Grains are back higher on Wednesday morning recovering after a correction Tuesday.
The market is once again being led by wheat, which is seeing more fund short covering and strong seasonals according to Darin Newsom, Sr. Market Analyst for Barchart.
However, is the market also trading U.S. and global weather and production concerns?
Newsom is doubtful saying even if the wheat production in the Black Sea and Europe is being compromised the U.S. has not seen any new export business yet as a result. He says that will be the real market sign that there are global crop problems. “The world still has enough wheat and so I think this rally is purely technical and about money flow and the funds covering their short position.”
Newsom is watching the recent CFTC Commitment of Traders Report because it has shown the non-commercial traders trimmed a big portion of their short holdings in all of the grain markets but especially corn and soybeans. He says the key will be if those traders want to continue to exit positions and even start going long in the grain markets. He says that will be the key to sustaining a rally unless there is a bigger weather problem that arises in the U.S. or globally. “I don’t think the market should be concerned about U.S. weather and planting delays because we always get the crop planted somehow,” he says.
However, he says with crude oil once again lower Wednesday and grains higher it might suggest fund managers are liquidating and moving into the grains.
The equity markets are higher with CPI coming in as expected at 3.4% and expectations of interest rate cuts by the Fed in third quarter. The S&P and the NASDAQ both made new highs during the session.
The rally in the stock market is supportive of the cattle market but it is also pricing in sharply higher product values and the huge discount to the cash trade.
