Behind the Grain Rally: Real Commercial Demand or Just Headline Noise?

This morning, in an interview with Michelle Rook on Markets Now, I broke down the driving factors behind the recent volatility in the grain trade, highlighting domestic crush strength and potential global supply shifts over speculative export rumors and traditional technical indicators. I also shared my outlook on shifting consumer demand in the livestock sector and the latest trends influencing commodity money flow. CLICK BELOW TO WATCH THE INTERVIEW.

Michelle Rook: Thanks for joining us for Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. Well, we started off with just a little bit of strength in the grains and cattle markets this morning, but we're starting to kind of push into negative territory in both right now as we move through the morning. Darren, let's talk a little bit about the grain trade. A big update yesterday led by soybeans. Weather was part of it, but a lot of talk that China was in buying soybeans, maybe five cargoes yesterday. If they keep buying, does this market continue to have to move higher, do you think?

Darin Newsom: It's an interesting question. I appreciate the way you asked that, Michelle. I mean, if they keep buying, let's rephrase that, if they are buying. We've heard these rumors so many times over the last 10 years, and so few times have they proven to be true. Now, given the way the market reacted coming out of the four-day weekend, or excuse me, the three-day holiday weekend, there was some commercial support. So it does tell us that it's possible there is more reason to believe these usually unfounded rumors a little more this time than what we've normally seen, because I found it interesting that after the close yesterday, when we saw the cash indexes come out, we actually saw basis firm. Now, of course, the most recent weekly export sales and shipments update showed export sales at a marketing year low. So were the world's largest buyers waiting for the market to continue to sell off? We did see a sell-off last week in the holiday shortened week, then rally a little bit on Thursday, heading into the weekend, still down for the week. So it is certainly possible that the world's largest buyers looking to cover some secondary supplies, where there's still a question mark, not only here in the United States, but in its main supplier in Brazil. It's winter season in Brazil at this point, and as they look ahead to the 2027 crop. So given the fact that the US price has come down, it certainly could bring in some of that secondary buy.

Michelle Rook: Right, and like you said, USDA did not confirm any of the business that was reported yesterday by some of the wire services. They said maybe five cargoes was bought by Costco. And like you said, nothing confirmed this morning on flash sales. So we'll wait for that. In the meantime, you mentioned the strong cash market, and not only are we talking about exports, but could that be processors right now that are bidding up to try to secure needs?

Darin Newsom: I think so. And this brings into an interesting situation here in the United States. Usually this time of year, we see demand slowing down, particularly on the export side. We don't have a domestic crush to fall back on. It's been different for the last couple of years where we continue to see solid crush demand. So the strength in the basis market, what tells us there's immediate term demand, certainly points towards domestic crush at this point for it to stay strong as we make our way through July and into August. So, again, if we just look at the market itself, we still see the bean oil futures forward curve inverted. So this tells us there's still strong demand for soybean oil. That soybean oil has to come from somewhere, and so it's continuing to crush U.S. beans. And so, again, I think that is where the strength of the U.S. market continues to lie.

Michelle Rook: Right. Of course, we are sitting back a little bit here this morning. Not unusual to have a little turnaround Tuesday either on profit taking, maybe even some farmer selling. But let me ask you from a technical basis on soybeans, we are not very far from $12 on new crop beans, nor the old high, the May high of 12.14. If we get above $12, get above 12.14, do you see this market technically running for a while or not?

Darin Newsom: Yeah, this is hard for me to say after 40 some years being a technical analyst, but I just don't read much into technical patterns at this point. I mean, we can go back to last week when the same November soybean contract posted or completed a bearish outside range, again, with its lower weekly close. So what happens on Monday, it immediately goes up and blows out its previous four-week high. Which was also set last week, which is a bullish technical pattern. So I don't think that the algorithms really, they don't look at traditional technical patterns. They aren't overly concerned about $14 in soybeans or say $5 in corn or the round numbers that historically humans have held as important numbers. What they're watching is things like moving averages, they're looking at volatility, they're looking at momentum indicators and these sorts of things. And they're bringing brought in, they're being included into the equations. And then all of a sudden these get topped off with kind of like what we saw yesterday with keywords in headlines saying, okay, it's going to be hot and dry, all right? So that triggers the buy orders and then we get this. And so, as you said, we're setting back a little bit on Tuesday. It's not necessarily a sign of increased selling. It's more of the fact that we burn through all of the available, most of the available buy orders on the way up to the degree of the rally that we saw coming out of the weekend.

Michelle Rook: Right. And to your point, whether it was part of the story yesterday that drove soybeans, but as well the corn market and today maybe a little consolidation, but as far as corn, do you think we need to be putting in some weather premium in that market?

