Market Plus: Naomi Blohm (December 15, 2017)

Dec 15, 2017  | 14 min  | Ep4317 | Podcast | Transcript


Yeager:  This is the Friday, December 15th, 2017 version of the Market Plus segment. Joining us now is Naomi Blohm. Hello and welcome back.

Blohm:  Hi, thanks Paul.

Yeager:  All right, so we had an incredible week of questions and this is where I just make the pitch, thank you so very much for your following us on Facebook -- incredible response there. Also, on Twitter you can always find Naomi there and have conversations with her, and she always puts good stuff out. And the first question comes to us via Facebook, Naomi, and it's from Eric in Carroll, and I forgot -- I don't know, do you have your crystal ball or not, but what is the high for '18 beans and corn? And while you're at it, why don't you tell us the lows.

Blohm: Okay, I'm on it. I can do this.

Yeager: Okay, seasonally, we know certain things. Are those out the window now?

Blohm:  Um, no, not necessarily. So here's where it's tricky, though. Fundamentally speaking, with corn right now the most likeliest scenario is that prices stay between a range of -- and when I'm talking this range it's more like July futures, December futures -- between like $3.50 to $4.00  futures is the potential range from now until summer. And the reason I say that has more to do with technical analysis and long-term charts. So fundamentally speaking if there's no extreme weather issues anywhere, if everything kind of stays as it is, we will likely see a similar year to last year of quiet, long-term, sideways trade. So when prices -- futures prices -- get up to the $4.00 level that is your point to be making sales, and unfortunately depending on where you live in the country, your cash market is so much different. But that would be my best outlook. So things that could make that go aloof and prices either rally dramatically would be if South America has very extreme weather issues starting January or February,that would lower production which then puts more excitement on our upcoming crop year. Another thing could be if all of a sudden our export pace picks up and there's more corn demand for ethanol because all of a sudden we're exporting ethanol like crazy -- you know, the Trump administration came to Iowa twice and said, I'm not going to take away your ethanol. And what has happened on our USDA reports, those ethanol numbers go up. So that would be for the upside and the downside would be that if come harvest we have another humongous crop then the $3.00 target could become a possibility. So that's where we're at there. And beans kind a -- YEEE -- different story.

Yeager:  How do you write that for the closed caption? I want to make sure....

Blohm: Y-E-E-E-E. Yee. So with the soybean market they've been trading in a, in a sideways trading range. But if you look at a monthly chart, there is a long-term down-trending line and a long-term up-trending line that are coming together. And this is the crescendo point, essentially, of are we going to break out to the upside or not. I don't know is the answer, but right now producers have to be prepared for either scenario, or I can't stress that enough. Because if the downside happens that would mean perfect weather in South America, nothing happening here in the United

Yeager: Nobody buying our corn. Nobody buying our soybeans.

Blohm:  Right. And the technical downside would point to 50 cents in the short term, the bigger bears out there could argue, you know, $1.00 come harvest. So there's some extreme price potential to the downside if everything is hunky-dory. But now again on the flipside if weather in South America -- and we keep saying South America because they grow half of the world's soybeans -- so they matter. And on the upside then for prices to go higher, if they have bad weather things that happen there, if biodiesel can kick into gear and demand for that happens, things like that, then we could see the upside for soybeans be 50 cents higher in the short term, or a dollar higher. And then we'll finally get out of this trading range from a monthly perspective from the past decade. So 2018 is a big deal. It's going to set us up for the next few years. So I can't, like I said, emphasize enough you have to be ready for either scenario.

Yeager:  Anything can happen. All right, we touched on wheat and I asked a similar question here, we talked about drought, DM in Fremont, Ohio, he asked, when is the wheat market going to notice that Kansas and Missouri are in the drought area. We covered that in the analysis, but there's another story that is in conjunction or maybe in concert with this drought condition with wheat.

Blohm: Yep, so we're in the world, lacking the high quality and high protein wheat. And that is a consistent theme that is getting front page headlines around the world in major publications. So there is a lot of pressure for the wheat market in this country in general to have high productive year for the proteins, it's very important, and we are now facing another year where we are going to be planting the least amount of wheat ever again -- and we said that last year and we're saying it again. So if there ends up being a weather issue that occurs because of drought and if you look at the current drought monitor index, it's almost from the tip of Texas to the Dakotas, it is really vast and wide. And obviously, weather can change and it's not like it was in winter of 2011 going into 12, it's not that. But there's enough of a potential play coming that if a weather issue of legitimate concern happens here in this country the market would react. And we haven't yet priced in the smaller crop that is in Australia.  USDA didn't budge on that in the report this week, and people are saying, no the crop is smaller there. So keep an eye on wheat.

Yeager:  Okay. Well, another wheat-growing area is North Dakota, and Darrel in Upham, North Dakota, he's asking more on canola versus beans in North Dakota because we've seen so much corn take over acres there, now less corn. So now it sound like a debate: which one do you want to plant -- canola or soybeans?

Blohm:  And that is a question that we as an industry are wondering also, and the basis there is not good so I can understand why they might want to go back to some of their more traditional crops, like canola, sunflower seeds, sugar beets, things like that. I don't know what people are going to be actually planting but I'm anxious to hit the phones after the first of the year to get the scoop and find out what people are doing. I wonder if once people have committed to corn and beans, are they going to stick with them? You know, that's what I'm really wondering. But that would be a surprise to the market if some of those Dakota acres were reduced in terms of corn and soybeans.

