Will Soybean, Corn, and Wheat Prices Continue to Slide?

Soybeans - Rows of soybeans in a field

I joined Michelle Rook this morning on AgWeb's Markets Now, to discuss the recent slide in soybean, corn, and wheat prices.  We also talked about the weather, cattle and hogs, and interest rates.  Watch my interview here.


Michelle Rook: Welcome to Markets Now. I'm Michelle Rook along with Darin Newsom, senior market analyst with Barchart. Livestock futures have been mixed this morning, but are trying to push to the plus side in both cattle and hogs and over in the grain trade. We are lower except for just some slight gains over in the corn market. Darin, let's just talk about some of the pressure we've seen in the last couple of days here in the grains. Is that profit-taking going into the end of the month by some of these specs, especially in the soybeans, or is it commercial pressure?

Darin Newsom: I think we're seeing some commercial pressure. If we look at the spreads, if we look at basis in both corn and soybeans, I think we're seeing there's a mix. Some of these non-commercials are selling, but I think a lot of it is coming from the commercial side. We're getting closer to harvest. We have another holiday weekend. There is going to be some harvesting done over parts of the Midwest and Plains this weekend, particularly in the corn. We're just seeing the early stages of this. We don't have a lot of support right now on the cash side. There's not much demand from anywhere. Again, this has led to some basis collapse in both the corn and soybean markets, and future spreads are following the basis.

Michelle: Yes. Let's talk a little bit about demand since you mentioned that. With weekly exports out this morning, still we're lagging, aren't we?

Darin: We are. We've got one reporting week left in the 2022-23 marketing here for those folks who still follow that sort of thing. Corn is going to be down about 34% from last year, and it looks like soybeans are going to be-- Shipments. I'm talking about total shipments are going to be down about 7%. Now, what's been interesting, though, is particularly on the soybean side, we've seen increased new crop sales. They're not always reported, but every once in a while, we get kind of a bone thrown out there with a small sale made. Again, Thursday morning, we saw another, what, another 5 million bushels or something like that sold overnight, but the accumulation of it has been-- We've already seen roughly 475 million bushels sold for new crop soybeans.

This is interesting. We aren't replacing Brazil as China's number one supplier, but what it tells us is China has been shipping out of Brazil at such a rapid pace, and there is concern about what size the US crop is going to be, so they've been doing some buying on these sell-offs that we see in soybeans. Almost every night, we get the same sort of action. The market trades lower over the course of the day, flow a bit flat on the open of the overnight session, some commercial buying comes in within the first two, three hours of the overnight session, pushes the soybean market higher, we know what's occurring. Then, as the morning goes on, it turns into the day session. It all dies down again. It's become relatively commonplace and something that we can easily track.

Michelle: Like you say, the new crop exports on soy beans are really the only bright spot in the export picture here, but right now, it feels like we're getting a trickle. We got another couple of cargoes that we sold to China this morning on beans, but it's mostly residual, right?

Darin: Yes.

Michelle: They still bought most of their beans from Brazil.

Darin: Right. Brazil is their number one supplier. If we look at the USDA numbers for what they're worth, the WASDE numbers, what the projections are, is the US is going to ship about 50% of what Brazil ships this next year. That's just where we are. That's the way it's turned out. I think we can go back to January 2018 or something like that when we saw everything break and all the business go towards Brazil, and the US really struggled to make shipments. That's where we still are, and then it's not going to change.

Now, China having an incredible hog herd size, from what I've read, they've got an oversupply of hogs right now. They have to feed them something. Once they drain available supplies dry in Brazil, they are going to have to turn to their secondary supplier. We're at that time of year, we're in that September through February timeframe, where US soybean exports tend to pick up. Let's see what happens. Let's see how far behind the previous couple of years we are on the pace once we get rolling here in September. Maybe we'll actually ship more than what I'm thinking, but right now, it just doesn't look like it.

Michelle: That demand is pretty much indicated when we look at basis and future spreads here. You mentioned that already here when we were talking a little bit about all the commercial selling, right?

Darin: Yes, that's the easiest way to track it. Again, we do get the weekly updates, but if we want to know day-to-day, week-to-week, and so on what's going on, we can certainly watch national average basis. Certainly keep an eye on your local basis as well because that's going to be much different than the national. In these areas where they simply didn't get any rain, I was hearing from some folks in Illinois, the soybean crop just simply isn't there in their part of the world. I think we're going to see some basis strength in some parts, some weakening basis, let's say, across the US Southern Plains. Corn where feed demand kept them strong, kept basis strong for quite some time over the last couple of years. It looks like production's going to be a little bit better this year, so I think you're going to see basis backing off.

It's all very localized, but we can keep an eye on the national average basis and certainly keep an eye on the spreads, because that's where the commercial side lets us know what's going on. That's how they're positioning themselves.

