This morning on Markets Now, I sat down with Michelle Rook to unpack the latest shifts across the corn, soybean, and wheat markets. We also broke down the macroeconomic forces driving crude oil prices and what a hot CPI print means for consumer demand in the cattle market.
Michelle Rook: Welcome to Markets Now. I'm Michelle Rook, with Darin Newsom, senior market analyst at Barchart. We've got quite a bit of green over in the ag space this morning, a few exceptions over in the hogs. Let's talk about grains first. We had such a massive sell pressure moment over in the grain space last week. It feels like we're oversold. We're seeing some short covering this morning. What is it, Darin? What's helping to lift the values over in the grains?
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Darin Newsom: It's interesting, Michelle. We did see a meltdown in the grains sector over the last couple of weeks, but particularly last week. A good deal of it did come from the non-commercial or the fund side. If we go from Tuesday to Tuesday, the previous Tuesday, a positioning week ending Tuesday, June 2nd, we saw just over 102,000 contracts decreased in the net long futures position in corn. Just a massive sell-off, as you said.
We also saw something similar, just not to the same degree, in soybeans. We saw July contracts in corn, down 20, 30 cents. We saw 40 to 50 cents or more come off the July soybean contract. Getting a little bit of a bounce in here, possibly a little bit overdone. Back in the old days, the old guys would say that maybe this is a dead cat bounce. It's just an old familiar saying for those who used to be trading in Chicago and so on.
The reality is, if we look at the timing of this, we've got the Goldman roll going on. It started last Friday. What we have is funds are getting out of the July futures contract in the grains, and so where do they go? In wheat, it's okay. You roll over to the September, and you keep going. This is for funds that have to be in the nearby futures contract. In the winter wheat markets in particular, the September contracts are the natural fit. You just go from July to September.
In corn, that's not necessarily the case. If you go from the old crop July and look out to the September, that's a hybrid new crop-old crop contract, so it has different supply and demand, different fundamentals behind it. Then, in soybeans, you've got the ridiculous, what I like to call the Jar Jar Binks contracts of August and September. Basically, they're just for comedic effect. They have no purpose whatsoever.
What we tend to see, or what we can see, is as funds get out of the July contract, they've ridden that horse as far as it'll go. They can sit back now and wait until the September either goes into delivery or December becomes top shelf, and November becomes top shelf. If there is a fundamental reason to do it, they can move later this summer over into and start buying the December or November contracts. That's what we see seasonally, when both those contracts start to find a seasonal low on their charts.
Michelle: My question, I guess, following up to that is, we've had a lot of money come out of the grain space because we haven't had a story. Weather looks to be better, we've taken out war premium. Are we adding a little war premium back in this morning because, obviously, the ceasefire is not holding, crude oil is back up, and do we need to put some war premium into this grain space, or could we see inflationary buying?
Darin: I think the term ceasefire shows just how truly stupid, how really stupid artificial intelligence actually is, because when you hear the term ceasefire, that's supposed to mean people have ceased firing on both sides, and it's never happened. It's a word thrown out there simply to manipulate the algorithm side of trade, and you get it to move. That's what we see. There's a pattern to these social media posts and headlines. None of it's real, but it does cause a real reaction in markets.
Yes, you mentioned how the energy sector is rallying again. Well, it should rally again. The fighting hasn't stopped. The situation hasn't improved. All of the markets in the energy sector outside of natural gas, which I don't really count at this point, are showing inverted forward curves. That's the difference, particularly in the crude oil market this year as compared to 18 years ago, when all of the talk was also of $150 crude oil, but we had a very strong carry in the future spreads at that point.
We didn't have the supply and demand situation to support the market. Could the grains piggyback off of this on the idea of inflation? It's possible, but I just don't see a lot of buying coming over into the grains for some of the reasons you mentioned. Number one, short-term, we've got leftover grain from 2025 that's going to be coming to town, putting pressure on both futures and likely basis.
As we look out to new crop, we aren't seeing any critical situation in the future spreads because, again, this has got to be one of the wettest drought scares I've ever seen, particularly early in the summer. All of this talk about super El Niño and all of these weather channel terms, they just simply haven't materialized. They still could. We've got the commercial side basically sitting on the fence right now, but there's no real attraction for moving money over into the new crop market, as I said, from a timing point or from a fundamental point.
Michelle: Let me throw this fly in the ointment. CPI out this morning, 4.2%. First time that we've been over 4% in three years. This is where I'm going back to the inflationary buying. Is there a possibility this will spook some of the money out of the equity sector with ideas of higher interest rates, maybe get inflationary buying to come back into the grains?
Darin: Yes, it depends on if that fly in the ointment's a screwworm fly. Just kidding. That doesn't make any difference. It's an interesting question because I do think that this strength that we've seen in US indexes really is hollow. I just don't think it has any support. I think inflation really is an issue. If the FOMC, if the Fed is allowed to do what it's supposed to do to battle inflation later in 2026, which is exactly what the Fed Fund Futures Forward curve is showing, that's a rate hike in either October or December, there's no November meeting, but in either of those two months, if it can do what it's supposed to do and raise rates, then that should bring US stock indexes down.
