Grain Update: What's Driving Corn, Wheat, and Soybean Prices in February?

I was interviewed by Michelle Rook on AgWeb's Markets Now this morning. I discussed my thoughts about the corn, wheat, and soybean markets. I also spoke about today's job number, interest rates, 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 . We're seeing some mixed trade in both grain and livestock futures. I want to start off with grains like we normally do, Darin. We do see corn down a bit this morning, soybeans back lower and under the $12 mark. Just feels like the funds relentlessly sell on just about every rally here.

Darin Newsom: I agree, Michelle. This is all a fund play at this point. It's interesting if we take it from a technical point of view, so many contracts in the grain and oilseed sectors, they're in position for possible bullish reversals on their weekly charts if we can close higher this week, if we can close above last Friday's settlements. What that would tell us is fund selling could be starting to slow and some of those shorts are starting to get covered, but we're not seeing signs of it yet. As you said, every time we get a little bit of a bump in the market, in any of the markets except for wheat, we'll set that aside for right now, in corn and soybeans, the funds just come back in and they start to sell. It's going to be interesting, certainly it's going to be interesting to watch how we close out this week and what it might mean going forward.

Michelle: Yes. Though, when we talk about demand, talk about what the spreads are doing and what basis levels are doing right now, that's a really good sign, isn't it, of what's really happening in the underlying fundamentals of the market?

Darin: Yes, those are the real fundamental reads. I know there's a lot of folks I can talk about a lot of other things, but they don't matter. We can see what's going on fundamentally with basis and future spreads. In both corn and soybeans are a bit mixed right now. Corn spreads, the March-May is neutral. Basis is neutral to bearish. Then if we go out to the May-July, it's actually starting to look a little bit bullish. We're seeing some buying coming into the May contract, which is interesting to me is that we're showing some demand down the road here a little bit once we get the March contract into delivery.

Now over in soybeans, we've got both March-May and May-July future spreads still leaning towards the bullish side, but basis is neutral at best and weakening. I mean, it's taking its cue from what's going on in Brazil. We know those new supplies are making their way to port. We're going to see even less demand now because we're reaching that midpoint of the marketing year. Basically, the door slammed shut on US exports and everything comes out of Brazil at this point, so we'll have to see what happens. We're getting some mixed read, but certainly nothing overly bullish at this point.

Michelle: No. To your point, we had a marketing year low for soybean exports yesterday at only six million bushels.

Darin: Yes. Again, not a huge surprise. We can certainly see the fact the market isn't wanting to go anywhere. There's no push right now from the commercial side, even with non-commercials putting pressure on the market. As we look at the cash indexes, we've gone to multi-year lows here at the end of January, here in early February. If we take a technical look at one of these key fundamental reads, which is the cash indexes, there's still a lot of downside possibility for both cash corn and cash soybeans since would certainly tell us demand isn't just going to come bouncing back anytime soon.

Michelle: Yes. Wheat market is up here today despite the fact that the dollar has been up strongly this morning, so do you think that is just technical, is it all short covering at this point?

Darin: Knowing what I do about the wheat market, I want to say this is more of a technical move than a fundamental move, and this goes against everything that I always talk about. We've got the Kansas City March-May future spread showing an inverse. We've got bullish carries in both the Chicago and Minneapolis March-May spreads, so those are bullish fundamental reads, but if we again go back to basis, we see both winter markets are still incredibly bearish, still running well below previous five-year lows as far as national average basis reads go, and Minneapolis is only average. Again, we've got a conflicting view of real fundamentals and we have to start with basis and go by what they're saying, and if that's the case, it certainly indicates a lot of the buying coming in right now would be tied to non-commercial short covering, because they've held a large net short position in all three wheat markets for quite some time.

Michelle: Yes, and I mentioned the dollar being up sharply, crude oil is lower. Is some of that in response to the jobs data this morning?

Darin: I think so. For what it's worth, we saw jobs for January come in almost double what the pre-report estimate, in which again has to be the funniest job in the markets, is economists making guesses about things like jobs data and these sorts of things. If they get within half of what the actual change is, then they should consider it a win. Do I believe the numbers? Not really, but if we go back and look at the economy as a big picture, what we can see about what's going on in the economy, we can still see the US job situation, US labor market is still strong, the economy still looks to be percolating along quite well, so there's a lot of bullish reads as far as the economy goes outside of the jobs data, and that certainly seems to be supporting the dollar as you mentioned.

Michelle: Yes, and then we had the FOMC data this week, or at least Chairman Powell saying, "Hey, we may not make any cuts to interest rates until June perhaps," and so that has impacted some of the money flow in this market this week, hasn't it?

