Markeet Analysis: Naomi Blohm

Markeet Analysis: Naomi Blohm

Aug 21, 2020  | Ep4601 | Podcast

Podcast

Paul Yeager: The supply and weather stories weighed on the trade this week. For the week, September wheat jumped 27 cents while the nearby corn contract improved 3 cents. The Chinese continued buying in the soy complex. The September soybean contract increased 4 cents. September soybean meal fell $1.60 per ton. December cotton expanded $1.43 cents per hundredweight. Over in the dairy parlor, September Class III milk futures dropped $1.75. A mixed week in the livestock sector. October cattle dropped $1.68. September feeders declined $1.73. And the October lean hog contract added $1.22. In the currency markets, the U.S. Dollar index gained 16 ticks. October crude oil lost 9 cents per barrel. COMEX Gold fell $4 per ounce. And the Goldman Sachs Commodity Index contracted almost a point to finish at 350.50. Joining us now to give us some insight is one of our regular market analysts, Naomi Blohm. Hello, Naomi.

Blohm: Hi there.

Yeager: Good to have you here. Let's talk wheat. We had a field tour of corn and soybeans, but of course I want to start with wheat because that was a five percent increase in the nearby contract. Is this, let me look here, Kansas City and Minneapolis rallied on Chinese buying, Chicago is getting close. What's driving all of this?

Blohm: It's the expected continued demand for wheat right now for our export markets. China buying the hard red winter wheat this week was very encouraging to the marketplace. I think there's opportunity there going forward. The wheat complex overall is battling a couple of different things. There is global large carryout. There is large U.S. all wheat carryout. And we are in a downward trend. But for this past week here with this move higher the market is trying to really break higher through that downward trend and I think it's going to be the focus on the winter wheat contract. If we can continue to see more purchases from China we're going to see the winter wheat ending stocks drop pretty significantly sooner than later. So there is some optimism for wheat but we need the purchases to happen.

Yeager: The supply issue you mentioned, I think I read something this week, stocks are at a 3 year high, second highest since 1980, so we are dealing with a large item. Is there any, last week there was a theory that maybe this was tagging along with corn, do you buy into that?

Blohm: I think absolutely it is. I'm really concerned and interested as far as what China is doing as far as their buying. Of course they're not going to come out and do any large purchases but are continuing to do these small purchases. And when I looked back at the current USDA data, if you look at what China grows for wheat it's 140 million metric tons and that is actually almost double what Russia grows. So China grows that themselves and yet they are using 125 million metric tons and they're supposed to have ending stocks that are almost just a little bit higher than what they grow. But they're still buying and with the pace that they've been importing wheat is more than usual. So it tells me that something is going on there and it could be that they are looking for feed, could be the wheat, could be corn, they bought all that sorghum and so there is demand there as their hog herd continues to expand and also the poultry production is expanding. So good news, they're living up so far to the Phase 1 deal and let's just hope we can continue to see those exports continue to grow.

Yeager: Real quick, are you rewarding this rally right now with a sale?

Blohm: Yes, we rewarded the rally that we had a few weeks ago when we had the correction and now on this one also. But if we do break this downward trend I think we're going to see the funds start to go long in the marketplace and we could see some short covering. So I am really watching it closely.

Yeager: This week there were folks traipsing around the corn states looking at the fields, they're finding storm damage, they're finding dry conditions in some spots. Market got a final look at numbers, the corn acreage estimate from Pro Farmer 177, that's the end harvest number there for average per acre. Are we in a weather market or in a supply-demand market right now?

Blohm: We are in a both market. Had that Iowa storm not happened we would actually be looking at a very bearish situation because besides Iowa the Pro Farmer tour pretty much found great supplies of corn and soybeans everywhere. But because of the Iowa damage that really pulled down the national yield. 177.5 is the number that they had projected and that's down from the USDA number of 181.8. And so if we continue to see this idea that this crop is getting smaller then you're going to have ending stocks go down to 2.3 billion bushels and we were just up near 2.8 and that's a very different story. We've got good demand from China with buying, they bought today for over 400,000 metric tons. So the demand is there and now we have an issue where well maybe the supply isn't quite as big as what we thought. And so the corn market is going to be watching next week, we're going to be seeing a couple of things. We're heading into first notice day for the September grains and so there's going to be some last minute finagling of contracts and positions. But we're keeping an eye on the weather because the Midwest is really starting to get dry. We don't get rains we're going to see the yields come down even further for both corn and even the soybeans.

Yeager: We're supposed to be pretty hot over the weekend in this area and then that just will traipse east. But I think you wrote this morning something about there is a better rain chance 7 to 10 days out. So I guess my question is, Monday we had a really good day, Friday we were positive, kind of weak in the middle. So was Monday our peak for harvest until harvest?

