Market Plus: Naomi Blohm

Nov 6, 2020  | 12 min  | Ep4612 | Podcast


Yeager: This is the Friday, November 6, 2020 version of the Market Plus segment. Joining us now is Naomi Blohm. Hello, Naomi.

Blohm: Hey, Paul.

Yeager: Good to have you here. I do mean it's good to see you and we're going to hopefully see you in December when you're back. Between now and then a lot is going to happen. There was this tiny little thing that happened Tuesday that as we record this Friday we still don't know how the story ends with an election. The Senate could still flip, unlikely but still could there was a prevailing theory on Wall Street and I think to an extent in the commodities, this is where I'm going to ask you the political question of the night. Wall Street seems to think that a mixed House/Senate/White House is going to be good because there's not going to be radical changes from either party. Do the commodities agree with that sentiment?

Blohm: I thought about that today also and I think I read the same article as you. So in the bigger theory and in the bigger concept of it I agree. What has been talked about is that if President Trump wins that he'll continue to be tough on China and there will be some policies there. And then what I did read about Mr. Biden is that if he is elected that before he does any changes with China he was going to consult our allies and gather opinions. But no matter what it's going to be kind of a slower process I think and I think you hit the nail on the head as far as having that gridlock there no big changes by any means is going to be happening and I think people are already going to be thinking about the election again four years from now and trying to play their cards for that. The bigger issue right now, and I think the market really emphasized that this week, is that the end users around the world are a little nervous about securing food. That is the bigger issue. I don't think that it's not that they want to quick let's get it before Trump is re-elected or quick let's buy food before we don't know what Biden's policies would be, it's they are worried about the weather in South America, they know that the United States didn't have a perfect crop this year, they’re hearing how dry it's getting in Ukraine and Russia and with COVID and we saw the exposures of just-in-time mentality blow up because of COVID, end users want to get grain now, it's still cheap. And if you look at where corn prices right now for the United States, we've got $4 futures, I think down at the Gulf it's around $4.50 or a little higher, but corn in China is still close to $10 and corn in Brazil I think it closer to $7 or $8 so we're still cheap and with our dollar continuing lower we are still the best game in town between corn prices and soybean prices. So that is the bigger picture. The end users want to secure food and they can't rely on the just-in-time mentality anymore.

Yeager: Well, and that is making a little bit of the case of it doesn't matter who sits in the White House because it is outside factors that are playing in whether it's heavy rains in China, dry weather in Brazil that you're mentioning. So I guess Shane in Bloomfield, Nebraska's question kind of gets us into another discussion here when it comes to money coming into the market. He's asking, we have seen big jumps in the grains in the past weeks. Are the fundamentals there to sustain this? Or is this all about money flow?

Blohm: And it is both right now but the fundamentals are there to sustain it because of the dry weather continuing in South America and now, like we talked about on the show, with the palm oil becoming an issue that was a factor that we weren't even thinking about weeks or months ago, that wasn't even on the radar. So there is fundamental reasons why this market is going to be going higher, we'll see on Tuesday with the USDA report will we see lower yields for corn and soybeans in the United States because of that August weather. If we do that is going to be supportive to the market. I don't know that a lot of it is totally priced in yet. Are we going to see the USDA agree with the USDA attaché from Beijing in saying that hey, you need to put on paper that China is buying more corn from us? That is going to bring our ending stocks down. So yeah, the money flow, one of my coworkers just pointed out that heading into the election we thought maybe the funds were going to be doing some profit taking into the election. They didn't. They kept buying last week. So even though the market had posted some topping signals, it wasn't because the funds were exiting, it was more of I think other market factors of people just being a little spooked ahead of the election. So yes, demand is there, the fundamentals are there, the money is there and they're all moving the same way and that is to support higher prices.

Yeager: Phil in Dresden, Ontario is asking a little bit of a surprise that we've had here. Prices are higher than many expected, but looking out a year how about new crop 2021 prices? How much '21 crop should be sold by now? And if not, what calendar dates should we keep in mind going forward to hedge our new crop price risk? I think I asked you about two month, three month timeframe. Phil is nailing you down on '21 here.

