This morning I was interviewed by Michelle Rook on AgWeb's Markets Now. We discussed the continued pressure on the corn and soybean markets, the cattle maket, natural gas, and interest rates. Watch the full interview HERE.

Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, senior market analyst at Barchart. A little bit of life and livestock again this morning with new contract ties over in the cattle complex for a third day. Over in the grain trade, well, we're seeing more pressure. Darin, it's been a pretty ugly week so far in the grains. Let's talk about when do you think the bleeding is going to stop. Beyond short covering, is there anything that would rally this market or could rally this market?

Darin Newsom: No, I don't think so. To me, it's market rule number six. It's something I like to talk about all the time. Fundamentals win in the end. When I say that, I'm not talking about the imaginary type of fundamentals that everyone's just breathlessly waiting for Friday. What I'm talking about is real market fundamentals. This is how the commercials put their positions on through, not only the cash index but basis and spreads. We can read what the commercial side is thinking, and then we know Watson, or the non-commercial side can also see that.

They can also see the real supply and demand situation, so they position themselves accordingly. In corn, we've seen the non-commercial net short future position continue to grow. There's really no reason for it not to at this point. We know the fundamental situation isn't going to suddenly change. We're just coming up on harvest. Some early harvest is expected at the end of this month in the far reaches of the corn-growing areas. It's going to bring more supplies into the picture. The available stocks to use are going to go up again. That's just going to continue to put more pressure on cash and basis.

Michelle: Right. Specifically on corn, of course, we're making more new contract lows here on Wednesday. Really, with historically high crop ratings, the market is sensing that yields are getting bigger. That's really what the market is telling us right now with the action, right?

Darin: Yes, you saw me laugh when you mentioned crop ratings because the folks at NASA have told me that those things are completely made-up and that they really aren't relevant. For those who like to talk about them, it's interesting that they don't really want to mention them this year because they are record-high. They're as high as we've seen since 2014. We knew this. People get tired of me saying this, but you could look at the September-December spread.

Not only could we tell that there was more acres planted early, but that those acres were in good condition as far as corn goes. The way these spreads have been acting, the way they've been trending down, which is meaning stronger carry, which is meaning also more coverage of calculated full-commercial carry. All of these things were telling us that this crop, we had more acres, and those acres were in good condition, and that we are moving rapidly towards the beginning of harvest. Yes, this is what we can see in the markets. This is not going to change anytime soon.

Michelle: Right, so you mentioned basis. Let's talk just a little bit about that because when you looked at the grain stocks report, it was pretty obvious, there had been a shift in who holds the grain. Commercials were owning or had in hand a lot more grain than they did a year ago. That is why we're seeing basis levels the way they are?

Darin: Yes, that's certainly a key part of it. As my friend, Tregg Cronin, used to always present on, it's called Grains' Golden Rule. It's the idea of Grains' Golden Rule, which states first basis, then future spreads, then futures. It all starts with basis. To me, we can take it one step further. It starts with a cash index or spot futures price in those markets that don't have a cash index.

When we just look at the cash index, we can see that the available stocks use based on the law of supply and demand, we can see that available stocks use, it continues to grow. At the end of May, and we have to remember, that's what the quarterly stocks was showing us was the end of May, that we'd seen a transfer of many of these bushels over into commercial hands because basis was indeed weak.

If we compare corn basis to its previous five-year averages, we were running near the low weekly closes. That's certainly not bullish. If we take it out to 10 years, we were running average at best or at the 10-year average at best. We were seeing pressure on the basis market. We're going to continue to see pressure on the basis market, particularly as some of these acres out on the far fringes of the US corn-growing area start to be harvested.

Michelle: Right. We've talked about supply. Let's talk a little bit more about demand in the case here of the trend of demand, especially when we look at export inspections. What are you seeing there? You think we're falling behind pace?

Darin: Yes, I don't look at inspections. That's just me. If we look at the weekly sales and shipments numbers, everyone wants to say, "Oh, look how strong corn exports are. It's incredible. It's amazing. It's this, it's that." It's not. Yes, we're running ahead of last year's pace, but we also have to remember. The last couple of years, we didn't move a lot of corn. Now, what's interesting to me is if we take the shipments and the average percent shipped week by week and we apply that and make it a pace projection, so we start looking forward based on what we normally do each week of the year, what we start to see is since the first week of November in corn, the pace projection for total shipments this marketing year has come down 400 million bushels.

The trend is down. It's for slowing of US export demand. I find the timing interesting. Again, the first week of November. Soybeans were down 200-and-some-odd-million bushels for that same time frame. Now, yes, some of this is seasonal, but I also find that its peak pace projection was the last week of October. I find those weeks interesting. We all know what happened after that. We all can see what the trend of export demand for US corn and soybeans has done since that time frame.