Blohm: Good question because normally we usually see the seasonals push lower until early September so we're all wondering because of the Iowa storm did our harvest low come early or not? And so again part of it is going to be depending on the weather going forward in the next week or two. It's very important as far as the yield that is there and if the perception is that it's going to get smaller, the next USDA report they are going to get out in the fields and they said if the stalk is leaning they're going to count it, if it's broken off they're not counting it. So there's going to be a lot of potential surprises on the September USDA report and then also they're going to be resurveying the farmers in Iowa to see how much do they think they're going to be able to harvest. So the September report is significant and we're going to see some dynamic price action in the coming week or two weeks. We're either going to see a retest of the July high for corn prices or we might slip a little bit lower if it rains and the market perceives that we can get at some of that Iowa crop.

Yeager: The rain could benefit the soybean crop as well. There's a lot of pods out there. It's just a matter of how much we fill them. How much does weather matter to this bean market as we sit here tonight, Naomi?

Blohm: Extremely significant and that's going to be the driving force for Sunday night when the grains open. If we have rain in the forecast I think that you'll see the November soybean price maybe work a little bit lower, closer down to the $8.75 level. But if the rains don't come we are really set up for some bigger price movements higher. I didn't realize that Iowa and Nebraska combined grow 21% of the nation's soybeans and over the past two weeks they have gotten just only half of their normal precipitation amounts and even though the pods are there on those plants, who cares if they're not going to get filled up because we're not getting the rain. The rain is so significant and that's going to be the driving factor.

Yeager: All right. We have a question from Brad in Hurley, South Dakota that came via Twitter. He's asking, it seems the market is immune to China soybean purchases. Is it going to take actual soybean shipments this fall to get the market to move higher? We've talked about weather, let's talk about taking a shipment of all these sales that we've had.

Blohm: Yeah, it's a good question and it's on a lot of producer's minds, my clients ask me that too. And the bottom line is that the USDA is projecting us to be using soybeans for demand for exports at just over 2 billion bushels. That is a lot, that's pretty much half of the crop that we grow. So even though China is showing up almost every day and they're buying a little bit of something every day for soybeans, right now the market views that more like we're actually going to see them buy what they said they're going to buy and we're on pace to meet USDA demand projection. The market is going to get excited about the exports only if we see China coming in and buying more than what the USDA is currently anticipating. Until then, we're just right on track of where we need to be.

Yeager: We will talk cotton in Market Plus. They had a positive week but it's been kind of going sideways. I'd be remiss, Naomi, if I didn't ask you about the dairy market. Unfortunately you caught a week where it's down 10%. Why?

Blohm: Well, we had a milk production report this week and it was bearish. Milk production year over year from July was up 1.5% which is a huge number for milk. So we have 44,000 more head on cattle that are milking than a year ago in July and production is humongous. The other reason is that the government cheese buying program that we have been doing because of COVID is done for the short-term and so because we're not seeing that demand for cheese that we saw during the month of May and June that has kind of dried up for the short-term. So milk prices are back down to where we started almost with the nearby September contract in the low 15's and that's actually right back where it was in April when the whole COVID thing was starting to get traction to it. So going forward if the government cheese buying program could come back I think that we're going to see some higher milk prices and our exports have been really good so that's encouraging. But it's overproduction right now, that's the problem.

Yeager: Maybe that's the story, I've got to get to feeders. 111% of the previous year on placed feed in the month, that's a huge number. That's a bearish deal, right?

Blohm: Yeah, that's very bearish. That number that was released today was well above even the highest estimate. So we're going to see cattle and feeder prices probably fall next week and the feeder, the on-feed number was at 102%, 102% and that was higher than the average estimate as well. The placement number and the on-feed number those are bearish scenarios. And so even though the demand had been picking up we had really good retail numbers this week, box beef values were up for almost 11 days straight because we were getting ready for the Labor Day needs but now we have a situation where there's going to be hefty supply coming, the weights are even a little higher as well too so I'm expecting a seasonal slide lower, a technical slide lower and if you are in a situation where you can do anything with hedging I would really encourage you to get that done right away.

Yeager: Okay. We'll discuss livestock more with cattle and feeders. We've got some great questions. Real quick, 30 seconds on hogs. Lower weights there coming through the line this week. Does that mean that we've maybe worked through the glut from this spring?

Blohm: Yes and no. Short-term we have probably another push higher for the hog market, it's breaking out of some lower prices and we've got some technical momentum. We've got strong export demand as well. But if you step back and look at the bigger picture we have production, abundant production above year ago levels where if the demand shuts off we are in a situation where prices are going to slide a lot lower soon.

Yeager: Thank you, Naomi. We'll talk to you in Market Plus. Thank you so much. That will do it for this installment of Market to Market. We will talk more with Naomi, see I just interrupted her and cut her off, my apologies there. Join us there, you can find it on our website at MarketToMarket.org. Photos help tell a story and we've shared many via our Instagram feed of MarkettoMarketShow. We'd appreciate your follow. Be sure to check out the story section of our feed. Next week we will look at how U.S. tanneries are specializing to survive. Until then, thanks for watching and have a great week.

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