What Caused Wheat to Spike? Will it Pull Corn and Soybeans Along for the Ride?

This morning I joined Michelle Rook, host of Markets Now, to discuss the sharp rally in the wheat market, along with the spillover effects on corn and soybeans as traders evaluate dry weather forecasts and trade dynamics. We also discussed the broader macroeconomic picture, including the Federal Reserve’s latest interest rate decision, cooling GDP growth, persistent inflationary pressures, and the weakening U.S. dollar, before concluding with an outlook on the cattle market's resilient fundamentals following recent border-related volatility.

Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. And here on Thursday, we are seeing just about everything higher except for the hog market. And Darin, thanks for joining us. Let's talk about the wheat market first. We've seen double-digit gains here today, and let's talk about what's driving it. We do have some Black Sea export disruptions. It looks like that has maybe escalated or gotten worse.

Darin Newsom: Yeah, that was one of the first things that jumped out at me this morning, Michelle, was when I checked overnight markets, was not only was the financial sector, which are U.S. Treasury futures, but the wheat subsector was, as you said, posting a strong double-digit gain. And so, you know, and I searched for some news and asked Barchart's AI analyst, Carl, what he thought. And it turned out, you know, that is exactly what you said, that the situation in the Black Sea seems to be deteriorating. There's getting to be, you know, heavier fighting, you know, at some key ports. They're bombing vessels and ports and grain facilities and so on. And I'm not gonna say I found it amusing, but I found it interesting that Russia's next plan is to arm grain vessels with machine guns and missile launchers. So this thing is deteriorating. It's taken four and a half years. Really no progress on any front has been made. And again, it does seem to be deteriorating, and it does raise a big question, you know, regarding, you know, Russian wheat exports to the rest of the world.

Michelle Rook: Yeah, and I know Russia at this point, three ports are actually, I think, non-functional through their major ports, so it's slowing down Russian exports. And at the same time, Russia, I think, has tried to offer lower priced wheat, but who wants to take that wheat right now with the risk? They don't wanna, you're a shipper, you don't wanna take it, do you?

Darin Newsom: Probably not, but I mean, if we think about Russia's biggest customers, they're going to probably sign up for some cheaper wheat. I mean, talking about India, Egypt, you know, some of these other countries that just aren't going to look at the United States regardless of what's happening. So, you know, if they can get some discounted wheat, they may be willing to take that risk, particularly if it's just, you know, if they're not short bought at this time, if they don't ask, if they're not critically needing it, they'll certainly sign the, you know, certainly sign up for some.

Michelle Rook: Darin, how high do you think the market needs to go here to price this disruption in, or is this just some short covering yet in SRW where the funds are short?

Darin Newsom: That's a great question, Michelle. And I think what we have to look at is fundamentally the market hasn't changed. If we look at the SEPD soft red winter spread, it's still covering a bearish 70% calculate full commerce carry. Hard red winter is neutral to bearish. We've got basis in soft red winter, national average basis here in the U.S. running at average at best while hard red winter remains weak. So what we're seeing is that, you know, the U.S. isn't going to run out of wheat. The world's not going to run out of wheat anytime soon. So this looks to be more of a non-commercial play. We already know that funds have moved to a net long position in hard red winter and hard red spring. And I was actually thinking last Friday's commitments trade report would show the same in soft red winter, but it didn't happen. And this past Tuesday to Tuesday non-commercial positioning week saw September soft red winter lose more ground. So indicating funds actually added to the net short. So that, so they've got more to cover now. And if there's no real commercial selling on top of this or the commercials are sitting back waiting to see how high it goes, then I think, you know, there's a bit of a vacuum up here that the market could spike a bit.

Michelle Rook: Wheat is actually pulling corn and soybeans up today, you think?

Darin Newsom: I think it's possible. It's fun to say, and, you know, coming from, coming from the wheat state, you know, I would certainly like to point out when there's a possibility that wheat's actually leading corn and soybeans because the other two are always in the spotlight, but it certainly could be, it could be that this morning, you know, because corn and soybeans are interesting in that they rallied overnight and through early Thursday morning, but there really wasn't any big move. There wasn't any big volume, at least not yet. So again, I think, I think most of the attention here is going to be on not only on weather for today, but as we get closer to the weekend, will the rains that are in the forecast pan out or will it just be another dry next few days?

Michelle Rook: For sure. And that's really what weighed on the market yesterday are St. Soybeans 30 cents is these chances for rains in a good portion of the Midwest, including the very, very dry Northwestern Corn Belt. If those materialize, do you think that the party, the rally, is it over in soybeans?

Darin Newsom: Short-term, yes. And I know that was the theme. And again, I checked with Carl and that was the first thing he said about the soybean selloff. But to me, there was more to it. I mean, you don't just break 30 cents on a forecast. You actually have to see something that's happened, see a dramatic change, not in weather patterns and the long-term pattern hasn't changed. So to me, the bigger issue remains trade, remains demand. I don't think this is a supply, exactly. And even though China wasn't necessarily mentioned in the latest round of 60 tariffs, it's just the overall theme that the trade war with China is going nowhere. Brazil is still going to do well. We've made both Brazil and Argentina great again as far as their agriculture goes. And to me, that had more weight on it as far as what we've seen this week with two big selloffs.

