Market Plus: Naomi Blohm

Aug 21, 2020  | 14 min  | Ep4601 | Podcast


Yeager: This is the Friday, August 21, 2020 version of the Market Plus segment. Joining us now is Naomi Blohm. When you say August 21, 2020, I should have used that as a warm-up. It's kind of hard to say all those numbers, isn't it, Naomi?

Blohm: A little bit of a tongue twister, right.

Yeager: It is. We've been tied up in so many things around agriculture with this storm here in the Corn Belt. We've not noticed how it was wet pretty early and good growing conditions for cotton in the South. But the cotton market has been on this little trajectory, just up and up and up, it stepped sideways. Does it have more up to it or are we going to stick on that sideways pattern?

Blohm: So cotton prices, just like you said, nice slow uptrend higher for the past two months. And it feels like it's really starting to come to a halt. $63.64 on the nearby October contract is most likely going to be a hard hurdle to get through for prices and the way that the prices are starting to curve on the charts it makes me feel like it's going to try to do some sort of a correction. So a couple of things coming at cotton right now, of course we have really big ending stocks here in the United States and around the world so that is going to pressure prices. But we do have some hurricanes coming up through the Caribbean and depending on where they make landfall those cotton bowls are open. So that might be something that depending on where the landfall is that could really devastate the cotton crop or maybe it will totally miss the cotton producing areas and then we go back to the oversupply situation. So I would start to be defensive with cotton prices specifically just looking at the chart and what the chart is starting to tell me, but at the same time keep an eye on the hurricanes because that's always a game changer.

Yeager: It is and those two are bearing down. One was going to be on the East and West Coast and now one is on the West Coast and the other one is more in the entire Gulf region. So weather, who can predict it? Naomi, we had great questions again this week via Facebook, Twitter and Instagram and I wanted to spend a whole bunch of time on livestock but we got talking about that crop tour and things are really cooking in a lot of areas. Live cattle, Aaron in Northwest Iowa was asking me, he wanted to make sure I said, how low can live cattle go if we get a seasonal dip or even a secondary bottom early in the fall?

Blohm: Okay. So part one, this question came before the cattle on feed report occurred.

Yeager: True, yes it did.

Blohm: So, my answer before the cattle on feed report would have been yeah, seasonally we usually see prices work lower into mid-September, sometimes late September and with cattle prices overall just really have a nice steady rally higher there were some topping signals that the market had thrown off a couple of weeks ago with a bearish reversal and then the market was able to push a little bit higher this last week because the cutout values were improving. But now with this cattle on feed report, 102% on feed with 111% placement, that's really bearish. So my short-term answer would be that the October contract probably worst case scenario right now goes back down and tests a buck is what I can see because I think we're going to test short-term support right away on Monday and then if that technical uptrend breaks we're going to go down a buck. And then I realize that cattle futures, we should have talked about this on the show, cattle and feeders now have expanded limits, so like new trading limits. And so that is going to accentuate any price movements that we have. I can't remember what time or what day those expanded or new price limits start but that's really going to be a bigger factor as well. So be defensive, the market is going to just bite on this news and that's all we're going to trade probably for a good week.

Yeager: Hasn't there also been some big differences, discrepancies between cash and futures that have been kind of head scratching?

Blohm: Yeah, as far as one would normally be at a premium and then to the other. So right now the cash had been between $103 and $105 and then October futures more like $108. There's a lot of different things going on in that cattle complex, I think it's really trying to understand where the supply is versus where the demand has been at and now with this cattle on feed number coming out, even though the demand short-term had been fantastic, now people are going back to school and we don't have football and tailgating parties like we used to, I'm just a little nervous that demand could be down once the Labor Day, holiday wraps up.

Yeager: The cattle on feed kind of took my question away of, would you pencil out any expansion in the feeder complex right now? The answer is, it looks like they already have.

Blohm: Yeah, I think you hit the nail on the head. So with the feeder complex, it had been working higher, working higher because the demand was there and they were trying to get those feedlots filled up and the lower grain prices was helpful as well. But then feeder cattle this week started to slow down because the grain prices out of nowhere started to rally higher because of the Iowa storm and so now everything, I think you're going to see things back off just for a little while until we get firm footing and know where the new demand is going forward, if our exports can continue at a good pace. So defensive is the short-term theme now in the cattle market.

Yeager: Aaron, thank you for that question. Thank you for being patient with me on livestock talking through. Glen in Bryan, Ohio, Naomi, has a good question here. When it comes to our changing global economy becoming more virtual and less energy dependent, will the ethanol market ever return to what it once was even with lower prices and a weaker dollar? Has the paradigm switched back to the livestock industry as our only hope for growth in usage?