Michelle: Basically, you're suggesting that we had front-loading prior to the tariffs going in place?

Darin: Not just the tariffs. Yes, it's tariffs, but not just the tariffs with the US election, and the tariffs and reheated trade wars that it was going to bring with it. The rest of the world knew what was coming. Markets knew what was coming. They were doing all this front-loading ahead of time. What we're seeing now is the US has comfortably slipped or stayed in its secondary place in the global markets.

That's not going to change. We're seeing more production coming out of South America, Brazil in particular, year after year. They're increasing their area. They're just coming off of, or they're in the middle of, whichever it might be, a huge second crop of corn. Again, there's nothing to get excited about. These all make up what these pace projections that we're seeing, these decreased pace projections that we continue to see in both corn and soybeans.

Michelle: Is the trend that we're seeing with the lower prices, especially with new contract lows here in corn-- I even think we hit those in a KC Wheat September contract yesterday. Does this indicate that the market feels like these trade negotiations, these frameworks, are not going to lead to increased demand in the end?

Darin: I will edit myself and not go off on a tangent.

Michelle: All right, I can't bleep you, okay? You have to be nice.

Darin: Yes, so I will be nice. To answer your question, these "trade deals" and "trade negotiations," which is what they're called, yes, the market knows there's no reality to them whatsoever. It doesn't matter what is said. The reality is it's not going to change the supply and demand situation. The US is still going to be a secondary player at best in most of these markets. Again, that's just simply not going to change.

Michelle: Right, so the one market that has taken off, more new contract ties as I mentioned, in both live and feeder cattle futures yesterday. There's a case where we just continue not to have enough supply, really. It comes down to that, but demand has also been good.

Darin: Yes. Again, you're absolutely right, Michelle. Again, it comes back to rule number six, fundamentals win in the end. We can see these technical patterns. We can argue, "That's a top. This is a top. Market's too high. Price distribution's too high, new record-highs. These things should be coming down." "Should be" is always an important phrase. The bottom line is, fundamentally, both markets remain strong.

A good friend in the industry, in the cattle industry, told me that there's already been some 225 live traded in the South that the feeder cattle index is supposed to jump dramatically here later today, possibly tomorrow. Future spreads in both markets are still bullish. All of our reads on real fundamentals remain strong, remain bullish. This is just going to continue to provide support. We know the supply remains tight. As you said, demand still seems to be strong, despite the fact-- we look at boxed beef and we look at some of these other indicators, despite the fact prices are still historically high.

Michelle: The funds have piled in to buy in cattle. They've pushed to record-long in hogs. Okay, so they're looking at demand for meat. Meanwhile, they're very short in corn. They're very short in wheat. Is there any reason for them to get out of those positions at this point?

Darin: No, this is one of the things that funds like to look for. Money's going to flow again where fundamentals are bullish. It's certainly not the case in the grains. I think, if anything, we're going to see some of those net long positions in soybeans start to come out, unless they're trying to play the soybean oil market by being in soybeans. There's no reason for wide-scale liquidation to be seen in the livestock sector until those fundamentals start to change. Otherwise, they're just going to continue to push this market higher.

We've seen it in the softs over recent years. We've seen it to some degree in the metals, even though there's other factors that we have to take into account there. We've seen incredible runs in gold and silver on again, off again, sometimes in copper. The bottom line is fund money is going to continue to flow where fundamentals are bullish. It certainly isn't in the grains sector, but certainly looks like it's going to stay that way for quite some time in the livestock sector.

Michelle: Yes, although the outside markets, with the exception of copper yesterday and the 50% tariff threat, have been pretty quiet, haven't they?

Darin: Yes, they really have. It seems like some funds have accepted the fact that they are where they are. The outside markets are where they are. Now, one exception to that is over in the energy sector, where we continue to see a lot of pressure building there. In fact, natural gas is doing natural gas sort of things this morning, dropping 4%, 5%, 6%, whatever it is at this point. We are still seeing some activity over in the energy sector.

Again, not unusual for this time of year. For the rest of the markets, gold, metals, US stock indexes, US dollar treasuries, and these sorts of things, there's just not a lot to talk about. That will change as we get closer to the end of the month, and the focus shifts to the July FOMC meeting, which, even though to me, the outcome is there's no change in interest rates. It's going to be what the projection is now for the meetings to come.

Michelle: Okay, thanks so much for your analysis, as always, Darin Newsom, senior market analyst with Barchart. That is 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.