Market Plus: Naomi Blohm (October 26, 2018)

Oct 26, 2018  | 10 min  | Ep4410 | Podcast


Howell: This is the Friday, October 26, 2018 version of the Market Plus segment. Joining us now is Naomi Blohm. Naomi, welcome back.

Blohm: Thanks, Delaney.

Howell: Naomi, we got a lot of questions in this week about soybeans, China, relationships, etc. So I think that's where we've got to start. We're going to kick it off here with Dave in Western Illinois. He said, at what point would a China trade deal be too late for a decent bean rally price?

Blohm: January is the answer because then the South American production is going to be coming online. So we need them to not only get the trade deal done but we need a huge commitment and huge sale immediately. We've got to get those boats moving in December. And then in the back of my mind I'm wondering if we can get something negotiated so well with China, does China turn around and maybe cancel some of the Brazil sales that they had made at higher prices and make it more back to an equal marketplace? And so that's something I'm curious about. The Brazil presidential elections are this weekend and the current President is Trump-like in his thought process and he has started to take a little bit more of an aggressive stance towards his trade ideas with China as well and I don't know that he wants to shoot himself in the foot with things and be overly aggressive on how he's talking. But it will be interesting to see how that election comes to play and then of course our midterms as well. That will be the biggest tell going forward.

Howell: And I think that kind of leads into the next social media question we got here from Shannon in Northwest Iowa. What is the best guess, even if China and the USA get something worked out on a soybean trade, how long will it take to repair that relationship?

Blohm: I think it's going to be something that is ongoing. If I'm China, just based on the historical context of what I feel that I understand about that country, they're not going to let something like this happen again and they're going to be upset if they have to really come and negotiate a lot with us. And so I'm thinking okay, maybe we'll get something in the short-term figured out, but does that really upset them for the long-term and down the road we have to come and deal with them again in some capacity. But I think with their economy starting to really slow down as a result of all this trade drama maybe they're going to be quick to fix things sooner than later and we can get that trade deal going forward. I'm optimistic for the end of November when the Presidents meet and hopefully we can get something going.

Howell: Yeah. And with that being said, the trade relationship is definitely a fine balance. Do you see them coming to the U.S. right away if we do get some sort of relationship built back together because we have cheap soybeans but Brazil has obviously been a big trading partner for them and that cultural or historical thing --

Blohm: I think it's going to be either one or two things. It's going to be kiss and make up and just get this thing going again. Or it's going to be just meandering back and forth and trying to keep --

Howell: Like they're dating almost.

Blohm: Right, right, something. It's just going to be one or the other. So I'm hoping for just quick negotiations and let's just get everything going because our Middle America needs it, we're starting to see our economies of course here in the Midwest be dramatically affected by it.

Howell: Absolutely. Naomi, with all of that being said, we've got a great question here from Glen in Bryon, Ohio and I think one a lot of producers are asking themselves at this point in time. With the current status of the relationships we have with all our global trading partners, should producers proceed with a passive, cautious or aggressive attitude to marketing 2019 crops?

Blohm: I would say most likely be aggressive in terms of really understanding cost of production, knowing where your profits lie, getting the orders in place with your elevator so that way they're triggered because the biggest thing is that we have supply surplus right now in the United States unless this soybean harvest shows us otherwise, that the yields are much smaller that it would take a bite out of those large ending stocks or unless South America has horrible weather this winter for their growing season. Unless we can see something like that happen it might be another year where we just have to scratch and claw at every dime and quarter that we can make. So I would think be aggressive when you see the opportunities there unless the supply situation suddenly shifts.

Howell: Naomi, how closely are you watching South American weather? Are they setting themselves up for a pattern of dry weather or wet weather this year?

Blohm: I haven't kept track of it enough to know what January or February might bring. but traditionally when there's any sort of a weather implication in those months the futures market responds quickly and that is part of the seasonal rally and those are a lot of times your best opportunities to get moving on sales for crops in the bin or being thinking about forward contracting for the next year to come.