Blohm: I think ethanol demand is overstated right now. The USDA is keeping it just above or near 5 billion bushels of corn demand for ethanol and yes ethanol demand has improved because people are getting out and about more but with so much online learning and with so many employees able to work at home that's a lot less driving. I think football games being canceled, I know everything goes back to football, I'm a huge football fan, but that's less driving also for families and for school and for universities and fans. So I think, like I said, the ethanol number is overstated on these USDA reports but the number probably isn't going to come down until after November and then we'll start to get a different viewpoint of where the ethanol truly is for demand. But if you look at what crude oil futures have been doing they have just been hanging out at $40. This is the market that is waiting to see where the U.S. economy is going, it's a marketplace that is also wanting to understand is the American driver, now that people are going back to school, where is the demand in general? So, my personal vote is that we have some long-term destruction for demand on ethanol because of COVID and maybe in two or three years when things are hopefully a little bit more back to normal we'll see that demand improve. But this has definitely changed the way that businesses are going to be doing business and how schools might be doing learning and it's going to absolutely affect ethanol.

Yeager: Well, in Northwest Iowa, another question from Aaron here, this one is about risk premium and will the market keep good risk premium until combines roll in storm areas or take numbers for truth and we're going to get a surprise later? I guess the reason I ask that right now is that kind of plays into how much we're going to have come November. You mentioned that a little bit.

Blohm: Yeah, and the risk premium part is there because of the uncertainty in Iowa and it's going to stay there until the combines get rolling. It's going to be, every farmer in Iowa is going to be different. If they feel that they can have the patience quite frankly to go one way when you're harvesting at two miles an hour and watch your machinery get torn up because you're trying to get at this grain or some farmers will say, forget it, it's not worth it. And so those are things that are going to be understood not next week but it's going to take a month or two. So until then I think you do see some premium stay in the marketplace, especially with the Pro Farmer even just putting it lower. And if there's a chance it could be lower than that because of broken stalks, things we don't know yet, yeah we've got some premium from the standpoint of not understanding for sure where the supply is right now.

Yeager: Andy kind of has a follow-up to that in a way of asking, how much consideration does USDA give the Pro Farmer tour? I think their boots on the ground gives them a high level of validity in his point. Does USDA care more about this or does the market, the trade?

Blohm: Yeah, the trade cares about it, the USDA has their mechanisms for how they find their numbers for the reports. So it's not like the USDA is going to change how they do things because Pro Farmer came out with this number. So on the September report the USDA is going to get in there and they're going to count ears and they're going to count pods, and like we said on the show the USDA right after the August report came out they said immediately the storm damage from Iowa was not counted on this or reflected on the report and they said right away that if a stalk is leaning when they go out and count it they're going to count it as grain that could potentially be harvested and if it's broken then it's not going to be counted. So there could really be some surprises on the September report and the USDA, they have their methods and that's what they stick to. So the Pro Farmer tour is supportive to the market and that's going to probably keep corn prices from going below $3. But again, USDA has their rhyme and reason for how they do things.

Yeager: Okay. $9 soybeans, we cannot really test it any more than we finished on Friday on the September contract, $9 and three-quarters, I guess you have three-quarters of a cent there. So I guess with Muffin Man in Pittsburgh, Pennsylvania asking, how are the floods and locusts in China going to affect food prices in America? I guess also you could add in the word soybean prices in America with that, right?

Blohm: Yeah, so here's how I would respond to that. The flooding that has occurred in China affected the rice growing regions. Of course rice is a food staple. We'll never know how much was lost for a crop. We'll never know that for sure. But when you have your main food staple for human consumption that is at a production loss with the market assuming that we had been getting tighter on supplies overall in China for food like they've been going through their old stocks and using things up and now in some parts of China of course there's the locusts, some parts of China in corn producing regions have drought and army worm. So there are big production issues there and that's why I think you're seeing China do steady, slow buying because, again, they're never going to come out and say, we're going to buy this huge amount of grain from the United States, it's not going to happen. Their mojo is more slow and steady, maybe people won't notice, but they're buying sorghum, they're buying winter wheat, they're buying corn, they're buying soybeans and so there is demand there. Going forward for the U.S. it's going to be good for our demand and that will help our prices as we go into the winter months because we're going to see probably a fight for acres sooner than later and the demand and the destruction from the Iowa storm is going to really keep prices I think supported. If the dollar can keep working lower we're going to have stronger exports overall in general and then of course this La Nina talk in the southern hemisphere continues to develop as well. And if they have growing issues this winter while their crop is growing we've got a whole new ballgame, kids. We've got some potential for some higher prices indeed.

Yeager: I've got to look at your tweet before we go. I've got to make sure I asked you all these things, lots to talk about. Corn yield in Iowa, yes we checked that. Milk production report, we checked that. Cattle on feed report, heavy rain in China, soybean export demand for wheat, cotton and hogs. Did we get it all? Anything else?

Blohm: I think we're good. I think we covered it all.

Yeager: Thank you so much, good to see you again, appreciate your time.

Blohm: Thank you.

Yeager: That is Naomi Blohm and we always appreciate her joining us and that was her insight for this week. Now, next week we'll look at how U.S. tanneries are specializing to survive and Shawn Hackett will join us to analyze the markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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