Yeager:  All right, and Tammy had asked about hope for milk prices -- again covered in the analysis segment. So that brings us now -- we should have an open for this to have our Phil in Ontario, Canada question because we always have such great ones from Phil. He's asking his first question, nearby corn futures fluttering near $3.50 seems an uncomfortable benchmark, anybody or everybody's waiting for a rebirth, but how about the bear side, what takes us, Naomi, to $3.20?

Blohm:  Yeah, so on the show we talked about the reality of a price pushed lower to $3.40, and there's some good price support there. For us to go to $3.20 would mean that we're not hitting the mark on our exports. That would be the primary thing in the coming short term. Otherwise, it would be that we get through this entire growing season, and like we were just talking about if there is no weather issue and if with all these fancy hybrids we have another humongous crop, then at harvest, then you could see an argument for $3.20. I would say the short term, though not likely, in the bigger picture we learned our lesson on hybrids.

Yeager:  I'm going to ask you a follow-up with Phil's other question here. He's talking the January USDA report, he's asking if we're going to raise yields. Is that what you're referring to a little bit with the genetics comments or something different from that?

Blohm:  For pete's sake, I would be shocked if the USDA raised that corn yield again because they did that huge jump not too long ago. And talking with producers in Iowa even just this week, I was with producers in Des Moines, and they were saying, you know, it was a great crop, not necessarily as good as last year, but they were all 200-plus. I would be surprised if they raised the yield again, and the one I'm more interested in is soybeans because consistently it is not as good as it was last year. And even if you're -- like last year when I was on the phone with clients it was, oh, 70s and 80s all the time, and I think my low numbers that I heard were in the 60s. And this year it was more 50s and 60s, so I don't think that the bean numbers should get higher. That would be a surprise if it was.

Yeager:  Speaking of 70s and 80s makes me think I neglected to talk about the cotton market in the show. And in the beginning here, what's going on there?

Blohm: Yeah, triumphant rally in that cotton market and it started with rumors of the crop being reduced in India to bull worm. So that was the biggest thing that led the market higher and overall Chinese imports of cotton from around the world, not just US cotton but cotton around the world is up 40 percent. So the demand is growing, the factories are producing clothing in China, and they need the cotton. So that's part of the reason why market went higher, and on the USDA report this week we didn't see the reduction and ending stocks that many were hoping for, so the market paused for a few days there, but we made new highs this week. So I'm wondering, is this India cotton thing is there more to a story to it than that or is the demand stronger or because we punched through some resistance levels on longer-term charts, maybe this was the high and we see prices set back. So verdict is out on cotton. I need to get more of a scoop on the fundamentals.

Yeager:  All right, punching through resistance sounds like something you talked about, you and I discussed about a month and a half ago on an MtoM podcast -- we'll have to Tweet out that link when you cover some of those things, if you're trying to figure out exactly what punching through resistance. Jeremy from Lanark, Illinois asked a couple of really good questions. I'm going to just give you one here. Historically how long have the funds held onto a short position in corn? And then the follow-up was does history show this being more normal than long the corn market?

Blohm:  Okay, that is a good question, it's an important question because the funds have become their own fundamental. And regarding corn, historically speaking when the funds are short corn, anytime they get to where they're short about 200,000 contracts or a little bit more, that's about as short as they go. The question then becomes how long do they stay there and looking at charts that would show that, maybe a couple months is what they have done in the past. This last year when they exited the short positions and went long they went long to somewhere between 100- and 150-thousand contracts, and that's what it's been the last two summers. And then we didn't have any weather issues of subsidence so the market prices then fell lower. My fear, though, is that for this year with corn they do what they've done with wheat in prior years where they've stayed short for two years. And they don't care. And it's not that they're out there to sabotage the market. The funds trade fundamentals and when you have global carryouts that are humongous for both wheat and for corn, there has to be a story to emerge to get them to exit those positions and take profits and then reverse and go long. I'm hoping that they're done being short and that the market price can come up but the reality is that we don't have that story quite yet. So we may see prices suppressed for a little while longer.

Yeager:  I haven't heard much of a Christmas miracle in anything. Is there one market that gives you any hope for optimism right now?

Blohm: No.

Yeager:  It's going to be a tough set of conversations around the holiday dinner tables for a lot of people in the new year. So let's end on a positive note here, Naomi. Tim in Crookston, Minnesota had asked about the Eagles doing better without Carson Wentz from North Dakota, but I know for you it matters more are the Packers playing Aaron Rodgers too quickly this weekend?

Blohm:  I am very scared that they are playing him too soon because I think I even heard a report that it wasn't totally healed yet. So what if some linebacker comes there and just hits him hard and then we're in trouble.

Yeager:  Are you shorting the Packers?

Blohm:  I'm praying for the Packers -- that's the expression.  Yeager:  Oh, praying for them, that's different.  Blohm:  That's what they say in Wisconsin, pray for the Packers.

Yeager:  All right, Naomi, thank you so very much. Appreciate your time as always. And you know the holidays are just a short week away and now is your time to write Santa your wish list. Ours includes you and our Market to Market Classroom project. We're looking for current students to submit their big picture questions on the commodity markets and have them answered right here on Market Plus. Join in our reindeer games and send us your questions in video form. You can direct message us on Twitter or send us an email which we did get one this week at for those details. And join us again though next week when we will explore how one community college is creating a holiday staple in the classroom. And also Tomm Pfitzenmaier will sit across from me here at the Market to Market table. Until then thanks for watching, listening or reading. I'm Paul Yeager. Have a great week.

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