Howell: All right. Perfect. That was a great answer, Naomi. Let's take another question here from Bradley in Upland, Nebraska. There is talk of the U.S. losing 9 million acres of soybean to Brazil permanently due to Chinese tariffs. What will those acres be planted in, in 2019 and beyond? And then additionally, will most of those acres being in the Dakotas? And will land go back to pasture?

Blohm: That's an awesome question and one that I've been wondering as well. Years ago when we would call to the Dakotas to talk to producers we would hear lots of canola, we would hear sunflowers, we would hear sugar beets and so I wonder if we start to hear some of those types of things. In Wisconsin and our Central Sands we had more veggie crops that were grown. And so maybe we see a little bit more diversity that way. It could be. I don't know is the answer but it will really be something to watch.

Howell: All right. Let's take another question here, another Chinese question, Naomi, I hope you're not getting tired of them. We've got Jason. He wants to know, if the Chinese need less meal because of the swine fever, will that affect the meal market in the U.S.?

Blohm: It absolutely could. And the other part to that as well is that China this week said to India we are going to allow you to bring in your rapeseed meal to China again and so China is doing everything that they can to open doors little bits here and there to make sure that if they really want to dig their heels into the United States that they're able to do so until the early harvested South American beans come into production. So it is something to watch every week, it's so important right now.

Howell: We saw the meal market drop, I don't remember off the top of my head, I think it was $5.80 or something like that, week over week. Is that because of Chinese demand?

Blohm: I think that's a big part of it, yeah, very much so, very much so and so something to again keep watching going forward.

Howell: And how much of that is pulling the soybean markets down with it because usually when we have a meal rally it pulls the soy complex up with it. Is it also pulling soybeans down?

Blohm: Absolutely, definitely tied to it, the demand there. So the soybean meal exports are something to watch and just the demand here as well. So they are absolutely tied and without a doubt that is part of the reason that the soybean market has been sliding, had been sliding lower as well.

Howell: Turning back to the African swine fever here, Jim in Worthington, Minnesota would like to know, will the African swine virus or fever cause the hog market to run like it did with PED?

Blohm: It could because the African swine fever is different where it can affect any pig of any age and so then you're actually seeing something where the breeding stock and the sows can really be affected and then it takes years to come back essentially where PED was only affecting just the piglets, just the babies. And so it could be something very different. But of course it's China, you don't know for sure the full story. I think the answer will come in the form of do we see our export market pick up and ae we exporting more overseas towards China either towards South Korea or maybe even to China direct because China has always said that they're going to make sure that they're feeding their people and the hog and the pork is their big staple. That is their thing and they have already been very vocal about making sure that they have that food to provide to their people. So I'm hoping that it will lead to more exports for the United States farmer. Time will tell. This winter could get really exciting. And like we were saying on the show, the hog market is up against resistance on charts, on the futures charts, and if it can get through those resistance levels I think you'll see spec buying come in, I think you see just that marketplace start to work higher as well and we'll keep an eye on the cash market.

Howell: Naomi, I've had this question I want to ask you. It's a difficult question, I ask it to a lot of different analysts. But 433 million hogs, give or take, that's what China's hog herd is. They have culled, I don't know, different reports quote different things, let's say 200,000 head. How many hogs are they going to have to cull before it's like okay, now it's a problem, we need to start bringing in pork from the U.S. or wherever?

Blohm: I don't know. I wouldn't even know how to quite go about answering it unless I sat down to just really try to figure it out. And again, with China we'd never know for sure what's the truth, what is coming, what's not and so I think maybe we'll start to hear more of those answers once these elections are done and once we have the two Presidents meet at the end of November, maybe we'll see a little bit more transparency when it comes to that question.

Howell: All right. Naomi Blohm, thank you so much.

Blohm: Yeah, thanks Delaney.

Howell: Join us again next week when we’ll explore the next steps for a young couple that moved from the city back to the farm and Don Roose will join me at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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