Grain Markets: Will Global Production Issues Continue to Push Wheat Prices Higher?

This morning I was interview by Michelle Rook on AgWeb's Markets Now. We spoke about the recent rally in wheat, soybean, and corn prices. We also discussed crude oil, interest rates, and the cattle market.  WATCH THE INTERVIEW HERE.

Michelle Rook: Welcome to Markets Now. I'm Michelle Roark with Darin Newsome, a Barchart Senior Market Analyst. Well, we have a lot of green on the board this morning over in the grains, cattle futures to the plus side, a little bit lower in hogs and markets like crude oil. Darin, let's talk about the grains first of all. Wheat has been the price leader. Are we trading global concerns there yet? I see Russia has had some decreases in production by some of the private firms, but is it that, or is it just short covering as you and I have talked

about before?

Darin Newsom: I think it's a little bit of both, Michelle. I think the majority of it has been short covering, because fundamentally, we just aren't seeing anything, and particularly, in the winter wheat spreads to tell us, the world's all of a sudden getting concerned about tightening supplies. How much do we trust any of the numbers? Who knows? Okay, maybe Russia's production is coming down a little bit, but it's certainly fueling the algorithms to continue to cover their short positions.

What will be interesting this coming Friday is, the next round of CFTC reports, particularly the legacy futures only. This is to see if funds have actually moved to a net long futures position. If so, it would be the first time, I think, since early October 2022 that funds were net long Chicago wheat. There's always something to keep an eye on, and that will certainly

be what I'll be looking at here Friday.

Michelle: Okay, so my next question to you is, even if we see production losses right now in the Black Sea, Europe, I guess they're concerned about too much rain there. Russia, maybe the frost concerns. Even if all that is true, does it mean that the US is going to pick up export business, and don't we have to pick up business for this market to keep moving higher?

Darin: Yes, a couple different questions there. Do I think the US is going to pick up some export business? No, I do not. The market certainly isn't indicating to us. We have incredibly bearish future spreads. We've got a weak basis. There's just nothing saying that the world is getting ready to knock on the US door for supplies. Could it happen? Yes. I actually forgot the second part of your question, but I don't know.

Michelle: Do you think the global production issues are a concern? You've got MATIF wheat, Paris milling futures moving higher. There's problems in Europe. Apparently, problems in Russia. Is it real? Is it big enough to move this market, or should it have?

Darin: I mean, it's moving it from a non-commercial headline following a trade sort of situation. Yes, I can't sit here and say, "We've rallied a dollar here over the last what? Week, week and a half." Yes, it's obviously enough to move the market. Is it changing the market fundamentally? No, there's an old adage. Anyone that's been around the wheat market for any time at all, knows that one bushel of wheat left over is too many, and the world's not going to run out of wheat.

We're just not there. It's just not going to happen. It doesn't mean the market isn't going to continue to rally. We've seen some long-term technical bullish reversals already created on monthly charts, again, despite bearish fundamentals. We've got quite a mix going on in the wheat market at this point, in the wheat sector at this point. Yes, the market's going to move. This hasn't changed fundamentally.

Michelle: Are corn and soybeans just following the wheat market at this point? Because we've had fund short covering over there too, haven't we?

Darin: We have seen some fund short covering, particularly, in the corn market. As I said, with the commitments of traders, what I'm really going to be interested in, not only with the Chicago wheat situation, the Chicago wheat position, but the corn position. They had trimmed it by a 100-and-some-odd thousand contracts, their net short last week, in last Friday's report.

From Tuesday-to-Tuesday, as through yesterday's close, July corn closed a half cent higher. Now, it did trade higher than that through the course of the week over the last five sessions. It's possible that we've also seen funds move from a large net short futures position in corn, to possibly a net long there as well. Now, I don't view that as overly bullish, because if they've already done that much buying at this time of year, how much is left in the tank?

If they've moved back to par, then it comes down to fundamentals. Do corn's fundamentals actually turn more bullish long-term? Does that bring some money in, or have funds overshot the target a little bit on this particular rally?

