This morning, in an interview with Michelle Rook on Markets Now, I broke down the driving forces behind the latest price action across the grain sector, highlighting the gap between fund-driven money flow and underlying market fundamentals over USDA report headlines and technical noise. I also shared my perspective on logistics in the wheat trade, federal policy moves impacting diesel prices, and the latest commercial activity shaping the livestock market. CLICK BELOW TO WATCH THE INTERVIEW.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst at Barchart. It is Tuesday, and we are seeing just about everything to the plus side except for the hog market. Darin, let's talk about the pop that we're seeing in the grains. How much of this is just technical, first off? Because we had 30-cent losses last week in corn, 40 cents in beans, and 15 to 25 cents in wheat.
Darin Newsom: I think the majority of it is fund activity. I think funds just simply moving money around. We've got the NASDAQ going to new highs. What we've seen of late is some money coming out of the grains sector in particular, going over into other markets. That's what a big part of the sell-off was because the fundamentals of the market didn't actually change last week, and they haven't changed early this week. What we've got is some funds moving money around.
As we come to the end of the latest non-commercial positioning week, Tuesday to Tuesday, because this is when the data is pulled for the next round of Commitments to Traders reports, we still have corn 20, 25 cents lower. We've still got soybeans down 10 to 15 cents from last Tuesday's close. Again, both markets have recently posted record-large net long and long futures positions. It wasn't overly surprising that, given volatility was high, given both markets were showing sharply overbought situations, that the algorithms were fed these statistics and the money started coming out, particularly at a harvest time when supplies tend to increase.
Again, what it looks like coming out of the weekend is we've got a little bit of fund buying coming back in, maybe squaring up some of the shorts that happened immediately following the USDA's latest Keno game last Wednesday. I don't see anything dramatically different. Let's see where we are come Friday's close.
Michelle: All right. The thing that is a little different, though, when you mentioned the Keno game, is the fact that USDA found 173 million bushels more inventory in the quarterly stocks on corn versus the ending stocks they gave us in September. That's going to have to be rectified at some point. You, I know, don't believe in the USDA-
Darin: No.
Michelle: -reports, the crop production, the WASDE reports, but you do believe in the quarterly stocks. Did the spreads indicate that ahead of time, you think, or the basis for what?
Darin: Yes, basis has been weak for quite some time. The basis market's been telling us that the US isn't running out of supplies anytime soon, particularly on the corn. It's running between its previous five-year and 10-year low weekly closes, so it's not a critically tight situation. As for the USDA finding, 150 to 200 million bushels, that's historically what happens in the September report. Why? Here, we could have a philosophical discussion about what is stocks as of September 1 because everyone wants to say, "Oh, it's just old crop. It should only be old crop."
Well, what happens if you have certain areas of the United States that have already seen harvest, like the East Coast, like some of the fringe areas where harvest happens early in the Southern Plains where corn comes into town? You have those bushels already going in by the end of August, and so they should count. They should count in the stocks.
Michelle: There was some commingling.
Darin: Yes. Every year there is. Everyone makes a big deal of it, and rending of garments and gnashing of teeth and yelling and screaming into the wind. Those are the stocks that we had on hand as of September 1. Did it fit with what the USDA's guess was in its September supply and demand report, which is, again, the only purpose is to create trade on the WASDE reports? No, it didn't match, and it's not going to match because it's got to account because the quarterly stocks has included some new crop stocks in it.
Michelle: In the south, they did get in the field early. They harvested corn early. You aren't the only one I have seen that has suggested that there was commingling of some of those southern bushels. Glad we talked about that. Let's also talk about another thing that might be popping the market this morning, whether you believe the USDA crop progress numbers or not, Darin, down 3% on the good to excellent crop rating on corn, down a percent on soybeans, a little unusual for this time of year, and harvest is behind. There are some concerns about getting this crop out, and maybe that yield is going down, don't you think?
Darin: The Kardashians of the grain reports. It's always fun to visit about these. Crop ratings, let's be honest, anyone with two brain cells to rub together know that these numbers are completely made up. If they've talked to NASS agents anywhere, these numbers, these crop condition numbers, are completely made up, and we're in harvest. The crop is brown. The crop is mature. It's going to look dead. Of course, they're going to lower ratings. It's the browning effect.
Michelle: I agree with you, except that we had five to 10 inches of rain in some of those areas last week. You've got crop that's sitting in water in some of those places.
Darin: Are the merchandisers concerned? What did the Dec/March spread do last week in the corn market? Didn't do anything. It was still covering a neutral 45%, 46% calculated full commercial carry. Deferred spreads didn't change. They're taking a wait-and-see approach. You can do that with corn. Now, in soybeans, yes. Oh, it's a calamity. Everything's dying. The pods are popping and all of this sort of thing. No. Both the nearby Nov/Jan and the deferred March-May added 10 percentage points to the percent of calculated full commercial carry that they were covering from the previous week. Does that indicate merchandisers are actually concerned about the crop that's out there? No, absolutely not.
