Yesterday I joined Michelle Rook on AgWeb's Markets Now to discuss the soybean, corn, and wheat markets. I also spoke about the stock market, the cattle market, and crude oil.  WATCH THE INTERVIEW HERE.

Michelle Rook: Welcome to Markets Now. I'm Michelle Rook with Darin Newsom, Senior Marketing Analyst for Barchart. We did see livestock leaning higher on the close today with grains all in negative territory and some new lows and new contract lows actually in corn and mini wheat contracts. Darin, I know there's a lot of people that are going to say, "Hey, this was a result of the USDA Ag Outlook Forum numbers," but we already knew that from what the market was telling us, right?

Darin Newsom: Yes. [laughs] I get a good laugh every year out of USDA Outlook, the Outlook forum, and how seriously some people seem to take it. I don't think the market cares about it at all. What we saw today was simply just an extension of the trends that we've been in since the spring of 2022. There wasn't anything dramatic. There wasn't any earth-shattering news in these made-up numbers. We'll see what happens going forward, but it certainly wasn't due to that.

The biggest thing we've got going on right now is that funds just simply have no fear of continuing to add to their net short positions. We watched March corn, which is going to be going into delivery soon, breakthrough $4.20. We saw the May contract testing $4.30. From much of the day, we saw a double digit sell off in soybeans before it recovered a bit. Again, just no fear on the fun side.

Michelle: In fact, the soybeans are not very far from the contract lows here down around that $11.45 area. Do you think that is a susceptible area on the charts?

Darin: The interesting thing about soybeans is if we look at the cash index and we look at the monthly close only chart, if we go back to April, it completed a head and shoulder top. This is a technical look at a fundamental factor. What it did at that point, was when we got that close in this past April, it projected a low monthly close of $10.25. Is there still room to the downside? Yes, in the cash market, we have not fulfilled the technical pattern yet. Does that mean it absolutely has to go that low? No, but it's interesting to note, again, with futures going to new contract lows, it's going to continue to push the cash market lower. A lower cash market also tells us that available stocks to use continue to increase.

Michelle: In your mind, are the funds just going to keep pushing the short side of this market? Because they're being rewarded as they do it, aren't they?

Darin: Yes, it's a money game. It's an investment. If there's still room to the downside, there's no reason for funds to get out. I say that the thing that could change this is if we get a contra seasonal move in the US stock index. The major indexes trend down in February and March, but if they start extending their long-term uptrends, again, that could pull some money out of commodities. Even these with bearish fundamentals or neutral fundamentals.

They could just say, "Hey, look, we've ridden these markets long enough. Let's get out. Let's move some money over into something else." Possibly even over into other commodities that have bullish fundamentals like energies or some other sector that looks to be going into a more bullish time of year and has the fundamentals to back it.

Michelle: Is the next best prospect maybe end of the quarter? Maybe they bank some profits and cover some of those positions or not?

Darin: That's always a possibility. Again, I don't know that there's as much window dressing that goes on as is believed, or at least it used to happen. I think funds have a different makeup at this point rather than the classic commodity funds. Obviously, it's more international, it's more computer driven. They're not going to be looking at end of quarter being a trigger. It certainly still could be, particularly if they've got big profits and they just want to book some of it, pocket some of it and roll it over into other markets.

Michelle: Fundamentally, is there anything in your mind that could turn this green market?

Darin: We're basically going to have to start looking out at new crop now for the most part and see if the weather gives us anything to start banking on a little bit. As far as old crop goes, we've got basis that really isn't going anywhere. It continues again to tell us that there's plenty of supplies to meet demand. I don't see an upswing in demand immediately that's going to change that situation all that much.

No, I don't see anything fundamentally short-term or possibly even intermediate term with the outlier being that May, July soybean spread possibly hinting at stronger demand. Some of this could be coming from soybean meal exports, some crush demand here at the second half of the marketing year. Overall, I just don't see anything to get overly excited about.

Michelle: No doubt. All right. We talk about the fund traders. Let's also talk about the algorithm traders. What are they watching in terms of their press on the short side of this market? Because they look at a little different things than some of the hedge funds and whatnot, don't they?

