Market Plus: Naomi Blohm and Matt Bennett

Dec 11, 2020  | 13 min  | Ep4617 | Podcast


Yeager: This is the Friday, December 11, 2020 version of the Market Plus segment. Joining us now Naomi Blohm and Matthew Bennett. We've been trying to get you two together in studio but the darn weather has caused us the problem. But at least now we have this option so than you for dialing in and showing what is going on there at home. Matt, I want to start with you. You both can take a quick take here on the cotton market. We're going to get to hogs and then all the viewer questions, we've got great ones again. This cotton thing just keeps trending higher and higher and then there's this WASDE report that all of a sudden happened. What's going on?

Bennett: Well, not only was the U.S. production dropped by around a million bales but world as well went down a couple million tons. So essentially the way I see this cotton market it's the highest we've been in six, eight months. And so you've got to ask yourself moving forward what is the cotton market going to try to do here and I think it's trying to stake its claim to stay relevant because I think it's going to want to try to hold onto a few acres moving forward. The last couple, three years, I think I may have even mentioned this last time, the acreage battle was more of a hot potato game where people said, I don't want the acres, I want to drive my price lower that way you have to take them. But I think we may actually get into a little bit of an acreage battle. I think cotton is going to try to hold onto a few acres. Obviously we've got a lot of different people that are trying to hold onto acres but I think cotton is trying to do its job as well.

Yeager: Well, that leads me, you kind of opened up the acreage worm can. Let's go there. Naomi, do you think cotton is going to be victim of acres? Is wheat going to be a victim? They both rallied this week. But that is just one week in time. So who is winning this acreage battle when we get in and see that report come January?

Blohm: Soybeans continue to win, corn needs to get caught up a little bit higher in price. The soybean/corn ratio is still a little bit out of whack. And yes, cotton is at risk of losing some acres along with spring wheat at risk of losing some acres because of this higher soybean price. So I agree with Matt. Cotton, it has been in a beautiful uptrend since late April after the initial COVID falloff. Our exports are actually at 76% of USDA projections so export sales have been strong, the five year average is more like 63% so we're ahead of schedule. And with the dollar staying low and I think China trying to get all of their mills and clothing factories back up and running there is demand there. So how high can cotton go? I don't know right now. We're really trying to understand where the demand is. But the USDA did lower production not only in the United States on the report but also Pakistan and India. So here we're starting to see again this global scenario of the weather isn't perfect this year and heading into 2021 there is a lot of weather to watch everywhere around the world.

Yeager: Matt, I'm going to throw the control room off completely here because I'm going to go out of order of the questions. But it's another acreage question and it's actually a holdover from last week when Shane in Bloomfield, Nebraska, we've had lots of acre questions over the last few weeks. And Shane asked us last week and I thought it was so good we'd keep it again, if prices stay about where they are for commodities will we see record acres planted? And you can answer that for any commodity. And where could prices be supported in a high acre and above to normal demand picture?

Bennett: That's a really good question and first of all, yes, we can see record acres. There's a lot of things going on here, not only has profitability surged, but let's be honest the dry weather has allowed people to get all the fall work they ever would have wanted to get done. So one thing I will say is this, from a profitability standpoint it sure looks to me like the soybean complex is trying to do everything it can to buy soybean acres. And so I agree with Naomi there. But at the same time I'm talking to certain areas that are telling me more anhydrous has gone on this fall than what they have seen in a long time. So are there swing acres out there? There's always swing acres out there, totally agree with that. Are there less wing acres for 2021 than what there's been the last two years? Absolutely in my opinion there are less acres. And so that might make a little bit of an acreage battle fairly intense. What price levels could you go down to and still have record acreage? I think that if you stay above, for instance, last year's spring insurance price, I know Naomi said something about $4 and I agree with that, but if you stay in the $3.90s maybe on corn I still think your producers are going to say, you know what, I want to go ahead and plant quite a bit of corn. You stay above $10 on beans you better believe there's going to be a lot of acres of beans.

Yeager: Naomi, you're shaking your head saying, yep.

Blohm: I agree, when I'm calling out to my clients I'm hearing constant noise in the background. I'm like, what are you doing? Putting on anhydrous. What are you doing? Putting in tile. And the in the fall field work it is gang busters and they are so excited. And then I think to Matt's point there is a lot of anhydrous going on and so corn might really be the one that surprises us that maybe there is actually going to be a potentially large amount of corn out there to be planted in the spring than what we're expecting. So it's really important to get a feel for it. I'm going to be my clients who also sell seed and try to get a little bit nosy and see what's going on out there. But it'll be an interesting spring for sure.

Yeager: You've just got to find out what's going on, that's really good. Matt, I shortchanged you when we came to the hog market at the end of the broadcast portion and I also told Naomi that I would discuss this one so I want to flush this one just a tiny little bit and it does play a little bit into corn and soybeans when it comes to being used for feed. In China this week another report, we heard this before, I call them a hog Hilton, these high rise hog facilities that are going in and replacing all of these back yard hog lots that we had for years over there. They're getting to be a little more efficient. Is that going to take a bite out of the U.S. pork market when it comes to shipping things to China when it comes to pork? And is that going to be offset by they're going to need more feed?