Michelle: The other thing that popped the market a little bit yesterday, at least the wheat market, is that Russia has hit the Port of Odesa. They hit more ships yesterday. This Black Sea export situation is not getting any better, right?
Darin: It's not getting any better, but it hasn't changed. Again, anytime wheat rallies, there has to be a reason other than just there's been incredible fund selling, particularly in the soft red market. Fundamentally, it hasn't changed. Base is still neutral. Future spread's still neutral. It has to depend on something. It's either the European heat wave and drought, or it's Russia doing something that it's been doing for five years, if not longer. We point at these things, and we say, "Oh, the world's going to run out of wheat." Been doing this a long time. I have yet to see the world actually run out of wheat. Maybe it is this time.
Michelle: It's not that we're going to run out of wheat. It's just we can't get it in the right places. It's a logistics thing, obviously. The other thing, President Trump was in Grand Island, Nebraska, last night, said that China is going to double their buying. I don't know. Do you think the market's buying into that at all this morning?
Darin: Well, the market's not known for being the brightest thing in the world. Artificial intelligence, I think that it's lacking the intelligence. Algorithms will do whatever they're fed to do, whatever, however way they're supposed to be triggered. I think we've all heard this before. We've heard it with the Phase One deal that didn't actually exist, where China was going to buy absolutely everything the US could produce from then, from that day until the end of time. Certainly hasn't happened. US is still a secondary player on the global market in soybeans. Let's be honest. If it comes from the White House, I think we have to take it with a grain of salt and take a wait-and-see approach as to what actually happens long-term.
Michelle: Meanwhile, because of the presidential elections in Brazil, the real was up pretty strong yesterday, and I think continues to be today compared to the US dollar. Is that supportive for the bean market or even corn, for that matter?
Darin: This is a great discussion, something that we could spend a good deal of time on because historically, the tie was, a country's underlying currency was one of the driving forces for demand for that product, but we've seen politics and policy erase economics and economy. I don't think a country's currency's value has much play anymore in the situation these days. It's not like because the real is going up that China is suddenly going to stop buying Brazilian beans. That's simply not the case.
What they're concerned about is Brazil's 2027 soybean crop. That's a bigger issue. Interest rates are going to be going up around the world to try to battle inflation, and that means currencies should be firming. In the US and Brazil and so on, because that is the normal relationship. Higher interest rates usually mean a stronger currency. What this is actually telling us is, like in the US, Brazil's interest rates are probably going to have to go up.
Michelle: That's why our bond market has been off to the races, right, both the 10 and 30-year?
Darin: Yes. Yields continue to go up, hitting multi-decade highs. It's indicating that long-term investors, long-term money is concerned about the overall economic picture. With the type of debt that the US is seeing and the trade problems it continues to have, putting the spurs to inflation at this point. Not only are we seeing it in the short-term rates, like the Fed fund futures, but we're also seeing it, as you mentioned, in the long-year 10 and 30, where yields just continue to go up, indicating the market is pricing in or showing that it needs to see higher interest rates. Theoretically, this should take money out of US stocks, but as we've seen, NASDAQ's going to new all-time highs.
Michelle: It's very AI-driven. That's part of it. The other thing, presidential executive order yesterday to allow dyed diesel to be used on the highway, supposed to lower prices on average 24.4 cents. Will that be the desired effect?
Darin: It depends on what we mean by desired effect. The desired effect is to get voters to not be disgruntled with the current situation. If the headline reads X, the desired effect is for Y to keep the current situation as is. Now, in reality, is it going to have the desired effect on changing supply and demand? Not to what is expected. If you lower the price of the cheaper product to begin with, that's going to increase the demand for that cheaper product.
It could actually raise the price at a time when you cannot increase supplies because you have little reserve crude oil to turn into diesel, and you are in a trade war with the number one exporter to the US of crude oil that is made into diesel. It's a difficult situation. I don't think it's going to have the effect, at least economically, that's being promoted at this point.
Michelle: For sure. Finally, the cattle market, quick here. We're up here today. We're still range-bound, it feels like, but are we up today because of the nice $4 bump in the boxes yesterday, you think?
Darin: Yes, it could be. Also possibly a reaction to the commercial selling coming out of the weekend, which I thought was interesting in life that we saw some commercial pressure. Still, this is most likely tied to the northern market softening last week. Certainly, let's see how boxes play out over the course of the week. As I said, it's interesting when you see the commercial side selling starting on a Monday morning.
Michelle: For sure. Thanks so much. That's Darin Newsom, Senior Market Analyst with Barchart and 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.