Grain Markets: Where are Soybean, Corn, and Wheat Prices Headed?

Earlier today I was interviewed by Michelle Rook on AgWeb's Markets Now. She asked me about the recent action in the soybean, corn, and wheat markets. I also discussed the cattle market, gold, the stock market, and interest rates.  WATCH THE INTERVIEW HERE.

AgWeb.com

Michelle Rook: Welcome to Markets Now, I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Bar Chart. We're seeing a lot of red on the board this morning with the exception of hog futures. Of course, we ended a little higher in the grains yesterday, Darin, but well off of session highs and seeing pressure, especially in soybeans this morning. Is this farmer selling or the fact that we failed up at some chart resistance, or do you think it's the change in the weather?

Darin Newsom: I think it's all of the above. Michelle, I think you touched on some of the key factors here. We've seen some non-commercial short-covering in both corn and soybeans. What that's done is it's led to some increased pressure from the commercial side as cash sales are made. You get these spikes, and it's interesting the last two Thursdays we've seen similar patterns, particularly in the soybean market where they make this quick run up overnight due to early morning and then just basically collapse. In this last time around we saw it collapse through the following Tuesday's low.

I mean, whether or not we continue to see that is up for grabs, but yes, I do think it reflects the idea that you've got some non-commercial short covering going on, rightfully so. They hold extremely large positions in soybeans, and it's these rallies are met with some producer selling.

Michelle: No doubt. Let me ask you as a follow-up with as short as the funds are in all of the grains, will we see them take some profits off the table next week, especially end of month and end of the quarter? Are they already doing that?

Darin: That's a great question because, again, a lot of folks in agriculture don't view the end of March as the end of a quarter. They view I think it's the end of February is the actual end of like a marketing year quarter, but the trends of these markets are driven by investment money, and a lot of folks don't like to admit to that. Rule number one says, don't get cross waste with a trend. There's a reason for that, and that's because investment money funds set the trend, fundamentals and decide how strong or weak that trend is.

We are coming up on the end of the quarter and we've seen some money made to the downside in grain sector, but certainly to the upside in the equities and in other market sectors. I think there is the opportunity for some of these groups to take some money off the table, put it in their pocket, move it around, possibly look for another sector. One of them could certainly be source as we move into the next quarter. It's certainly been a hot sector for the last couple of years. Yes, I do think this is a time when we have to pay close attention to what funds are doing and how they are moving this money around from sector to sector.

Michelle: Yes, absolutely. Money flow does have an impact here. Also, let's dig a little deeper into the weather, because it looks like we have a pretty good storm system that's going to be moving into especially the northern parts of the corn belt. The rain makes grain, or at least moisture makes grain mentality is setting in a little bit you think?

Darin: I think it is, and I know we've talked about this and I remember writing a piece about it last year at this time too. Is it too early to be talking about weather markets and this sort of thing? I don't think it is. If we look at the latest drought monitor which comes out on Thursday mornings, and if we keep track of soil moisture anomaly maps, what we see is east of the Missouri River, particularly from Minnesota, across Minnesota, Iowa and into Missouri, we see the worst of the readings across the US Midwest and that's right where this next storm system is supposed to drop some precipitation, be it in the form of snow, rain, whatever it might be.

If so, that could certainly help some of those readings, and we'll see how much it helps some of those readings, as we as we slowly work closer to planting season, because this is going to be key. Are we going to have soil moisture once we get this crop planted and how that sets us up for the spring and summer?

Michelle: Yes, and it looks like we're going to get rain maybe all the way down into areas of the southern plains, so obviously that has some implications to the wheat market at the same time. It looks like there's some better rain chances for some of those dry areas of Brazil, so is that also playing into things?

Darin: I think so, there's a lot of talk about the El Nino situation, what its meant to Brazil, certainly what it means to West Africa and the cocoa market which is just the flip side of what it means for most of the western hemisphere, but what we're looking at here Brazil's situation could certainly improve. We still need to see some improvement here in the US, and you mentioned the southern plains. Its gone through a couple rounds now of sub-freezing temperatures early in the mornings and the commercial side basically has shrugged its shoulder.