Darin: I think there was an initial knee-jerk reaction to that, but again, it shouldn't have taken anybody by surprise. I mean, this is what Chairman Powell was saying in the latter parts of 2023. There was so much mindless chatter about, "Oh, these cuts are going to start in January. We're going to see them in January, March, and so on," and Chairman Powell never hinted at that, whatsoever. In fact, the rate increases were still on the table the last I read, so the fact that we didn't see a rate cut in January is not a surprise. The fact that we're probably not going to see one in March, according to Chairman Powell, unless things change, which was the asterisk that he put on. Again, shouldn't be any surprise. We'll just have to see what develops down the road.

Michelle: I got to go ask you, it's Groundhog Day today, and what are your thoughts about acreage mixes and what the weather might be impacting or how it might impact that going forward?

Darin: I'd say I feel sorry for the poor folks, the poor, naive folks who are going to wait for USDA's perspective plannings guess, but I really don't feel sorry for them. We get our first look at this with Phil's forecast of an early spring. Now, when he does not see a shadow, historically, here in the US, corn acres increased by about 2.2% and soybeans decreased by about 1.5%, so we've got that going for us.

In reality, if we look at what the Nov '24 soybean, these '24 corn spreads have been saying since September 1st, we're nearing the end of the six-month tracking window for this spread, it's been saying soybean acres are buying acres away from corn, buying area away from corn this entire six-month period, so, again, just like with everything else, we're getting conflicting signals. We can either go with what Phil says or we can look at what the market says. I usually lean towards the market.

Michelle: Yes, I do too. Are you serious there's really statistics that show that we have higher corn acreage when-- Did you do some of that research, Darin, or did somebody else spend worthless time doing that?

Darin: [laughs] I spent my worst worthless time doing that over the years.

Michelle: Oh, you did, so I just insulted you then, right?

Darin: No, you can't insult me because it is a worthless look at the market, but yes, I have fun doing that because in the big picture, look at how much interest gets put on perspective plannings at the end of March? It's just as ridiculous as following the predictions of a rodent. Let's just pay attention to what the market's telling us, but that's not what's going to happen. We're going to see so much build up, so much hubbub and hullabaloo over perspective plannings, which in by its very title says it's a guess, so we might as well have a little fun with it, play along with Groundhog Day instead

Michelle: Yes, I had to poke you a little bit about that. The other thing we have a lot of hubbub about during February is spring-based prices being set for crop insurance, right?

Darin: We do, and we started the process here on February 1st, and we'll continue it on through the rest of the month. We're going to be dealing with some low numbers. There's no doubt about it. Again, we can go back to what the cash market is telling us, what the futures market is telling us, the funds short position.

Really, the only thing that could change some of these prices, and this is the daily closing averages for December corn and November soybeans, is if funds start to make a move, if they start to cover some of their short positions in corn and soybeans and lift the market as a whole, both old crop and new crop, then we might see a bit of an improvement. The theory is that seasonally, we do see December corn and November soybeans rally during February, but we'll see what happens.

Michelle: Yes. A big update yesterday in the cattle market, of course, we got confirmation of the small herd from the cattle inventory report, but, man, that higher cash really pushed us up, and it looks like live cattle are trying to follow through here today anyways. Do you think we're going to continue to see funds pile back in here, Darin?

Darin: I think we could. Again, this goes back to the overall economic picture, and things don't look as gloomy as what so many want to believe. I know there was a lot of chatter about the cattle inventory report providing support to the live cattle and feeder cattle markets on Thursday, but in reality, I think most of the buying was spillover from the strong rallies that we saw in the US stock indexes. There is a tie between those markets, so I think that had more to do with it than anything else. Now, we'll see, as we continue to extend these moves, if we can actually take out the previous highs.

That's going to take some work. That's going to take a good deal of buying, and it's going to have to come from more than just funds. We're actually going to have to see some commercial buying as well. As you said, we've got a bit stronger cash market reports coming in so far this week. We'll see if it holds. Boxed beef is all over the place. Not really anything concrete or clear at this point. Again, we'll see. It's going to have to come from the commercial side of the market right now. Basis is weak, and that's usually one of the telltale signs.

Michelle: Yes, we'd like to see bull spreading, obviously, in a bull market. I, though, too, felt that cash trade was the big story yesterday because we didn't get the big rally until after that broke.

Darin: No, I agree. For so many decades, going back to all the folks that I've talked to in this market, cash-led futures came to livestock, and that was the way it was supposed to be. That's been dented. That idea has been dented and beaten up the last number of years, but I still think at the end of the day, when we're talking about livestock, I still think it comes down to what the cash market's doing.

Michelle: Got you. Happy Groundhog Day, needless to say.

Darin: The same to you, Michelle.

Michelle: Okay. Thanks for joining us, as always, Darin Newsom, Senior Market Analyst for . This is Markets Now.

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