Blohm: All right, Phil, I'll take the challenge. So November '21 beans just finally to to the $10 area this week. The Dec '21 corn just finally is in the $4 area right now. So there is the best pricing opportunities to start your sales that you have had in a long time for getting a sale started. So do I think you should be getting a sale started? Why not? Maybe a 5% sale, I wouldn't be aggressive because the fundamentals are still shifting to friendlier, but remember the markets are anticipating more acres next year. We're already factoring that in. And so that is why the deferreds are not rallying as much as the front month contracts and the market clearly is still not having a lot of carry in it by any means so the market wants your grain now. But yes, get started on some sales for next year because it's good value to start with. I don't think I would be overly aggressive about it now because we don't have an bigger topping signals and because the South American weather is still a supportive factor in and of itself and dry weather everywhere else that there really could be some more upside in the bigger picture.

Yeager: I'm going to recycle a question. I don't like to do this but this one ties into Phil's and it came last week from Scott in Barrington, Illinois. He was asking, what are the '21 contracts telling you, plant more corn or soybeans? Given what you just said, follow that up.

Blohm: Yeah, so right now the market is leaning towards more soybeans for next year but we've been talking about that for a month already. And so I think a lot of producers are going to be looking at that as they start to make their seed selection and the marketplace is already factoring that in. Again, that's why you're seeing so much bull spreading with the futures contracts. So what that means is people are buying July futures and selling November futures or they're buying July corn contracts and selling December corn contracts for next year. So that is how they're playing this, they're seeing that there is value in what has just been harvested but we know that going forward those deferred contracts are going to have some pressure to it because we know that more acres are coming. But again, the market is already expecting that more beans are going to be planted and that is I think already priced in.

Yeager: It's just always, there's always those details in the chart that you just don't know what to look for. So again, '21, this shifts to weather though. Kelly in Primghar, Iowa, Northwest Iowa, with the expansion of the drought in the U.S. and around the world, is the question he's asking us, is this market rally putting in place a weather premium? Or is this rally mostly demand based? We're definitely going into '21 empty on subsoil moisture in Northwest Iowa.

Blohm: I would say that the market right now is trading demand and it is trading South American weather. It's not trading U.S. weather yet because obviously a lot can happen between now and April, we could get buried with snow, or not. If we don't get a lot of snow this winter I know that I was talking with a client in Western Nebraska and Northwest Nebraska and she was telling me that if they don't get the snow pack in the mountains this winter in parts of Wyoming it's really going to affect how they can do irrigation next year for their part of Nebraska. So that is something to be watching. We do need to monitor the snow this winter. But right now a U.S. weather market is not at all priced in for new crop or for down the road. We’re still trying got figure out what the derecho storm and the August weather did for what is being harvested. So we've got to get that figured out first. But yes, we are very much aware that the drought conditions continue to grow in the United States and so we are watching that.

Yeager: Well, that is corn and soybeans because I think we've talked about it a little bit, we talked at the beginning of the main discussion with wheat, in the Southern Plains it has been dry, Kansas into Oklahoma, down to Texas and everywhere west. Looking ahead at that weather picture, I go back about a year or maybe even the beginning of this crop year, we were looking at a point where if the analyst, you, whoever it is, if we don't get a weather issue we are stuck with low, low prices. Well, we got our weather issues. So how do we unget weather issues? Yes, weather changes. But how does it shift where we're not as dependent on the weather? You mentioned demand already. Is it really just that demand factor that can be the other part of this equation?

Blohm: So, with the weather component the demand has always been there but what we learned in 2012 is that when the prices get high enough people figure out different means and they substitute with demand. So we saw exports crumble in 2012. We saw our livestock herd get smaller and so that helped with the feed demand aspect of it. So the high prices will cure high prices. And so you have to monitor both going forward. Right now the demand is there because the world is trying to make sure its reserves are replenished. Right now the United States has crop to sell but then the question again going forward weather is always I think a bigger factor in the market because if you don't have the right conditions to grow the food people still need to eat so we're always going to have sort of a constant demand, but the give and take between ethanol or the give and take between export demand and things like that, that is what can shift. So you have to monitor both going forward and I think right now we're going to start to focus a little bit more on the weather because we have been watching demand for the past month.

Yeager: The word weather is today's word of the day. Thanks, Naomi. That's Naomi Blohm on our discussion here in Market Plus. I appreciate her and her insight. Next week we'll look at more weather implications on U.S. grain stocks and Sue Martin and Shawn Hackett will join us to analyze trends in the commodity markets. I'm Paul Yeager. Thanks for watching, listening or reading. And please, have a great week.

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