This morning I joined Michelle Rook on AgWeb's Markets Now to discuss the latest trends in the agricultural markets, including soybeans, and corn, as well as the Federal Reserve and recent movements in interest rates. Watch the interview here.

Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Market Analyst with Barchart. Seeing a lot of red on the grain and livestock board this morning. Darin, let's talk a little bit about grains, corn, and soybeans. Is this to be expected as we start to see this harvest ramp up?

Darin Newsom: I think so. I think it's a good way of putting it, Michelle. As we work towards the weekend, we know there's going to be some rains off and on scattered across the US plains and Midwest. It's just late September. We're going to start seeing more combines rolling, and there's more supplies coming in. We can see that. We can see it not only in the futures market. We can see it in spreads. We can see it in basis, the cash indexes, and so on. Again, it's to be expected this time of year. We're just increasing our supplies at this point.

Michelle: Yes. That's despite the fact that we've been hearing some reports off the combine that showed that this crop is smaller than what we got from USDA here last week on both corn and soybeans.

Darin: Yes. We could have a whole hour-long discussion on USDA these days. My thoughts are well known. Quite honestly, it doesn't matter-- Let's just take corn, for example. It doesn't matter if total production was guessed to be 15 billion or 18 billion. What we can look at is if we go out to that May-July spread and we see that it's still covering a bullish level of supply and demand, that tells us that for whatever reason, be it production, be it more on-farm storage, whatever the case might be, is that during planting season, and we're already expecting probably more corn acres next year, but during planting season next spring, the commercial side of the market's looking at the supply-demand situation tightening.

That May-July spread's covering a bullish level calculated for commercial carry. We can see that. Certainly, the investment side of the market can see that. Again, it doesn't matter what the production numbers are. What we know is that there is this belief, there's this outlook that it's going to tighten, the supply-and-demand situation is going to tighten by next spring.

Michelle: Right. Right now, though, we see basis levels very wide. You see that carry in the market on the futures board. The market is telling you to store, but really, are we going to have room for all of this crop, do you think? Are we going to have a storage crunch?

Darin: I don't think we're going to have enough room to store everything. Then it comes down to what I like to write about, the gambler's secret. You've got to know what to hold, know what to fold. This is where we let the markets tell us. Right now, the soybean spreads are covering more calculated full commercial carry than what we see in corn. Theoretically, it would make more sense if you've got your November soybean hedges in place, to go ahead and roll them out either January or March and wait to see if basis starts to appreciate.

Now, there's an asterisk tied to that because we don't know what demand's going to be. We may not see the seasonal basis firming against those deferred spreads. In corn, we still have pretty solid demand. Even though there's not as much carry in, say, the Dec-March spread or even going out to the Dec-May, you may see folks still trying to hold it, or just lifting hedges here at harvest and then just riding it out and seeing if that demand doesn't develop later this spring.

Yes, right now it is saying to just store and hold, but I think that's going to be more from the merchandiser's point of view. As far as producers go, the US is pretty predictable. They're going to hold their corn. They're going to sell their beans into the market. Again, we can certainly see that with the way the Nov-Jan spread's acting.

Michelle: Right. Let's also talk a little bit more, though, about basis levels on soybeans because right now they're some of the worst that we have seen since back in 2019, right?

Darin: Yes, it's pretty weak. I think my calculation Wednesday evening came in at something like 80.5 cents under November, and that's using the National Soybean Index. This is getting down into those areas we saw in 2018, '19, and '20, and we all know why basis collapsed back then. The situation's no different than it is today. We've got increased production and a huge question mark attached to any demand.

Again, I've already mentioned I don't take USDA's numbers all that seriously, but I know there's a lot of folks who do. Yet they really didn't want to talk about the WASDE numbers that showed the guess towards US soybean exports this next coming year coming in at only 41% of what Brazil's projected to export. We can obviously see, at least based on what USDA is projecting, a rather dismal-looking next marketing year for soybeans. It's hard to even call the US a secondary player in the soybean market anymore.

Michelle: Right. Export projection under 1.7 billion bushels. That is about as bad as it was when we had the last trade war, obviously. Speaking of that, all of market trying to pin hopes on the idea that we're going to get some sort of an agreement with China, but does that necessarily mean we're going to get soybean sales or ag purchases?

