Naomi Blohm

Market Analysis: Naomi Blohm

Nov 8, 2019  | Ep4512 | Podcast

Podcast

Rumors of progress in the Trade War, grain sales to Asia, and a Friday WASDE made for volatile grain markets. For the week, December wheat lost 6 cents, while the nearby corn contract dropped 12 cents. A brief news flurry over trade negotiations and confirmed sales to China did little to fire up the soy complex as the January contract closed 6 cents lower. December meal jumped a dollar per ton. December cotton improved 49 cents per hundredweight. Over in the dairy parlor, December Class III milk futures plummeted 59 cents. The livestock sector finished mixed as the December cattle contract lost 28 cents. January feeders gained 9 cents. And the December lean hog contract shed 32 cents. In the currency markets, the U.S. Dollar index skyrocketed 115 ticks. December crude oil gained $1.20 per barrel. COMEX Gold plummeted $47.50 per ounce. And the Goldman Sachs Commodity Index gained more than 3 points to finish at 418.65.  Joining us now to offer insight on these and other trends is one of our regular market analysts, Naomi Blohm. Naomi, welcome back.

Blohm: Thanks, Delaney.

Howell: Naomi, we had a big report come out on Friday and I want to talk about it commodity by commodity so let's start here with the wheat market in particular. We lost 42 million bushels. Did that do a lot to change wheat's story?

Blohm: The surprise in the wheat was that reduction in production overall and that was because the spring wheat numbers were reduced and then the harvested acres were reduced. Almost a million acres of harvested acres came off the balance sheet. So that was supportive. We're thinking about the crops in North Dakota and Montana specifically but in a sense part of that was factored into the market already. And then what the USDA did on the demand side, they reduced the demand for wheat for food and for the seed category. So when all was said and done the balance sheet didn't budge too much and we still have wheat carryout of over a billion bushels. It is down from the October month number, but it's still a billion bushels of wheat. So the market didn't really trade too much on it. We were hoping for something friendlier in a sense. And then on the global side of things there was a reduction in Australian wheat and Argentina wheat, however the Black Sea region made up for those losses. So again, not too much when all is said and done.

Howell: Okay. What about the corn market? That seemed like a little bit of a surprise to the markets. And I want to note too that right at eleven o'clock Central Time when the report came out it was unavailable for people but yet the corn market seemed to rally anyways.

Blohm: Right, I think it was about almost a 10 minute delay for that report coming out but then the corn market spiked about 10 cents during that time. So that was a little weird. And the friendly part on that report was the yield reduction. So the trade was looking for a yield reduction but we came out with a number of 167 and that was a little bit lower than the average estimate. So that was friendly. There was no change to harvested acres on this report. But the demand side is what got hit and that was negative for the marketplace because we lost demand in every category, ethanol exports was a big one and in the food, seed and industrial category so there was a lot of demand lost there. So ending stocks were reduced from last month but not as much as what trade was hoping for so that is why the corn market didn't do too much overall today. The good news though is that the December contract was able to stay above $3.75, that's a very big support area on the daily charts. So as long as that can happen we should be able to stays in a sideways trading pattern going forward. But if for some reason $3.75 gives way unfortunately that could be a re-test of the lows from summer. So really keep an eye on corn going forward in the next week or two.

Howell: Naomi, would you say that the December corn chart right now is a sideways trading pattern? It almost looks like corn is turning into negative territory.

Blohm: The chart would actually make you think it was negative and this report today at first I was thinking oh boy, here we go, we'll be limit down by the end of the day, but because of that yield number being so friendly that's enough to give the market some hope going forward and especially with as delayed as this harvest is. That is giving us some support as well.

Howell: Naomi, the other big story that is going on this week is, as we just reported there, the propane transportation issues. ADM released a story late Wednesday, Thursday afternoon saying that for certain locations farmers under 19% or less moisture they'd allow free drying. Does that indicate to you that they need the corn right now?

Blohm: That's absolutely what it says and that was in Illinois where that announcement had come out. And so yeah, there is high demand for corn right now because the marketplace is not used to this delay. We're 50% harvested, normally we're 75% done and normally Illinois is pretty much wrapped up by now. So the demand is there and with the drying being so slow, not only because of the delay in getting the propane, but also because it's so cold outside, it's just taking so much longer. So we're going to continue to see this harvest drag out unfortunately and that is also something that should keep the market supported. The other thing that is not being talked about and needs to be addressed is the test weight issue because that is lower than what the market is trading right now so that is really something that traders need to be mindful of going forward.

Howell: Naomi, it sounds like there are a lot of things that could be supportive for the corn market. So I feel like a broken record asking this almost every week on the show, but it's like when is the market going to care? When are we going to start to see that factor into prices?

Blohm: Yeah, I would say realistically as we get closer to January, as we get closer to that final USDA report number, until then it makes sense to me that the USDA is doing more of a baby step in terms of how they are talking about the production side of things because we really don't know. So hopefully the January is when the truth comes out. But in the meantime seasonally prices should start to work higher in December so that would be supportive too.

