we actually posted higher weekly closes despite the fact that we had another week of sloppy cash. How encouraged are you by that?
Darin: Moderately encouraged because we did see some commercial buying coming into the market. We saw nearby contracts. Like in the live cattle, we saw Feb gaining against the April and June and so on. This gives us a little hope that maybe we've got some commercial buying coming back in. From a technical point of view, it could certainly start to move higher again.
Also, it could be feeding off of the US stock indexes, the long-term uptrends in US stock indexes once again as well. I do think it gives us a little bit of encouragement. I don't want to get overly excited about it because it could all fall apart as quickly as next week. It did certainly give the market a little bit more bullish look to it this weekend than the last few weekends.
Michelle: Yes, a good point you make. I don't think there's a coincidence that we're hitting record highs over on the Dow and near record highs on the S&P, and cattle have had a nice up week. You mentioned next week, we do have lots of data dump next week. Cattle and feed, hogs and pigs, monthly culled storage. A lot of stuff next week.
Darin: Yes. Honestly, I don't see anybody paying attention to it. These all come out Friday afternoon, so it'll be fun to see. There's going to be a little bit of chatter about it. Then, of course, I believe we have the holiday, no trade on Monday. Then we're going to have to wait all the way to Tuesday. Will anyone even care at that point what all of these old numbers have to say? I wouldn't think so, but the markets always like to react to government reports, whether or not they mean anything or not.
Michelle: Okay. We'll see. Thanks for joining us, Darin Newsom 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.