Darin: I'm going to try to be nice in saying this. There will not be a trade agreement. We have no idea what the US White House is going to say. They could certainly announce that there is a trade deal, trade agreement, but we've all seen this before. We've seen phase ones. We've seen trade deals. We've seen good talks. We've seen this. We've seen, "Oh, trade wars are good and easy to win." We've seen all of these things over the last decade, but the reality is there's no trade deal. The trade war is still going to be going on. That's just the way it is. That's the reality, and we can see it in the market. I don't think it's going to matter what it says. There's going to be a knee-jerk reaction, but we're not going to see a change in the basis. We're not going to see a change in the future spreads. These things aren't going to change the true, real fundamentals of the market. Going to be the same, just getting a little more bearish as time goes on.

Michelle: Yes. New crops may be in exports this morning. We are behind by 35% from last year. Corn may be a little bit better, or what were your thoughts about export sales and shipments this morning?

Darin: Yes, no real surprise. Again, the biggest thing when I start projecting these or when I start using pace projections based on the point of the marketing early on, it's really hard to do at this point because it's-

Michelle: It's early.

Darin: -still so early. We were just a little over a week, maybe a couple weeks into the new marketing year. You're going to see these wide swings. Generally speaking, yes, I think we are going to see the soybean pace struggle. China certainly didn't have anything on the books. Now, unknown destinations did at the end of the previous marketing year. I do think it's going to be a struggle.

We were seeing solid corn demand at the end of last marketing year. It's not too surprising that we've seen that continue over into early September. Again, marketing years, I think they're a little bit misleading because we just don't automatically shut off and start up again. It's a continuous flow. I think we have to keep that in mind when we start looking at some of these numbers.

Michelle: Got you. Fed announced their quarter point rate cut yesterday, pretty much as expected, but talk about what it might mean for the dollar, what it might mean for the ag space in general in terms of speculative money flow.

Darin: Yes, I thought Wednesday was really interesting. Initially, we saw the knee-jerk reaction of the dollar coming down, which would be expected, except for, as you pointed out, it was well anticipated that the FOMC was going to make a 25 basis point cut for a lot of reasons besides monetary policy. I won't go into all those. They did make the 25 basis point cut. There was a lot of argument, a lot of disagreement over what should happen down the road. I know there's voices in Washington still calling for much deeper cuts to the Fed fund rate.

Chairman Powell did say inflation is a concern still, but they're more concerned about unemployment at this point. What this tells us is that we know we're dealing with inflation, and if we just start lopping off 50 basis points, 75 basis points, and so on, inflation is just going to skyrocket again. The cooler heads at the FOMC are trying to keep the brakes on as best as possible, yet still placate those who need to be pacified a bit on the other side of the aisle. What it means longer-term, what I found interesting was that the dollar did not close lower Wednesday. It actually closed higher, and it's jumping again today.

A strengthening currency is not indicative of weaker interest rates. It actually shows us stronger interest rates. The reality of the market is that it understands that interest rates probably can't be cut as much as everyone wants to talk about, and that the dollar needs to firm to try to keep the brakes on this inflation problem that's only going to get worse as trade wars and tariffs continue to be increased over the coming years.

Michelle: It's been surprising that we haven't seen more inflation because of the tariffs. I know there's a lag effect there. The gold market, though, is it telling us the same thing, that the dollar is at these record levels or not?

Darin: I want to add just one thing. We have to use our eyes on the inflation, and I've heard reports not only from folks in agriculture but across the spectrum. Inflation is real, and I don't think it's reflected in the numbers. I don't think it's ever actually been reflected-

Michelle: I agree.

Darin: -because they're just government numbers, just like everything else. Now, as for gold, it hit a new all-time high again on Wednesday and then backed off. To me, this looks a bit like a vacuum trying to stay on $50, $60 here on Thursday morning, but this looks to be a vacuum. It just simply ran out of buyers. Longer-term, central banks run the world. Because of all the uncertainty being created by everything, I think central banks are going to stay interested.

I think they're going to continue to provide support. Yes, gold could back off a little bit, but I think it's going to find buying interest. I don't think it really matters what the dollar does, but I do think it's indicative that, yes, the rest of the world, including key people in the United States, key members of the United States, also see the inflation for what it is, and it's not good.

Michelle: Yes, for sure. Interesting discussion. Thanks so much. That's Darin Newsom, Senior Market Analyst with Barchart.

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.