Yesterday I joined Michelle Rook on AgWeb's Markets Now to discuss my thoughts about the wheat, soybean, and corn markets. I also spoke about crude oil and the cattle market. WATCH THE INTERVIEW HERE.
Michelle Rook: Welcome to Markets Now, I'm Michelle Rook with Darin Newsom, Senior Market Analyst for . The grains and crude oil all in negative territory here early this morning while we're seeing the livestock futures a little two-sided early but firming up here now in both cattle and hogs. Darren, let's talk about soybeans first of all. We had a pretty nice run off of the recent lows around that $12 level. We've set back now yesterday and today, so what is pressuring the market do you think?
Darin Newsom: Most likely this is still a weather market, a weather derivative market and if so then what we're doing is we're looking at what's going on down in Brazil, Argentina and basically South America as a whole at this point. We're seeing traders, we're seeing both non-commercial and commercial traders looking at the latest weather forecast and their reaction, at least their opinion at this point, seems to be bearish again so they're putting pressure on the market which is interesting because longer term, May-July soybean future spread is still bullish. It's still covering a bullish level of calculated full commercial carry but it hasn't been enough to stop the selling at least the last couple days as we take some of those gains that we've tacked on here the last week or so, just whittle them away and erase them away from the market.
Michelle Rook: Do you think it's also tied to basis levels starting to collapse in Brazil?
Darin Newsom: It certainly could and again this would come back to production. We have no idea what production is going to be, it could be anywhere between 130 and 170, it simply doesn't matter but what does matter is that those beans are now starting to make their way to port and as they do, they're starting to put pressure on the market because oddly enough there's enough supply coming in to meet the almost unquenchable demand coming out of China and unknown destinations which usually turns out to be China. It's pushing the basis down and as a good friend of mine used to always present on Grain's Golden Rule, first basis then spreads and then futures and if we've already got basis collapsing in South America and in Brazil, we can look for future spreads and we could possibly see futures continue to come down as well.
Michelle Rook: Do you think it also signals maybe that crop isn't as small as some are projecting?
Darin Newsom: Again I don't think it matters all this talk of it's going to be 125, it's going to be 130, really it doesn't matter, that's just people making guesses. I guess if folks like to follow USDA making guesses and everybody else making guesses, they might as well play the game of pin the tail on the donkey. The reality is what the market shows us every day and if the basis market in Brazil is starting to crack and come down, that's all we really need to know because there will be a ripple effect up into the U.S. market and again it doesn't matter what the made up numbers of Brazilian Michelle Rook: What you say is throwing some conflicting signals at the market actually.
Darin Newsom: It is right now because here in the U.S. our national average basis continues to run neutral. Again it reflects both the idea that we didn't have as much production here in the United States as we have in years past and we knew that because we didn't have as many acres, we knew that at the end of last February. Production was down here in the United States so it's been enough, the supplies have tightened up enough that it's kept basis from just collapsing. Now that doesn't mean that it won't given the situation that we're seeing in Brazil right now but on the other hand again future spreads both the March-May and May-July are covering a bullish level of calculated full commercial carry which brings me to a bigger question that I've talked about in both corn and wheat so far. Are those spreads being skewed by non-commercial short covering because funds have built a sizable net short futures position in corn, soybeans and wheat and so if they're starting to cover and move over into other investment opportunities that's going to be skewing our spreads for a while.
Michelle Rook: Yes that's a good point that you make. Corn market though we're below $4.50 once again. Do you think that commercials will step back in here, the end users, because that's been their trend recently hasn't it?
Darin Newsom: It has been. Thursday we certainly saw that there was some pressure in the market and by the end of the day we saw March gaining something like three quarter cent on May which gained a quarter cent on July so fairly a decent indicator that there was some commercial interest. maybe it was only short term whatever the case might be. Do we have good exports going on now? Yes we do but exports is the smallest, is the weakest leg of the three legs of U.S. demand. what we really have to be concerned about is feed demand and ethanol demand at this point. We know some of those have slowed down but basis remains weak. Overall yes we have seen some commercial buying it just hasn't really been enough to light much of a fire underneath the market.
Michelle Rook: Yes and you talk about the South American crop. corn obviously Argentina's crop is just as important here. It's going to come before we get the second crop Safrina. We've had some forecasts now for some better rains in the extended in Argentina. Is that maybe another factor that could be pressuring the market?
Darin Newsom: It certainly could. if we look at the global supply and demand situation again the wheat, excuse me, the corn spreads just simply aren't that bullish right now. Now they're still sitting in neutral territory and so that would tell us that the market remains comfortable with wherever the corn might be coming from. Be it the U.S., be it Argentina. Even if it extends out enough to capture or get into the Brazil Safrina crop. Again yes I do think it is playing a role in what we're seeing in the market. In fact there's just not that much interest in corn right now. Again due to weather and due to what we're reading in the spreads.
