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Grain Market Update: Will Corn, Wheat, and Soybeans Continue to Rebound?

Barchart - Fri Dec 1, 2023

During my interview with Michelle Rook this morning, on AgWeb's Markets Now, I talked about the corn,wheat, and soybeanmarkets. We also discussed the cattle markets, the stock market, crude oil, the US dollar, and interest rates.  WATCH THE INTERVIEW HERE.

Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst for Barchart. Well, we are seeing mostly lower prices, except for cattle futures this morning. Darin, let's talk about the grain complex first, because we've had a pretty good run, at least in the wheat market this week. Corn had a good up day yesterday. Do you think that was just end of the month short covering activity? Are the funds going to go back, and continue to liquidate?

Darin Newsom: I do. I'm glad you started this conversation with Chicago wheat. I was talking about it this morning. Over the last-- Just over a week, going back to Tuesday, November 21st, open interest in Chicago wheat has dropped by 11%, 11% of total open interest in Chicago wheat went away. This is a market where funds held a large net short position. All they've done is some covering. Fundamentally, this market's still a train wreck. We can see that in future spreads. We can see it in basis. There's no demand for US wheat. We can see that in the weekly export sales and shipments updates. I mean, we're running behind last year's pace, which was nothing to brag about. In fact, I think we could call it dismal. The fact that Chicago wheat was able to rally to close out November, means absolutely nothing.

Fundamentally, it hasn't changed. Yes, I think funds are going to turn around, and most likely start selling this, even though, we are near the lows, both long term and short term. I don't think that's going to be-- I don't think it's going to deter the sellers.

Michelle: We have the same set up in the corn market, right?

Darin: Yes, we do. We haven't seen as dramatic a drop in open interest. At the end of November, we did see some covering of the short position. What's interesting is, if we go back and we compare the spreads to a month ago, like March, May, July, we actually saw that the carry strengthened throughout the month. Not only were funds selling during November, we also saw commercial selling. Why is that?

Again, there's just really no demand. Yes, we've seen an uptick in exports. Again, it's compared to last year when we didn't have any corn, and so we weren't moving anything. It's a little bit misleading. I can look at the numbers and say, "Our total sales are 33% above last year." Well, we didn't have any corn to sell last year. It does make for a bigger number this year.

Overall, demand just isn't that strong. We can see basis now versus the March futures contracts running below its previous five-year low weekly closes. That's not bullish. Certainly not going to be something that's going to keep non-commercial buyers interested for any length of time at all.

Michelle: Yes. Soybeans under some pressure this morning as well. The meal market's under pressure. Is that just this market looking forward to some of these extended forecasts in Brazil?

Darin: I think so. Again, with bringing in the bean meal, it's been under pressure this week as well for the same reason. Argentina just didn't have much of a crop last year, and they're still the world's number one exporter of soybean meal. I think traders are just looking at weather maps. Fundamentally,

both soybeans are still neutral, soybean meal is still bullish. That hasn't changed. Certainly, not going to change heading into this weekend. If the rains don't develop, then it would not be surprising to see buyers jump right back in to the oil seed complex as a whole.

Michelle: Let's talk about exports here, though, on soybeans. Obviously, we're still behind year ago pace, but we did have some more export sales this morning. I think another 12 million bushels. China has been back in buying, but do you think we can get caught up here, in terms of exports?

Darin: I don't think we're going to get caught up in the normal time frame when we do, which is the first six months of the marketing year. From September through February. I think we're going to stay running behind. We're something like 15%, 16% behind on my projected pace in total sales, or something like 16%, 17% behind last year. I don't think we're going to catch up. If there is a problem with Brazil's crop, and they're most likely, the weather is most likely taking the top off of that crop, even though it is just now turning summer. If there is a problem with Brazilian supplies, and as much demand is coming out of China, they may-- China and unknown destinations may be forced to buy more US soybeans later in the marketing year than what we usually see.

Meaning, after February, after we have a better feel for what Brazil's production is going to be, up until then, we're going to continue to see sales like what we did this morning. It's nothing extraordinary, nothing out of the usual, and we should continue to run behind last year's pace.

Michelle: Yes. The same is true for corn, in terms of watching South American weather, and that crop. Again, that's something that we're going to trade maybe down the road just a little bit of the ways. All right, cattle market. Let's talk about that one. Obviously, it was a real big sell off that we saw. We tried to recover on Monday. Where do this market going? Are the funds done liquidating in this market, Darin? What are we watching? Cash trade was lower again this week, so I'm sure that didn't help.

Darin: You raise a great point. Funds, if they decide to start buying again, then what we could see is, we could see one of these rubber band dispositions start to develop, because both the cash index for live cattle and feeder cattle, both went to new four-month lows towards the end of November. That's a bearish reversal pattern long term on those monthly charts.