Bennett: I think you just answered your questions pretty much right there. There's no doubt that it's going to have an impact. I think it was 84,000 sows on that one '21 building operation that they were talking about with over 2 million hogs turned out every year and that is just an incredible operation. Obviously they worked really hard to be ready from a sanitary standpoint, but to me that scares the daylights out of me with that size of an operation if you start to have an issue with ASF or something along those lines. But one thing that is really exciting about that is that they're going to need a heck of a lot of feed, bottom line they're going to need a ton of feed. Whatever they're boiling through this year, I think the estimate is they're going to use 25 million tons more corn than what they're going to produce, that is something that has been going on for the last four or five years. And so I think that is going to continue, if anything it's going to increase whenever you start to ramp up hog production the way that they are. So it's pretty exciting for us as far as exporting corn and beans. If I was an individual hog producer I guess I'd be a little bit concerned, there's no question.

Yeager: Naomi, anything different to add on that?

Blohm: I think Matt hit the nail on the head. Our exports of course this year were right around 2 million tons, so fantastic, and that is what has been keeping our hog prices and market supported overall. I do expect to see that dwindle going into 2021 as their hog production facilities come on board. It's going to be such an exciting thing to monitor but I think ultimately for the first part of 2021 they're still going to be needing to import some pork from us so I don't see the pork demand just falling out of bed here in the United States. But going forward and down the road producers do need to be mindful that some of that demand is going to be reduced and hopefully we see Mexico or South Korea pick up some of the slack and do some more importing. That is a lot of hogs over there.

Yeager: It is. You know what we also have a lot of? The two of you agreeing on everything. You guys see everything pretty much standard on some stuff. We like that. That's -- I'm not trying to say we need adversarial television but that's good to see that you're on the same page on things. I want to get to the cattle market here, Naomi, for a minute. Cody in Adrian, Minnesota asked us via Facebook, what do you see with the cattle market time after time getting hit and the China imports are up so much? So is China interested in our beef because traditionally that has not been a thing. Are they interested in our beef?

Blohm: Well they always did the back door through Hong Kong, that is how they got our beef. So the demand I think has always been there but now just officially on the books they actually have a category and they are officially importing some product. If this value of the dollar continues to go lower I do think that you're going to continue to see China import more beef just because once their economy gets humming again here after COVID they'll have more money to spend on different types of proteins. So I think that demand is going to be there. Just in the short-term our beef market continues to just be a little bit stressed because of the less holiday demand for the short-term and also just the ample production that is here for now. But again, like we were talking about on the show, deferred cattle contracts are going to be a whole other story and I'm really excited for second and third quarter cattle futures.

Yeager: I'm going to speed things up a little bit and give you each a chance to take a crack at a couple of questions. Boyce in Montpelier, North Dakota, Matt, is asking, other people on this show have said there is risk in the soybean market. If you share that opinion, is that risk in the old crop beans, the '21 beans or both?

Bennett: It's in both. Bottom line whenever you rally the old crop market $3 that's a great rally. Do I think that we could go higher? There are things that could happen to allow us to go higher, no questions asked. And I don't want to talk around the subject, what I want to say is this, the higher the prices go, the more your risk increases. That's the bottom line. So as a producer what advantage do you have from being bullish $12 beans or $11.60 beans, whatever it might be. We would have given our left arm to see prices like this in late July and so there's definite risk in old crop soybeans, new crop soybeans, again, as Naomi was talking about earlier, you're talking about $10.50 beans. If you take that times just a typical yield for producers, don't lose sight of the fact that we almost had a record yield nationwide. What does that mean? A lot of people had a record soybean crop on their operation. And so what kind of profit margin is there at $10.50 basis the board beans? There's significant profit. And so I do think that there's downside in both markets potentially. And so as a producer you've got to recognize that, you've got to understand that and then you've got to do whatever you have in your toolbox or expand your toolbox to figure out a way to manage that risk because nobody knows what is going to happen tomorrow.

Yeager: Go ahead, Naomi.

Blohm: I just want to build on that. A lot of producers right now are complacent because the market is truly supported, fundamentals are supportive. So back in summer we were like, oh prices are never going to go higher ever again, and now we're at the point oh prices are never going to fall ever again. And so just when we have that sentiment in the marketplace you need to with this market be aware of anything that could make the market price fall lower for no reasons or what could take us higher and manage both sides of that scenario. There's upside to manage, there is potential risk to the downside to manage. If you're going to be planting more beans next year then you need to start locking in those sales because of the value that is there that Matt just talked about.

Bennett: What if it's a new plateau? How many times have you heard that, Naomi? We'll never go below $10 again.

Blohm: I'll just bite my tongue.

Yeager: I appreciate your time, Matthew Bennett and Naomi Blohm, thank you so very much. And they did kind of answer a couple of questions like Dan in Omaha, Cindy in Illinois and also Matt in Amherst, you didn't get your questions on but these two did a great job of answering. Thank you both. Happy Holidays!

Thank you.

Thank you. Thanks for having me.

Yeager: That will do it for the installment of Market Plus but next week we'll look at the rush on Christmas trees across the country and market analyst Arlan Suderman will join us to break down the commodity markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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