A couple of interesting things to think about here. Number one, the new Fed chair is probably not going to go against his boss, against who's actually going to be calling the shots. It'll be interesting to see how that develops. We have to keep in mind midterm elections are in November. If the choice is between making a rate hike in October or December, it's probably going to be in December.
I don't see the Fed chair going against his boss, against the party at the end of the October meeting. We've got that to deal with as well. Should all of this bring US stock indexes down? Yes. If so, could the money go over into grains? It's possible. Again, I think these long-term investment traders are going to be looking for sectors and markets within those sectors that have bullish fundamentals. That just simply isn't the grain markets outside of, say, soybean oil and maybe a couple others that fit the bill at this point.
Michelle: At this point, wheat, especially, this is the fourth day that we would be up. Do you think that the market is trying to bottom? Are the funds done liquidating, or do we get another bout of sell pressure, especially as we go into First notice day at the end of the month, either from more spec selling or farmer selling before delivery?
Darin: Yes. The winter wheat markets are interesting in the fact that seasonally they tend to continue to go down. They go down from, say, mid to late May through the summer. We've seen a bit of a bounce. Fundamentally, we know the soft red winter market's fine right now. The soft red winter crop isn't going to be a problem. We've got future spreads in the 70% to 80% calculated full commercial carry, granted there's an asterisk because they're using the lower variable storage rate. That immediately inflates that cost of carry percent covered.
Given that, we still know that we're not going to run out of soft red winter wheat anytime soon. The question is hard red winter. Here's where spreads are neutral. Could hard red winter see an earlier-than-normal seasonal low? Even with harvest just getting started, I think the odds are not particularly good that we just see hard red winter skyrocket from here, getting a little bounce here and there, tied to weather, rain delays, and these sorts of things as possible.
I think once combines get rolling and those supplies start coming down, we could see more pressure on hard red winter. Then, at some point, if those spreads get bullish and if we see basis start to firm a bit, then I do think we could see some funder money coming back into hard red winter.
Michelle: Do you think we'll see the same scenario, though, the first notice day selling in corn and soybeans as we go into delivery, I think it's June 28th?
Darin: I think it's possible because there's really no reason to be long on the markets at that point. Again, we're going to have leftover supplies continuing to come to town over the course of the early and mid-summer. It would make sense for futures to come under pressure as we head into first notice date for July and then expiration of July next month. I do think it's possible that July contracts could continue to come under pressure. How does that affect the rollover at this awkward time of the year, with the September and August, September and so on contracts, really not a viable target or a viable place to rest some money?
Michelle: Money flow will be interesting here, that's for sure, to see if we're starting to try to bottom, especially in corn and soybeans. Cattle market, we absorbed the new world screwworm news very well, or did the market just go back to trading its own fundamentals?
Darin: That's the key, Michelle. These markets are cash-driven. The screwworm is a fun headline for people to yell about and scream about and do all this, particularly now that Fido has been caught with a couple cases in Texas. We know the politicians are going to get all over this with midterms coming up later in the fall. The reality is the fundamentals of cattle markets have not changed. We still see future spreads saying it's a tight supply in relation to demand, both live and feeders.
We've even had a little bit of commercial buying coming and going in the hog industry, in the hog markets as well. I think what's really interesting, again, is the CPI numbers, the May CPI numbers that came out on Wednesday morning. Again, we're seeing inflation being a concern. We know this, and we know it should cause higher rates down the road. This is a bullish fundamental factor. At least the interest rates are a bullish fundamental factor for cattle because there's no incentive to increase the herd size from that point of view.
On the other side, the continued increase in consumer prices, I think, brings the tipping point closer where consumers are going to have to decide between fuel and high-priced beef. If something's going to break this market, it's going to come from the cash side, on a slowdown in consumer demand. The ripple effects are going to be seen, again, in the cash market, then in the future spreads, then in the futures themselves. I think we are reaching that juncture where a decision's going to have to be made. That eventually could actually change the fundamentals of the livestock, of the cattle markets.
Michelle: Yes. This is the tipping point because we're probably still seeing some buying by the packers to go into that July 4th demand period. Then after that, things get a little bit softer. The next couple weeks on cash is going to be pretty critical, isn't it?
Darin: It really is. It's going to be interesting because right now, the cash market doesn't really develop until-- Some of it's not even been developing fully until late Friday. You've got the markets bouncing back and forth, anticipating. This morning, we're seeing the July live cattle contract rally, again, expecting some strength in the cash market because it's running well below cash. Again, you're right. It's going to come down to the cash market. Until we start to see this fully develop, again, late in the week, it leaves a lot of room for the markets to move.
Michelle: For sure. A lot of volatility there. All right. Thanks so much, Darin Newsom, senior market analyst with Barchart in Markets Now.
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.
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