Michelle Rook: Absolutely. The wheat market had an update yesterday. Didn't seem like there was a lot of fundamental reason for that market to be higher. Was that short covering? Then conversely today did the funds maybe use that strength or some of the funds using that strength to sell?
Darin Newsom: Wheat is a fascinating beast. We have to take all three markets into consideration here. The thing that stood out to me with Thursday's trade was the fact that March, May, Kansas City spread moved to an inverse. one of the things I always say is that when we're talking about a storable commodity, inverses are always bullish. Not in this case. Because I just don't think fundamentally we see the type of situation that supports the March, May going into an inverse. I do think a lot of it was non-commercial short covering. Now the problem is we've seen a great deal of that go on in Chicago already. They've moved from a net short of 90 some thousand contracts to about 30,000 contracts over the last couple months. If they start adding to their position again in Chicago wheat, that's going to put pressure on both Kansas City and Minneapolis again with some new fund selling. That certainly could be what we're seeing overnight into Friday morning. We'll see how the rest of the session plays out.
Michelle Rook: Yes I also heard some rumors of maybe some China business even on the HRW side. I didn't know if that's why you saw that bull spreading or not. Good point you make. One question I have about exports or demand in particular. As far as all of the grains demand we'd like to see it better. How much of it is just demand is down versus shipping issues that we're seeing? we've had such a string of them.
Darin Newsom: I think certainly the shipping issues are something to talk about. I think there's bigger issues. There's certainly trade wars and tariffs and all these things that we're still dealing with that have basically put a bullet in the foot of U.S. export business. What interests me about the comment about possible Chinese demand for U.S. hard red winter is the fact that if we look at the latest weekly export sales and shipments update comparing 2023-24 to last year. we're only our total sales of hard red winter right now are down 34% from last year. There hasn't been a great deal of interest. If there is now the best we could do is possibly try to gain ground on what was a dismal year last year.
Michelle Rook: It's funny you talk about China and the U.S. being in a trade war. Some people are saying hey we're going to go back in a trade war. You're basically suggesting we're already in one right? We're still in it.
Darin Newsom: We never got out of it. we put ourselves in this position. Yes could we get back in there again? All signs are certainly indicating that it could get worse again before it ever gets better. we haven't gotten out of the situation we got ourselves into before. The rest of the world has gained ground and has actually prospered from the fact that we decided to do this. Hasn't played out all that well right now as we've talked about many times. the U.S. has become a secondary player in the global soybean gain. It hasn't really helped our wheat or corn situations either.
Michelle Rook: No doubt. Kettle market we made some new highs for the move yesterday. We had a little two-sided trade early. It looks like we're following up with some gains here this morning. Cash has been helpful. Are the funds do you think back in here buying again? Because they have really whacked their long position.
Darin Newsom: They have and they certainly could be. If we look at the stock markets and we think about the tie between U.S. stock markets and the cattle markets. Then there is a good chance that we are seeing some more fund buying leaking over into cattle. I think what you mentioned with the cash market finally starting to strengthen a bit. we were stuck in that 172 to 173 for weeks. As the winter storms move through. Now we've tightened things up a bit. We've got cash moving up. I saw 174. You were telling me about 175 and beyond yet this week. I do think that a lot of the support is coming from cash. It'll be interesting to see how Feb acts in relation to April. The futures contracts here on the live cattle market. As we close out the week. See if we can see some of that commercial buying heading into the weekend.
Michelle Rook: Yes we even had some 177 as high as that in the north. I'm sure I don't know of all of the business that was done. Finally let's wrap up with crude oil. We had nine week highs yesterday. Not a lot of follow through here this morning. That's been pretty typical of that market hasn't it?
Darin Newsom: It really has. this is strange. This is a time of year where crude oil, heating oil and the energy sector as a whole. Just continues to find some consistent buying interest. It's just not the case this year. As you said we are going to new highs. We're slowly grinding there. It's two step forwards one step back. Seems to be the dance routine for most of the energy markets right now. Again seasonally this is just the time of year when we do move higher. Finding more buying interest would not be a surprise.
Michelle Rook: All right I was I lied to you. I want I have one more question for you. S&P Dow getting new highs yesterday or new high closes anyways. Do we keep going here?
Darin Newsom: We do. the markets are bullish right now. They've been in long-term uptrends since October 2022. It really shouldn't come as a surprise except for those who are wanting the markets to collapse. Overall they've been in long-term uptrends. As Newton's first law of motion applied to markets tells us the trending market will stay in that trend until acted upon by investment money. Right now the investment money just continues to buy U.S. stocks.
Michelle Rook: Absolutely. All right thanks for joining us Darin Newsom, Senior Market Analyst with . That is Markets Now.
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