Darin: Yes, and that's one of the interesting evolutions of this market. I have the opportunity to visit with a number of algorithm engineers, coders, whatever you want to call them. It's not pure technical analysis. It's not classic technical analysis. That immediately puts an asterisk by any of these technical patterns that old chartists like myself tend to see on these charts. It doesn't matter if it's monthly, daily, weekly, whatever it might be.

What are algorithms looking at? It can be a number of things. It could be moving averages. It could be volatility. It could be momentum. It could be any sort of calculation or combination of calculations that trigger buying and selling orders. It's been interesting to watch. It used to be just headlines. You could feed headlines into these computers and change the markets, but it's not that way anymore. A lot of folks like to think of it that way, but it simply isn't. There's a lot more to it now.

Michelle: No doubt. We talk about money flow and I know that makes some farmers mad when I mention that, but it does have an influence on the commodity sector. You mentioned earlier about the stocks indices and we were making new highs and we had a little correction at the beginning of this week, but you said the seasonals are pointing lower. Do you think we'll get our typical seasonal pattern this year or not?

Darin: That's going to be interesting to watch because, again, we usually see a pretty decent sell-off in February and March. Everything just takes a breather from a strong move over the previous three to four months. If we don't get it this month and we're already seeing say like the Nikkei going to new highs and we're seeing some of the European markets continuing to press higher. We're going to continue to monitor these situations if we don't get that sell-off.

It just tells us when we get a contra-seasonal move and so it doesn't break this time, it tells us there's something fundamentally different. That there's more support, there's more money coming into the US stock indexes than what we normally see this time of year. That's certainly something to keep an eye on. Again, if that starts to happen, if we start to see the Dow and the S&P and so on pushing higher, that might be one of the saving graces if not the only saving grace for some of these grain markets at this point.

Michelle: Yes. What does it mean for the cattle market?

Darin: There is a tie between livestock particularly the cattle markets and US stock indexes. Usually, as the stock indexes go up, it adds support on the idea that folks are doing better. I'm not going to say that markets equate to economy, but there is a loose idea that, all right, if the economy is doing well, people are investing in stocks, they're doing other things besides just hoarding their money. If so, they're going to be willing to spend it on some other items, say like higher priced beef and that usually provides some support to the market. If the US stock indexes went to go ahead and go higher here in February and March and do continue to extend their uptrend, I think it's going to provide some support. I think it's going to keep some fund money coming back into the cattle markets.

Michelle: Yes, and funds are going to be really important to keep the rally going in the cattle. We've had a little correction here, but actually mostly higher today in the cattle and absorb some lower cash news, I thought pretty well.

Darin: That was interesting. It was earlier in the week this time around. I know they waited till Friday afternoon before much moved last week, but we've already got some trade going on at a couple of dollars lower than what we heard late last week. Whether or not this moves the market on Friday, we'll have to wait and see, but we did see some commercial support. Again, we were able to close Thursday with some decent buying across the board, both cattle markets.

Michelle: All right. Any other markets that you're watching right now?

Darin: I think one of the interesting ones, I think I mentioned it earlier, is in crude oil. This is a time of year for energies to go higher. Again, this is from a seasonal point of view. view. What we're starting to see in crude oil distillates, those two markets in particular, is some strong commercial buying coming into the market. Again, if we've been looking for diesel fuel, hopefully we've got it locked in here in the December-January timeframe, because it looks like the distillates market, looks like crude oil is getting ready to take off for a little while.

Michelle: Yes, we've been pretty sideways for a long time there, or several weeks anyways, so it looks like a little bit of a chart breakout, doesn't it?

Darin: It does. It does. One of the things that could do, again, throwing out traditional technical patterns, is, this could start to feed on itself, and again, could start to bring some more money, some investment money, fund money, into the energy sector. If so, again, that might be some sort of support to the grains, not necessarily on the old ethanol-crude oil tide, but just simply from the fact, funds have made a great deal of money to the downside in grains, they see that the fundamentals, at least the future spreads in energies, are more bullish, and that could start to attract some money.

Michelle: Something to keep an eye on, for sure. All right, thanks for joining us, Darin Newsom, Senior Market Analyst with Barchart. That's Markets Now.

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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.