What this tells me, I have to applaud them, it tells me the commercial traders know that wheat is basically the cockroach of the grain world, it takes a lot to kill it so what they're focusing on right now is a better chance of precipitation versus some of the cold weather we've seen here late winter, early spring.

Michelle: No, that's so true Darin, we always say wheat has nine lives and I think maybe a few more at some times. Let's also talk about the cattle market because we had record high cash trade yesterday, and then put in like the third reversal in a matter of a few weeks. Does it mean anything in this kind of market environment or not?

Darin: To me, it doesn't mean a lot, the cash market is really the key here. How long can it continue to go up? How long will packers continue to push the price? We have seen boxed beef also firming, but to continue to push the cash price means the first thing that it tells me is that supplies are still short in relation to demand, and we're heading into one of the stronger demand periods of the year seasonally. If that demand stays strong, if we continue to see consumers not afraid of the high price of beef and so on then yes, I think there's some more upside.

Do daily reversals mean anything? They don't to me, we can apply the Goldilocks principle here where it's just simply a daily charts are too hot, monthly charts are too cold and weekly charts are just right. What are the weekly charts? Tell us. Right now they're still showing up trends. We'll see. We'll see how long this can last. Again, it will come down to how much further the packers are willing to push the cash price.

Michelle: You bet. We like cash-led rallies for sure. At least cash-pushed rallies. What about the outside markets? You mentioned, we talk about the softs, but gold had a big run and then has pulled back now, and the stock market up into all-time highs. Impact on the cattle market and the grain market, even. What do you see as the impact?

Darin: I think we can start here with the US stock indexes. Yes, they have gone to new highs. A lot of folks saying, this wasn't possible, this, that, and everything else. The bottom line, trend is up. The long-term trend is up and it continues to go that direction. What this means is possibly, something I've been looking for, is increased non-commercial short covering in some of these sectors where funds hold short positions, particularly the grain sector. We see that. We've seen that, week in and week out for the last number of weeks.

As you mentioned earlier, this is being met with some producers selling, some commercial pressure. We're seeing that at work with carry strengthening in these future spreads, both old crop and new crop. You've got a bit of an equilibrium developing in the grains. At what point do we start to see some, I hate to call it profit-taking, but when they start taking some of the money off the table in the US stock markets or the global stock markets? That is a possibility, again, particularly coming up here at the end of the quarter. Do I think it'll have a long-term change on that sector or the grain sector?

No, I don't think so. Those trends still are really relatively well established. Again, as we talked about before, I do think we could start to see some flow, some changes in the money flow of these different sectors.

Michelle: Yes. Is that same theory you just used apply to thegold marketor not?

Darin: To a certain degree, yes. again, a lot of it went back to the Fed's decision earlier this week where so much was made, the Fed said it was going to still cut rates or there's a good chance that it would cut rates still three times. That shouldn't have surprised anybody. Anyone watching the market would know that. The initial reaction was to drive the dollar lower and gold shot up. Once reality set in, we've seen gold set back because we haven't seen the cuts in the rates yet. As far as the Fed goes, we don't really know when that could occur.

It could be June, could be later. That has helped support the U.S. dollar index here late in the week and put some pressure on the other side of the equation being gold.

Michelle: Yes, no doubt. Like you said, the Fed, we were anticipating that sort of announcement, but there was a little bit of fear that maybe they could have changed course because of some of this inflation data, right?

Darin: Yes, that's a hot ticket. It's a hot topic right now. It's one that folks like to debate. Do we have higher prices than we did before? Yes. Are they high prices? In the grand scheme of things, no. Those who lived through the 70s and 80s know what inflation is really like, what inflation really means. Yes, we have higher prices right now and there are a number of reasons for it. Has the Fed worked what I think relatively effectively to keep at least a handle on it?

Yes, I think they have. One of the things I really appreciate about the Fed at this point is that they front run their announcements with the different governors, even the chairman Powell himself coming out beforehand saying, this is what you should expect. This is what the markets should expect. Yes, they're still working on getting their handle completely on inflation. Again, inflation is a normal part of a business cycle. It comes and goes, and right now it's still with us.

Michelle: All right, we'll end on that note. Thanks for joining us, Darin Newsom, Senior Market Analyst with Bar Chart, and that's 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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