On Friday I was interviewed by Michelle Rook on AgWeb's Markets Now. She asked me about the downtrend we are seeing in wheat, corn, and soybean prices. We also discussed the surge in cattle prices and the energy markets. Watch my interview here.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook along with Darin Newsom, Senior Market Analyst with Barchart. We did see a little bit of strength on the opening right now. We're still a little stronger except for the hog market. A tough down day in the grains yesterday, Darin, today a little bounce. Did we just get overdone yesterday with the sell-off, you think?
Darin Newsom: Yes, it's possible. As I read about yesterday or Thursday afternoon, it looked more Friday session particularly here during harvest. We had most of the softs down—we had the grains down, we had livestock down. It was based in a sell-off. It was commodity-wide. It wasn't just eggs, commodity-wide, and selling energies, metals and so on. That opened the door to a bit of a bounce here on Friday. We still see the dollar firming, it moved within points of a new 2023 high. I think it's sitting at 105.88 from this past March. We got to 105.78 overnight.
We've seen this dollar continue to firm and went to a new four-month high this month, and it [inaudible 00:01:03] to firm. There's really been no change in some of the outside markets, and it just seems like getting a little overloaded in some of these commodities, and we start seeing money coming out or shifting around. It certainly seem to be one of those days when volume wasn't heavy, but it was heavy enough to drop everything into the red.
Michelle: Let me follow up though, in terms of that dollar moving higher. It's in response to some fear about macroeconomic picture here, and a little bit about what the fed said earlier this week about maybe us being at these higher interest rates longer than some people thought, right?
Darin: Yes. I think that was the key takeaway from what Chairman Powell actually-- what he had after the meeting the week after[inaudible 00:01:52] came to an end. So many have already been talking and have already penciled it in on their calendar and everything else. There [unintelligible 00:01:59] rate cuts in 2024. There really wasn't ever an indication that was going to happen, but that was one of the key talking points. Then for Chairman Powell, look, we may not only have-- we'll likely have at least one more rate increase here in 2023, but there's a possibility a couple of rate hikes still in 2024.
The key issue continues to be inflation, and we are ramming up against the non-transitory part of inflation at this point. We know the commodity side of it's more of a transitory issue from these kinds of things, and the labor market remains red hot. That continues to be one of the drivers of the non-transitory part of inflation. I know there's a lot of debate about the economy as a whole, I've been involved in a number of those.
A lot of it has to do-- and it's irrelevant what [unintelligible 00:02:49] of a lot of it is, but the key point is it seems to be the US economy is better than what a lot of folks really could be at this point. Inflation continues to be the problem. Until that starts to give way a bit, we can't expect to start cutting rates again.
Michelle: Yes. We'll talk a little bit about energy prices a little bit later on and what that might mean here for producers, but also what it might mean for what the fed has to do going forward, to curb that inflation. Let's talk a little bit about the other component that hurt the market yesterday, which continues to be demand. Exports were not good, especially for soybeans. Do you anticipate that's going to continue, or what would change that because we have so much South American competition?
Darin: The biggest thing that we have to keep an eye on right now is this is the six-month when [inaudible 00:03:42]. The US has to not only make its sales but ship what sales it has on the books. I think that's where the real issue is. The US simply doesn't have very many bushels of soybeans on the book. On the books, it's something like 600 million bushels of unshipped sales since that's down considerably. I think it was something 900-something million bushels last year at this time. It's a real concern is that we're not making that many sales.
We see every once in a while some small sales being made overnight. Wouldn't be surprised if there wasn't some Thursday night into Friday morning the way the market reacted.
By and large, we just don't have the sales on the books. Now it's getting difficult to ship what we do have because we've got a low river water on the rivers so we've got some beans backing up. Those are being harvested right now. We know US producers like to sell. Those beans are starting to back up at the terminals and so on, affecting not only river basis, but the basis into the interior as well.
We've got to work through all this. We need to make some sales. It's probably not going to happen. China's perfectly happy not buying from the US as much as it possibly can. Until that gets worked out, it looks like basis is going to continue to weaken for a bit.
Michelle: It's not just soybeans. We don't have very good exports for corn or for wheat at this point either, right?
Darin: Yes, that's right. We're not moving hardly. We're not moving much of anything in the corn market. It's the same issue. We've got ethanol demand, which-- this isn't the greatest time of year for ethanol demand. This is the time we, normally, starts to slow down. We're beyond peak driving season. Feed demand will get the latest-- the September 1 cattle on feed reports. What we can see is the way basis is active is that we know the cattle numbers just aren't as big as they were a year or a couple of years ago. There's not much feed demand either.
