I was pleased to join Michelle Rook on AgWeb's Markets Now this morning. We discussed the corn, soybean, wheat, and cattle markets. We also spoke about the upcoming OPEC meeting, the strong labor market, and one of my favorite leading indicators... boxed beef. Watch my interview here.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, along with Darin Newsom, senior market analyst with Barchart. We're seeing higher prices except for corn. It has taken just a little bit of a backseat this morning. Darin, let's talk about this week because big selloff in the grains to start the week. We saw some recovery yesterday except for the July corn futures. Is it all about weather at this point?
Darin Newsom: I think there's a lot going on, Michelle. Certainly, weather's playing a role in some of the new crop markets but that July corn contract was fascinating as we started the month on Thursday and we saw it running it run up to 606 with its 50-day moving average. A technical indicator up at 605. The minute it hits 606 through Friday morning, through the overnight session and Friday morning, it dropped more than 20 cents.
The market just collapsed. It's like it triggered a bunch of selling. Now, initially, my blink reaction to this, it certainly looked like that could be the result of some possible Chinese cancellations. We haven't seen anything. Hopefully, that wasn't the case. I'm also hearing from folks out in the country that basis is starting to weaken. Now, my national average basis calculation actually strengthened Thursday evening.
What I'm hearing from folks is that basis is actually starting to weaken across the central plains as farmers are starting to clean out their bins heading into summer, getting ready for the fall harvest. They're taking advantage of the strength of basis, they're taking advantage of where the futures market is right now, overall cash price, and that could be starting to put some pressure on July as well.
Michelle: Okay, so I buy that. Cash movement, farmers selling, that sort of thing. Could it just be unwinding of some spreads too? Man, the July-Sep, the July even December spreads have been pretty wide.
Darin: Yes, they have. There's a reason July's got this inverse to Sep and Dec. It's the fact that old crop supplies remain tight. I did my in month-end available stocks to use, and it tightened ever so slightly from what we saw at the end of April, so we know old crop supplies are still relatively tight. They've loosened a bit, but they're still relatively tight. Now September this year, because of the early pace of planting, because of early weather and so on, September, that hybrid contract's actually more of a new crop issue.
What we're looking at here is that Sep-D spread, which has moved into a small carry, that's flattened out. We still have a weak carry going on in the Dec-March and so on. Longer-term, fundamentals are still bullish. They're not as bullish as they were for the 2021/22 marketing and reaching the '22/'23 marketing year, but as we look ahead into 2023/24, there's still some concern over production.
We've seen soil moisture is still an issue across the Midwest, even more so than it was last year. This '23 crop is not out of the woods. We just have to get through this early June timeframe and see if we can find some buy-in to come back into this market.
Michelle: That's why I asked about even December corn yesterday. We had the drought monitor come out. We expanded drought areas and if we were trading weather and drought concerns at this point. It's not about exports because exports were pretty dismal this morning, weren't they?
Darin: Yes. We haven't gone anywhere with exports for much of this marketing year. This last quarter, I don't see anything really picking up. We're still running, as far as total sales go, I think we're something like 34% or 36% behind last year at this point. At least shipments as a whole are running well behind last year's pace. I just don't see that changing. Again, my concern was when we saw what happened with July on Thursday and, again, overnight through Friday morning, my concern was that we could see some possibles cancellations by China. Again, they only have 40-some million bushels still in the book, so there's still room for them to do something. We just haven't seen it yet.
Michelle: Right. Exports weren't that good for soybeans either. Were falling behind the year-to-date pace compared to last year there as well. What's holding up the market this morning? Is it the fact that we did have a strong Crush report out a NASS yesterday, or is it-- Soybean meal and oil are higher, so is it just a function of we got too short, maybe, or we pushed too hard one way and now the products and soybeans are all coming back technically or what?
Darin: I think there is a little bit of a technical play going on in soybeans. In corn and wheat, we saw some bullish reversals occur at the end of May that we didn't see in soybeans. On the weekly charts, on the intermediate term charts, we could here today, depending on what the soybean market, how it finishes off the week. I do think there's a bit of a technical play going on. As you mentioned, from a fundamental point of view, I think it all has to do with the products. Particularly soybean meal.
We are starting to see an increase in demand. Crushes have been consistent so far, still running on pace with or maybe just a little bit ahead of last year. Exports, as you said, with the latest sales and shipments update, we're on pace with last year, but it's nothing spectacular. Total sales are actually 14% behind so that, to me, is an issue. I don't think we're going to be making any more sales the rest of this marketing year of -- well, Q4. It's going to be very small, so I don't think we're going to gain any ground on last year. I think we're still going to come up a bit short, and so that certainly could weigh on the old crop market over the next few months.