Michelle: Yes, let's talk about that because, really, we need a bigger weather problem to keep the funds continuing either to cover shorts, go flat, and then maybe go long in this market. Really, we've had a few problems in South America, but so far, not a big enough weather issue to keep going, is there?

Darin: I don't see, and I know folks will be up in arms about this. I just don't see a weather issue in the United States, not one that's going to because a dramatic decrease in 2024 production. That being said, from a technical point of view, the key price for the Dec '24 contract on the continuous monthly chart, it's up at 502 and a quarter. Early this morning, we were within five, six cents of that.

If we take that price out here in late May, it changes the technical picture considerably. It moves it from what had been a long-term downtrend since May of 2022. All of a sudden, we've got a bullish reversal saying, "This market could start to go up now over the next however long it wants to do it." I think we'll be keeping a close eye on that. I think

some algorithms will be watching that as well.

Michelle: We also have the seasonals in our favor right now, too. How long does that normally last?

Darin: I'd say we've got another three to four weeks, maybe just a little longer, because, again, seasonals are averages. Usually, by the time we get to, I think, the third weekly close of June, those have almost ran out of gas, if we're looking both at corn and soybeans. We are getting a little long in the tooth in the seasonal move. It's happening just as some long-term technical patterns could be turned bullish. Who knows? Maybe we do get some actual weather scares, what that start to change the fundamental look long-term as well.

Michelle: Yes. I mentioned crude oil this morning because crude oil is down again. We've had a correction of the highs there. Is money moving out of markets like crude oil into the grains for the time being, do you think? Is that part of the money flow?

Darin: I think it could be. Particularly, if we start to see these funds starting to build long positions. It t certainly wasn't something I was looking for because, again, I just didn't see the grain sector as having the fundamentals, the spreads and everything that would suggest funds were going to get interested, but here we are, and so, if they're getting out of the energies this time of year, grains are certainly maybe that next sector that follows what the softs have been doing for the last number of years.

Michelle: We also had CPI out this morning 3.4%, and right now we're seeing the equity market is pretty much recovered a lot of the big losses. Does it keep moving higher here, you think, with ideas that maybe the federal start cutting rates by third quarter?

Darin: What's interesting to me is, we've had inflation, we've had interest rate moves, we've done this, and we've done that, and through it all, US stock indexes have been in uptrends. In fact, shortly after the open, we saw both the S&P 500 and NASDAQ hit new all-time highs, so not only have they recovered some of what they lost here, what earlier this month, or whatever the case was.

They've gone to new all-time highs, and to me that's bullish, that's just bullish, so as far as the CPI goes, I just really like think it's far overblown. Like almost all government data, I just don't see it having that much of an impact. If we look at the Fed Fund Futures forward curve, I always have to be careful how I say that, it's still saying that the FOMC could make a cut after the September meeting, and that's what it's been showing us, and it really just hasn't changed.

Michelle: What you just said should be positive for the cattle market, but it looks like this big move up in the boxed beef values is what's really pushing that cattle market right now, right?

Darin: Yes, I think it's both. I think it's the big move that we've seen this week in boxed beef, now we'll see if it translates over to the cash market as well, so we've got buying coming back into the boxed beef, and now we've got to new all-time highs in stock indexes, so, yes, this should be providing some support to live cattle. Now, if it-- Now, we just have to wait and see if it finds some find some buyers.

We've talked about how basis was strong in the live cattle market with cash running above the June contract, so the idea was these two markets were going to have to come together, and right now it looks like June may be forced to try to catch up with cash.

Michelle: Yes, and technically, I think live cattle futures, nearby contracts got above some key moving averages again yesterday, maybe the funds will come back in here, and do a little buying too.

Darin: Yes, that's right. Funds look at a lot of different things, and they have everything built into their equations, and certainly, a number of them do use moving averages.

Michelle: You bet. Thanks for joining us. Darin Newsom, Senior Market Analyst with Barchart. That is Markets Now

[00:09:10] [END OF AUDIO]

More Grain News from Barchart

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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