Darin Newsom: It's possible. Again, if we look at what the market's saying itself, the commercial side seems to be relatively comfortable with the longer term outlook. Now, that being said, as we go out to say the March, May, May, July spreads, they're starting to lean more bullish. And so this tells us that the commercial side is looking out there and saying, look, we may not have a supply issue, but we could see continued strong demand. Probably not going to come from the US feed side, probably not going to come from say the, from the ethanol side. Those numbers are pretty well baked into the market. But so that tells us, you know, the third leg of the demand stool is probably going to be exports. So why would there be increased exports for the US? Well, there's weather problems in other parts of the world, most notably Europe. And yes, we don't sell a lot into Europe, but as you and I were talking about, you know, the US could get some of that business. Well, US is still the world's largest grower, producer of corn, exporter and user of corn. So, you know, it certainly opens the door to another year, kind of like what we've seen this year with strong exports of US corn.

Michelle Rook: But if you look at just globally, corn production, corn stocks, they're coming down. We're at 10, 15 year lows here in terms of global production, aren't we?

Darin Newsom: Yeah, you know, it's hard to say. I mean, what numbers are we going by? WASDE, those are just made up.

Michelle Rook: I mean- Well, let's use the International Grain Council maybe. I don't know, but it just seems like global numbers have started to come down.

Darin Newsom: Global numbers possibly have come down, but let's look at what the market's telling us. Is the corn market in an inverted forward curve? Absolutely not. Has it been? No. So, I mean, is our spreads a little tighter than they were before? Yes, so this tells us that we have, you know, we are seeing the, you know, the overall supply and demand situation tighten up a little bit, but is it less production? Is it this, is it that? Yeah, it's all of the above. We don't know. We don't know the actual numbers, but we can see that it's a little bit tighter situation, certainly than where we were a year ago and probably where we've been the last five to 10 years.

Michelle Rook: So you think maybe yesterday's rallying, especially corn, but maybe even wheat was just mostly short covering activity and so will it be hard to extend a rally here?

Darin Newsom: Particularly in the wheat market, yes. You know, again, we know the world's not gonna run out of wheat. Yes, Europe's having a horrible time at this point with weather, with hot, dry, and so on. So, you know, the idea is this could spark increased demand for U.S. wheat. We didn't see a lot of commercial buying in the wheat market on Monday. So that tells me that most of it was fund related and, you know, we still see net short futures positions in both hard red winter and soft red winter. In the corn, there was probably some non-commercial short covering as well. Again, as we look longer term, we can see those future spreads are not bearish. They're leaning bullish. So, you know, if funds have ridden the market lower, there's really no reason to continue to hold those positions because the risk right now is to the upside.

Michelle Rook: Gotcha. Well, and let's talk about the cattle market as well. We've had, I think, six or seven down days, at least in the feeder cattle futures. And so does that market look like we're kind of rolling over here from a technical standpoint or is this more seasonal or what?

Darin Newsom: Yeah, I think from a fundamental standpoint, there's some reasons to be concerned about the live cattle market. It's all going to come down to cash. We know boxed beef has been working its way down. And even though I don't necessarily believe the boxed beef prices, I think there's ulterior motives for how those are reported. But if we start to see a consistent pattern of the boxed beef market coming down, really it's illogical to think that the cash market's going to stay higher. And so this brings us, you know, we've seen the June contract go off board. We've got August running 17, $18 under cash. That's a strong basis. It's an incredibly strong basis for early July. And so this opens the door to a couple of different things. One, the futures market's going to come up to meet cash or two, cash is going to come down to meet the futures market to get more in line with what we normally see in basis. And so if U.S. consumer demand is starting to back down, if we are starting to see boxed beef prices lower, it makes more sense to think that the cash market's going to come down to meet futures rather than the other way around. And so this could start to bring that top that we've been looking for, you know, that finally U.S. consumer demand's going to begin to crack, maybe start looking towards other types of protein outside of red meat, so most likely poultry and so on as we make our way into late summer, into the fall.

Michelle Rook: And just quick, Darin, any changes you're seeing in money flow right now?

Darin Newsom: Yeah, to me, what's been interesting is the money flow into the soft sector. And again, this has to do with Brazil, particularly the two of its larger markets, being coffee and sugar. We've seen an extraordinary rally in the coffee market, sugar's following along behind. You know, what does this tell us about soybeans? Is there weather concerns for soybeans as well? And so if they want to play that card, if the funds want to play that card, they could certainly start looking to continue to push money over into soybeans in the grain sector as opposed to some of the other grain markets.

Michelle Rook: We do know there's some hedge funds that have been built to trade El Nino, so maybe that's part of it, don't know. All right, thanks so much, Darin Newsom, Senior Market Analyst with BarChart and Markets Now.