Michelle: All right, same question for the wheat market, because exports weren't good there this morning either. We saw cancellations in old crop and new crop was a little slow to start off the year. What do you think's driving that market right now?
Darin: Right now I think there's a number of issues we have. We have harvest just beginning in the winter wheat markets. I think one of the quieter factors that's going on right now is early this week, or it was late last week, early this week, we saw the July-September Chicago spread moved to a covering 82% calculated full commercial carry. This brings the possibility of variable storage rates from the CME into play later this month if the running average is above 80%.
The minute that we did that. We started to see it immediately started to back off. As of Thursday's close, I think that spread was back to something like 75%. We saw some strength coming into July. Now, there's a lot of things going on. Number one, we've got funds rolling. I know they're short right now but if they're changing their positions they could be buying back the July and selling the September which is going to skew the spread through the early part of June.
Might not necessarily be a good fundamental read because, again, it could certainly skew that July-Sep spread, so we got to look out to the Sep-Dec which is also running above 70% calculated full commercial carry as of Thursday's closed. I think there's some things going on. I don't think merchandisers really want that variable storage rate coming into play. If it does it does later this month. I think right now they're going to try to avoid it.
Michelle: Cattle. More new contract highs this morning. We're seeing follow-throughs, some all-time highs on the futures in the front month, and it's been pushed by what looks like it's going to be a record week in terms of higher cash trade.
Darin: Yes, there's just no stop in this market right now. Nobody wants to sell it. [chuckles] A good friend called in, it was when December was trading about $175, and he said, "Okay what's going to come first? $170 or $180?" My hunch was we'd back off a little bit, see $170. Little did I know the very next day Dec would be pushing up against $180. There's just nobody wanting to sell this market right now.
Cash market remains strong, boxed beef market continues to go up. Strong labor market continues here in the US. They're not afraid to buy a higher-priced beef, demand remains strong. Just a lot of bullish factors. At some point, it's going to run out of gas. I have no idea when that might be. Right now it just wants to continue to go higher.
Michelle: I know, but you have some people that talk about, like yesterday, as a blow-off top. Today, if we get follow-through, that negates that argument doesn't it?
Darin: Yes. You also have folks that like to step in front of trains for fun, [chuckling] step in front of runaway of trains for fun. I'm not ever going to call anything a blow-off top. That just tells me that you're in the wrong position, that you short the market. The trend's going to continue to do what it wants to do until it changes. We won't know when it changes. We might get a sign on the charts, but other than that, it's the best just to ride along with it. Don't step in front of it and just let the market run if it wants to.
Michelle: Let's talk about some of the outside market factors. We did get the Senate voting positively on a debt ceiling extension and so that deal is done. That's a good thing. We also have an OPEC meeting coming up, and we had jobs data out this morning. Talk about what the market is looking at there.
Darin: Okay. The idea that the debt ceiling, it was going to get done no matter what. It was a political game being played. There was no doubt that it was going to get done, and if it didn't get done on time then we would simply just extend the deadline. That's all that was going to happen there. I think all eyes are on OPEC right now. From what I'm reading this morning, there are some unnamed sources saying OPEC will not be doing production cuts.
I find it a bit of a surprise given the pressure that both Brent and West Texas Intermediate crude oil markets have been under. We'll see how this weekend plays out. As for the labor market, again, we've been seeing strong numbers. One of the biggest question is, do we believe these numbers at all? They are government numbers. [chuckles] What I get the biggest kick out of is how far off these pre-report estimates are. [chuckles] You really have to wonder what these folks are doing when they make these guesses ahead of time.
Michelle: What are your leading indicators that you are watching in the marketplace that tell you that this job's data is not accurate?
Darin: I'm not saying it's not, because the economic indicator I look at is boxed beef. Boxed beef is still strong. We're $37, $38 over a year ago in box beef, both choice and select. We know the labor market's strong. Do I know what the actual numbers are? No. I wouldn't even pretend to and [chuckles] I don't think anybody does, but it does show me that the labor market's still strong. Consumers are not afraid of higher-priced beef. They're still buying. It's that time of year as well. It's grilling season so demand is going to remain strong. As long as people have jobs, as long as people are going back to work, they're going to spend some of their money. It looks like right now they're going to continue to spend their money on higher-priced beef.
Michelle: Yes. Well, if there's a recession out there, I haven't seen it in the grocery store that's for sure. All right, always fun to talk to you. Darin Newsom, senior market analyst with Barchart. 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.