Michelle: Darin, as far as the demand picture that you talk about, really, that's going to, at this point in your mind, overwhelm any yield losses we might see here for what we've had the end of this growing season in corn and beans?

Darin: Yes. Yield is just a number. It's a number that everyone likes to talk about, everyone likes to argue about, but it's really relatively meaningless. We have to take supply and demand as a whole, and we can see that in spreads, we can see it in basis. It really doesn't matter if corn yields 181 or 161. If future spreads are showing more carry and basis is weakening, it simply tells us merchandisers know that there's going to be enough corn to meet whatever demand turns out to be. That's really the key issue here is, what are the spreads doing? What's basis doing?

We've seen a great deal of basis coming against the December futures contract. November, soybeans as well. Some of this is just, again, cleaning up bins and everything at the end of this marketing year. Again, looking ahead into what we see for demand so far in 2023-24, just it isn't getting anyone excited about it. We're not seeing any basis push and we're certainly not seeing much buying coming into the future spreads.

Michelle: Probably the most bearish market is the wheat market right now. Some more new lows this morning. Talk a little bit about, are the specs going to keep selling that thing and pushing the short side of this market? Because we look like we should be hitting a low here at some point, but things are pretty bearish, aren't they?

Darin: It's an incredibly bearish situation in Chicago soft red winter wheat. This past month was a period where an averaging period where the CME was doing some storage calculations. They were looking at full carry each day for the September-December spread. It averaged over 90%, and the key was, if the averaging period ended at 80% or greater, then that meant VSR or at the higher maximum storage rate was going to take effect on September 19th, and so we've accomplished that.

The bottom line is it's just incredibly bearish. When you've got, the step Ds running over 100% calculated full commercial carry, you've got the Ds March running more than 100% full carry. There's too much wheat right now, soft red winter wheat to meet demand, and so the market's reflecting that. Now you mentioned the non-commercial side, the interesting thing is they are holding a net short, but it's a much smaller net short position than what it was, say, two, three months ago. They've got a good deal of room to the downside where they can continue to add this short position. With future spreads and basis, as weak as it is, national average basis is almost a dollar under in soft red winter wheat, why wouldn't they continue to sell? There's really not a lot of risk in there to them.

Michelle: Yes, I was hoping we were getting close to a low there, but I guess you're telling me that the bottom is not in. Okay, let's talk about, cattle and hogs. As we speak, we have turned more mixed, and let's talk about those markets because basically, we're chopping around in pretty sideways patterns in both cattle and hogs, aren't we?

Darin: We really are, particularly in the live cattle market. We just don't see much. We're building some premium out in the deferred issues and that would certainly say, looks like the commercials, the fundamentals are getting a little less bullish than they've been. We've made this argument for the last year, year and a half, and it really just comes down to-- One of the rules I have in the market, is a market that can't go down, won't go down. That certainly seems to be the case in live cattle. There's all kinds of reason for the market to go down, it just won't.

We're seeing boxed beef holding together relatively well. We'll see if that's been an indicator again for the August jobs numbers and employment numbers coming out on Friday. That's what I use as an indicator. It looks like there's still solid demand. Boxed beef is holding together well. Cash has been a little bit slow to develop each week. Packers have been sitting back, but with the strength in the futures market and boxed beef still holding together, looks like they might have to start paying up again for some cash cattle, and we'll see how long this demand is. We've pushed through the summer grilling season, and so now we'll see what happens as we move into fall.

Michelle: We had PCE out this morning, 4.2% up slightly from last month. What does that mean for the Fed, Darin? Talk about the outside market environment and what that's telling us about what's going on in the economy.

Darin: I find the whole Fed thing interesting. All of the hubbub over the Jackson Hole Wyoming Summit last week where Chairman Powell, again, came out and said, "Don't be surprised if we see another interest rate hike." He's been saying this for months after the last interest rate hike. The next meeting is on September 19th and 20th at the FOMC, so I'm fully expecting another 25 basis point hike. So far, really hasn't done much for the dollar. Everyone's talking about the dollar could strengthen. Every time it seems to show some buying interest and it starts to move higher, it falls right back down. Once it meets some technical resistance, it falls right back down. The flip side is going on in the Euro.

We've seen this year-long round of interest rate hikes and it hasn't really done anything with the dollar. I'm still thinking that the dollar's going to hold about where it is right now, maybe start to work a little bit higher. I still see long-term uptrends in the US stock indexes, so they could take a breather over the next couple of months as well. Most markets do. They don't tend to go straight up. I'm just not looking for a lot of change. There's going to be a lot of talk, there's going to be a lot of gnashing of teeth and screaming and yelling and all that sort of thing, but there's just not going to be real much change that actually matters.

Michelle: All right, thanks for joining us as always Darin Newsom with Barchart. 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.