Michelle Rook: Well, China, actually there was talk yesterday that maybe they were helping to supply some missiles to Iran. I don't think that helped the psychology of the market, but we did at least have a flash sale this morning of soybeans to China, 4.85 million bushels of new crops. So hopefully that can help stabilize the market. When you look at corn and soybeans from a technical standpoint, we had a 50% retracement now in soybeans, but corn is actually holding up better, isn't it?

Darin Newsom: It is. And what really had my attention in the corn market at Wednesday's close, because we can basically throw out most of what we've ever used in technical analysis as far as patterns and this and that and things that we look at. And we just have to look for the statistics that the algorithms may have coded into their equations. And so, one of the things I've been noticing is in corn, it's been a 90-day moving average. It's a little bit oddball because everybody wants to talk about the standard 100 or 50, 100, 200, whatever. But if we break it down and look at it specifically, corn seems to be moving to its 90. And what we saw at Wednesday's close was Dec corn closed below its 90-day moving average, but it didn't trigger another round of fun selling, at least not yet. It still could, again, if we just look at the daily close-only charts. So that is a possibility. And both Dec corn and Nov soybean seem to have moved or look to have moved into short-term downtrends. And so that would tell us that there is some more downside risk, at least in the short-term, making me wonder if there is still some little bit of weather derivative markets still alive in both, and they're still looking at forecasts heading into the weekend.

Michelle Rook: Yeah, for sure. We've corrected like 60 cents in soybeans, so we're probably due for a little bounce here as well. The other thing that may be helping the grain complex including or especially wheat is the lower dollar today. Let's talk about the whole outside market environment right now. Fed left interest rates unchanged yesterday. Oh boy, the bond market, the stock market did not react like that, did it?

Darin Newsom: No, it didn't. I mean, I will say U.S. treasuries. And again, one of the first things that I noticed this morning was the U.S. treasury futures were under pressure and yields were going up. Again, indicating that the market believes that there are a couple of rate hikes necessary here over 2026 and possibly more in 2027. But what we've seen in stock markets kind of didn't really fit what we're used to seeing and the fact that the U.S. dollar index weakened when its key fundamental of interest rates looks to be going up. So that didn't fit either. And really what I've been reading, the commentary that I've been reading after the FOMC report and its statement on Wednesday afternoon is, the general theme is there's just a lack of leadership at the Fed right now. There's no clear signal as to what comes next. They're not going to be looking at dot plots. They're not going to be looking at certain statistics. And the reason why is that the person in charge, and I don't mean Fed Chairman Walsh, but I mean the person who's actually in charge doesn't understand any of that. And so there's no need to use it anymore. And what really stood out to me at the conclusion of the Fed meeting was the fact that there was three votes, there was three governor votes to raise rates this time, to do a 25 basis point hike this time. And it didn't happen, it was nine to three vote. And so I would not be surprised, legal or not, to see the next round of headlines that the U.S. president's trying to get rid of those three Fed governors. I think it's just a matter of time before those headlines break.

Michelle Rook: In the meantime, you had PCE data out today, 3.3%, which was a little cooler than expected. GDP, though, down, or was only up 1.5%. And so the economy is actually growing at a slower pace than expected, right?

Darin Newsom: It is. And I think to most people, that is a concern. But it's not a huge surprise. And as far as inflation goes, we know it's stronger than what a lot of these indicators come in at.

Michelle Rook: Sure.

Darin Newsom: Oh yeah, just eyeball test. You can go to any store, look at any sector, from automobiles to food, to fuel, to homes, to whatever. And there's just inflation everywhere. And so it's not going away. And so the Fed really has no choice but to raise rates on the idea that it should strengthen the dollar, which is the way you combat inflation. But the problem that the dollar is facing right now is that theoretically it should be going up on the idea interest rates are going to go up. But the rest of the world has basically given up on the United States, anything associated with the United States. So we continue to see selling in the dollar. They're looking for other currencies as a benchmark. Maybe it's the Euro. Could possibly even be the Canadian dollar. It could be anything. They're just not, there's no confidence in the US financial system at this point.

Michelle Rook: Finally, let's talk about cattle. We're up again here today. We've had a pretty good recovery after the border reopening news. Do you think we can continue to recover here?

Darin Newsom: Yeah, the border reopening was misinformation and the news. So we know that, you know, it was done for a political reason and that's all there was to it. What I found interesting in Monday's meltdown was that as funds, as algorithms were just unloading both live cattle and feeder cattle contracts, the deferred feeders closed limit down. What we saw in the nearby issues was commercial buying. Now, why would that be the case? Why would we see commercial buying in that sort of situation if we're all of a sudden going to be flooded by all these cattle, all this beef, because it's simply not going to happen. And the commercial side of the market knows that the fundamentals have not changed. We are still looking at short supply situation. And by all indications, even with the GDP numbers that we saw this morning, by all indications, US consumer demand for beef has not slowed down. At least it hadn't through the end of June. And so, you know, if we look at the cold storage numbers. So, you know, the idea that, you know, everything is going to suddenly change because of this miraculous opening of the border, which simply is one post in Arizona and that's it. The market hasn't changed and it's not going to change anytime soon.

Michelle Rook: Okay, appreciate your insight. That's Darin Newsom, senior market analyst with Barchart and Markets Now.