Howell: Naomi, tell me about the WASDE report as it relates to the soybean market.

Blohm: That was the one that was a little bit more bearish because we were anticipating that we would see the reduced harvested acres come in, we were anticipating seeing lower yields and we got neither, nothing. So it was absolutely unchanged from the October numbers and that was the bearish surprise on there. And then add to it the USDA reduced demand for the soybean crush. So ending stocks ended up increasing when we all thought that they would be decreasing so now we have ending stocks at 475 mill on bushels, which was up from 460 last month, still a lot better than where we were just a year ago, by all means, but I'd really think forward we're going to see that yield number come down for soybeans. With producers I'm talking to it's just quite variable as far as what is out there. And then we still need to I think see the harvested acre number come down too.

Howell: And the other question I had was the USDA said that they were going to adjust the Minnesota and the Dakotas’s acreage number. Was there any indication of that in this report?

Blohm: I didn't see anything. And so they said if needed they would announce that information so I guess it wasn't needed is the only thing I could think of.

Howell: Okay, I guess it's something we'll have to continue to watch. Naomi, I've got a social media question for you. As you look at what's going on in both the grain and livestock industry, outside of those too though, should producers be looking at locking in energy, fuel, etc.? And what strategies would you recommend? Prepay? Options? Futures?

Blohm: So whatever you can do in your cash market definitely be looking at it. Overall the propane cost in general, as the show had reported, it is still lower. It's higher in the past couple of weeks because of what has been going on. But I would do what you can do to lock that in going forward. Global demand I think can pick up. China this week actually did a deal with Saudi Aramco to lock in crude oil needs from them. So to me that says that the demand is still going to be there in general for energies so lock in cash first, always do that first, and then if you needed to do anything with reownership then you could look at call options or futures depending on your risk tolerance.

Howell: Naomi, I'm going to take one more social media question. Looking at the dairy market this week they pulled back 58 cents. We've got a question here from Gary Rasmussen on Twitter. Dairy prices are finally looking up. Any hurdles in the near or distant future?

Blohm: So the quick recap on the milk price is that for 13 trading sessions the cheese market just kept running higher and so the Class III futures milk prices was following up with it. The November contract was able to get over $20, December contract got also to the $20 area and then on Thursday of this week the black barrel price for cheese crashed and it was about 7 cents lower and so then that was the cue for milk prices to just have a quick recovery lower but it was almost limit down, 75 cents. And so that was a little bit of an aggressive correction. But going forward what we need to keep an eye on of course is the cheese demand because in general it's really good domestically and then I think with our export markets to keep an eye on that as well between what we export for dairy products to China and Mexico. And then the next milk production report I'll be very curious to see if the production has just maintained or if we're going to start to see it decrease a little bit because of the less animals. And then also with the feed issues and the feed quality issues too. That will be something to watch. So front month contracts this may be about as good as it gets but I don't think it's going to just totally fall apart. Deferred contracts have yet to be seen what they can do.

Howell: It was been an exciting time for a dairy producer that's for sure. Naomi, looking at the live cattle market, that February contract seems to be hovering around that $126, that contract high. What reason, if any, could break us through that?

Blohm: We would need to continue to see boxed beef prices continue to rally. We also would need to see the cash price continue to go higher as well. Right now the futures contracts are trading at a premium to cash and seasonally this is the time of year that we would see a correction lower for a few weeks. So I'm cautious right now and I think I would take more of a defensive posture for the next few weeks. We've traded in the fact that fourth quarter production was actually smaller than third quarter so that is what the market has rallied up this far. But going forward it's a little bit more of a tepid tone I think because production is looking to increase as we head into the New Year. But we'll have to of course keep an eye on demand and our exports too.

Howell: Are you cautious when it comes to the feeder cattle market?

Blohm: I am, I am. Actually the demand has been really strong there too and the feeder cattle have had a nice rally over the past few weeks. But just like the live cattle market when you look at the futures prices they're starting to consolidate, they're starting to decide if they have enough reason to work higher or not and a lot of times the path of least resistance may be a little lower. So I would keep an eye on that. What I'm watching on the January price is $145 so that's a really big support area to be aware of.

Howell: What is the support price right now for the December lean hog contract?

Blohm: We're looking at 62 to 63 right now and that marketplace it's the heavy, heavy production for fourth quarter which is dooming us in a sense. The exports have been better to China but they haven't been that great to Mexico, South Korea, so keep an eye on that.

Howell: Okay, Naomi, I'm going to cut you off there. We'll continue that discussion in Market Plus. Thank you so much.

Blohm: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. We have some exclusive content with our Justice in Agriculture series. Search market-to-market.org/justice to see more. Join us again next week when we’ll explore how one farmer prevailed in a six-year battle with the U.S. government. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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