Will Corn, Wheat, and soybean Prices Continue to Drop?

This morning I was interviewed by Michelle Rook on AgWeb's Markets Now. We discussed the recent action in the corn, soybean, and wheat markets. We also talked about the Fitch's downgrade of the U.S. credit rating, the cattle market, and crude oil.  Watch my interview here.www.AgWeb.com

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Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, along with Darin Newsom, Senior Market Analyst for Barchart. We're seeing kind of a mixed trade in the grains this morning. Livestock futures trading lower. Darin, it was a tough down day and everything yesterday. Some risk aversion there with Fitch downgrading US credit, and the stock indices also reacted to that as well. Do you think it was just kind of a blip on the radar?

Darin Newsom: Yes, I do. It was interesting looking at the close Wednesday afternoon. Every sector from financials through the commodities were in the red, or at least they weren't green at the end of the day. It did look like there was kind of a widespread, let's get out of our positions and recover and see where we go from here. Now, as far as the US stock indexes go, I don't see the Fitch thing as that big of a deal.

If we go back and read, they've been talking about poor US credit ratings basically for the last three or four years. It's just now they decided to lower the rating. They actually lowered the rating. I just don't see it as a huge deal. To me, what we're looking at here in the stock markets, yes, we closed lower on Wednesday. From what I understand, it's a little lower to open the day here on Thursday. We've closed many of these indexes, both the S&P and the Nasdaq.

We've closed higher five consecutive months, and at the end of July, both were at or near their monthly high, so that opens a trap door, I should say, for some selling to come into the market, take some money off the table. They're a little bit overdone, a little bit overbought at these levels, and let them come back for a while, let them settle back, and then as we head into fall again, later into the fall, we'll probably find some buying interest.

Michelle Rook: I started off with that because it was such a dominant influence on the commodity sector yesterday with everything down. Also, we've been trading weather, more favorable weather. Do you think the fact that soybeans are up this morning have we taken out enough weather premium, or is that in response to pretty decent exports in some more business to China this morning?

Darin Newsom: I think the biggest part is it's just a back-and-forth in the soybeans right now. I think the bigger picture is it's just not as bullish as it was before from a fundamental point of view. We saw what the switch from La Niña to El Niño did with Brazil's crop. It all quickly grew to where it's been reported as record size. We don't have huge acres. We did see a reduction in acres here in the US, but with the way the weather's changed, it certainly looks like yield's going to continue to improve. Production should continue to go up, supplies are going to increase.

The issue remains demand. Yes, we're making some small sales to China, but again, they're just kind of hand-to-mouth. We're still a secondary supplier. Are they going to step in with the US soybeans melting down the way they have? My biggest concern right now is we are seeing some pressure in spreads but it's basis. It's just collapsing at this point. I think we've lost something like 20, almost 20 cents in basis alone so far this week, and we're only at Thursday morning. I think it's something we have to keep an eye on, certainly indicating that the commercial side's growing very comfortable with longer-term supply and demand.

Michelle Rook: During that grain basis breakdown, not just in soybeans, then in all grains [crosstalk]?

Darin Newsom: Yes, we're seeing some of it in corn. It's not quite as severe in corn. We're still holding a pretty good premium to the September contract. Again, what I see here is that the US supplies have been tight throughout the 2020/23 marketing year. Yes, demand is slow. We've seen a slight uptick but nothing to get too excited about as far as export numbers go. We have seen a bit of an uptick. Basis is holding firm without really strengthening all that much.

 

The markets that we really see a hit coming is in the wheat. All three classes of wheat are running very weak basis at this point, with the fundamentals in Chicago, actually, some of the most bearish that I've seen over the last 30 years or so.

Michelle Rook: Wow. What do you attribute that to, that bearish outlook for wheat?

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