We've seen some fund liquidation. Now, if they start buying again at the same time, the cash indexes or the intrinsic values of the markets are starting to trend down. Then, you've got something, in order that, ultimately, is going to lead to another round of non-commercial long liquidation, unless something dramatic happens over in the cash market. To me, we're at a tipping point up here.

I thought it was interesting that both cash indexes hit new four-month lows. At the same time, futures market seems to be stabilizing ever so slightly, and see if we can start to draw some buyers back in. We also have to think about outside markets because there is a tie between live

cattle in the live cattle industry, and what we're seeing in the stock markets. The Dow Jones hit a new 2023 high just as November was coming to a close. You've got a lot of forces pulling the cattle industry, the cattle markets in different directions. It's going to be interesting to watch how it plays out here in December.

Michelle: Yes. Well, hopefully, the lows will hold and the uptick today, hopefully, we can hold on to a little strength here as we end the week. You mentioned the Dow though, new highs for 2023, and this at a time when we've had so many naysayers here about the economy.

Darin: Yes, it's amazing. I shouldn't say it's amazing, but it's interesting. Everyone has an opinion and 90% of them seem to be bearish, despite the fact-- If economists believe that or not, that's entirely up to them. Most of the economic data is showing a stronger economy. We've got, US stock index is pushing higher. We had the Dow go to a new 2023 high. We've got the S&P 500 just short of that. We've got treasury futures that posted bullish reversal patterns, meaning, yield should start coming down, which is a reflection of interest rates, eventually, should start coming down as well. You've got all of this going on, yet for reasons outside of market analysis, and looking at markets, and understanding what they're telling us, for reasons other than that, we've got a lot of bullish, bearish opinions about the overall economy, and the state of the United States at this point.

I think we can set aside about 99.9% of what folks are talking about. If we just look at the markets, it's not as gloom and doom as what most want to talk about.

Michelle: Yes, and one of the big components is energy, and crude oil is down. What? We're in a bear market now there?

Darin: Some would say that we are. Again, if I look at the long-term monthly charts for both West Texas Intermediate, which is the US domestic market, and Brent, which is the global market, I still see long-term uptrends though. We are in a two to three months sell-off, which is normal for an uptrend. We get these pullbacks. The key will be, if we can hold the 2023 lows here over the coming months.

Then, if we don't, then I would say that we've slipped back into bearish markets for now. I think we're going to fall back a little bit seasonally. About time we get through mid-December, the rest-- We start to see the energy sector, as a whole, start to trend higher. It'll be interesting to see if we start to find some buying interest. Fundamentally, these markets have changed.

They're not as bullish as they were, despite the fact, despite all of the different moves that OPEC+ has been making over the last six months. It'll be interesting to-- Again, this is just going to be another interesting sector to watch play out, as we move into '24.

Michelle: Yes, it was interesting to see a, "buy the rumor, sell the fact," yesterday with the OPEC announcement, and the market go in the opposite direction. What do you think about the dollar? We're well off of highs, but where does the dollar go now? What is it indicating about the economy?

Darin: The dollar is interesting, because it's the outlier. It's still in a long-term uptrend, but from everything that I've said before,

with what we saw, what we've seen in the treasury futures posting bullish reversals, that would suggest the dollar should start coming back down, unless there's just enough global interest, enough global investment interest in the dollar to break it away from its usual relationship with treasury futures. I still see the dollar from a technical point of view. I still see the dollar in an uptrend. Fundamentally, if we're looking at treasury starting to move higher, and yield starting to come down, that would certainly weaken the argument for a stronger dollar. That, it's again, it could break, probably fundamentally, it should break down some more. From a technical point of view, it looks like it's got some more room to the upside yet.

Michelle: We're into the month of December, FOMC is going to meet this month. Are we going to see another rate hike? What about next year? Because there's already folks that are prognosticating that we're going to see rate cuts.

Darin: I don't know that we're-- Early on, if we go back to what Chairman Powell said in June, we would have expected, it would almost be a 100% likelihood that, since there hasn't been a rate increase since July, and he mentioned at the time there could be two more rate increases, that we would expect December to have-- The December meeting to include another rate hike.

With the different information that we've got, the data that's been coming in since, the tone of the interviews, and statements, and speeches that, not only Chairman Powell, but the Fed governors have been making, I would say that we're probably not going to see an interest rate hike here in December. We could, but I think the odds are against it at this point.

As far as rate hikes-- Excuse me, rate cuts, again, treasury futures are indicating that the possible change to an uptrend, I'm not completely convinced of that yet. I don't think cuts are coming soon. Possibly, by the second half of 2024, I think we could start to see, possibly, some cuts along the way.

Michelle: Yes, and PCE was out yesterday, and I don't know if that gives them ammunition anymore either, so we'll have to watch what happens. Thanks so much for joining us, Darin Newsom, Senior Market Analyst with Barchart. That is Markets Now.

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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.