This is something that we've been talking about for a year now. We have to be careful with all three legs of US corn demand right now. They all three seem to be weakening, and again, with basis, and we can see it in spreads.
Michelle: Yes. Basis, we have to expect that's going to widen out here as we get into harvest. There's bushels coming at the market right now, right?
Darin: Yes, that's correct. We are seeing some harvest, but again, the difference between corn and soybean, everyone likes to tuck corn away.
We'll get through this and there will be some sales made. Some producers who have made pre-sales over the course of the last couple years, they'll go ahead and deliver those and those will get turned into cash and moved into the system. There's also-- Once we get through, say, the October timeframe, and we start getting into those bushels that were tucked away for storage, things we might see start to firm a little bit. I'm not going to say it's going to get as strong as it's been the last couple years, but it could force the merchandisers to push basis ever so slightly this year.
Michelle: You bet. Cattle market, it's obviously been an up-and-down affair here, but we made new highs, , all-time highs early in the week here, and then got cut up in the sell-off yesterday. Again, those market fundamentals have not changed in terms of the tight supply. Are you concerned about the economic side weighing on futures going forward, or do you think that the fund traders will latch onto that?
Darin: I think it's probably the fund traders where we need to be. They've built up a long position in both feeders and fads. I'm showing my age, the live cattle market, excuse me. They've got a sizable long futures position in [inaudible 00:07:18] The question that we just have to keep asking is who's going to be willing to buy up at these levels, as you mentioned?
Contracts are posting new all-time high, fundamentals haven't changed much. We've seen cash markets start to flatten out. Spreads have certainly flattened out. Who's going to be willing to say, up here around $200 April 2024, cattle look like a good buy or feeder cattle, $220, $250, whatever it is, like a good buy. It's hard to make that argument. Fundamentally, the market isn't getting any more bullish. It's still bullish. It just isn't any bullish. We'll see.
I think that's really where-- That's the vulnerability of the cattle market is they look a bit top heavy, but they've looked top for a long time. It's just if, all of a sudden, [unintelligible 00:08:00] this vacuum develop because buyers just simply step away. Does it have to do with the economy? Again, I would argue that the economy's probably stronger than what a lot of folks wanted to say it is. We look at the box, beef market, it was strong in August. It backed off here a little bit in September, but some of that is seasonally.
Michelle: Yes. We also are going into a cattle and feed report this afternoon. It seems like the tendency is usually to do some squaring ahead of that. That may be part of what yesterday was, because we did have some steady to actually a little bit better cash trade up in the North. Hog market, we're going to not talk about that one today. We're going to skip over and talk a little bit about the energy sector.
Crude oil, a lot of talk about it going to $100, but talk about what diesel prices and heating oil prices have done here, especially with such tight inventory.
Darin: That's the thing. We've known, for quite some time, that the energy sector, in general, is showing some pretty bullish fundamentals. We've got inverted, so on and so forth. We did have the selloff and the marked bottomed out. We've seen buyers coming back into this thing. We've got [inaudible 00:09:09] saying they're going to extend their production cuts out through at least December.
Not only is there market gains being played but there's political being played as well, so it certainly sets the table for what should be [inaudible 00:09:19] year. This is also just a seasonal time when diesel fuel, heating oil, all of them put together, that they tend to rally. There's certain [inaudible 00:09:30] buying coming into the heating oil market, and that's certainly helping push [inaudible 00:09:35] Europe is again looking for diesel fuel as well, so that's providing support, helping to push it higher as well.
Again we're just in the time of year when diesel takes the baton from what has been a strong rally in gasoline as well. It's just the heating oil, diesel fuel time of the year.
Michelle: Because inventory is so tight, do you think we're going to go back and retest the highs that we had last year or not?
Darin: I would be surprised. Let me put it this way—it's possible. I shouldn't say I'd be surprised because really nothing in this atmosphere would [inaudible 00:10:09] I think it's possible. Do we have any kind of strength? Fundamentally, yes. We still see the backwardation and the forward curve, [inaudible 00:10:20] see the type of buying coming in from the funds. That's what I don't know. If the dollar's going to continue to firm, that's going to make other investment opportunities probably a little bit more attractive than some of those in the commodity complex.
Again, if it comes down to a fundamental question funds [inaudible 00:10:39] fundamentally bullish market to invest in heating oil and crude oil are certainly going to be near the top of the list.
Michelle: Yes. They usually are. All right, thanks for joining us, Darin Newsom, Senior Market Analyst for Barchart. That's Markets Now.
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