Grain and livestock futures are seeing red on Thursday!
Darin Newsom, senior market analyst with Barchart, Inc. says fund or managed money traders have stepped back in as the market is coming back to the reality that the grain fundamentals are bearish.
“We simply have too much supply for the current demand,” he points out.
Old Crop Export Cancellations
It didn’t help that the weekly export report showed net cancellations of -3.5 million bushels on old crop corn and -13.9 million bushels of old crop soybeans.
That trumped decent weekly new crop sales for corn at 80.6 million bushels and 41.6 million for soybeans.
USDA also reported flash sales of 5.35 million bushels of new crop corn to South Korea and 5.2 million Spain.
Wheat exports were solid at 26.6 million bushels.
Demand Not Enough to Chew Through Supplies
Regardless of the solid new crop export demand the market is seeing for all the grain, Newsom says it isn’t enough to chew through the available supplies and the massive crop on the way.
“The market is telling us that through the spreads. The commercials are just not worried about supply,” he says.
Weather is Just Too Good
Newsom says rains continue to fall in many areas of the Corn Belt, especially in the West, which is a rare feat.
So, right now there is no threat to the crop and that has caused the funds to step back in to sell.
Profit Taking in Soybeans?
After a three day rally in soybeans the market tacked on around 65 cents and then ran into chart resistance, so there was also some profit taking.
Or Lack of China Deal and Export Business?
Newsom says the run up in prices tied to President Trump’s social media post about China quadrupling soybean purchases has run its course.
“The market is realizing there is no deal and China is not going to buy U.S. soybeans,” he says.
He says the tweet was just an attempt to rally the market and he thinks China will hold off from buying U.S. soybeans as they have made it clear Brazil is there preferred source.
This comes on the heels of news that trade negotiators from the U.S. will not get back together to work on a deal for two to three months.
PPI comes in Hot, Will it Derail an Interest Rate Cut?
The Producer Price Index (PPI) came in hot at .9% which was well above expectations of .2% and now sets at an annualized rate of 3.3% with the CORE rate at 3.7%.
Is this enough to derail the possibility of a September interest rate cut?
Newsom says an October cut was more probable but he thinks these are made up numbers anyway.
“Inflation is here already. These numbers don’t mean anything. If you go to the grocery store you can see the inflation,” he says.
Could a Rate Cut, Inflation Spur Fund Buying in the Grain Markets?
What does this mean for inflation and the grain markets?
Newsom says he doesn’t see speculative money coming back in to buy grains even if inflation starts to rise because the stock market has been a more attractive investment.
“The funds look at the grain fundamentals and why would they want to buy? They are better off putting their money in the S&P and NASDAQ which are hitting new highs or even in the livestock futures which have much better fundamentals,” he explains.
