Market Plus: Naomi Blohm

Market Analysis: Naomi Blohm

Aug 27, 2021  | Ep4702 | Podcast

Podcast

The U.S. dollar weakened following the Fed’s announcement they will more likely than not begin tapering bond purchases. The lower dollar helped some of the commodities this week, as did a hot and dry weather pattern for much of the Grain Belt. For the week, December wheat added four cents while the nearby corn contract improved 17 cents. China’s interest and purchases in the soy complex were enough to overcome Friday’s trade lower. The November soybean contract expanded 33 cents. December meal lost $2.50 cents per ton. December cotton increased $1.70 per hundredweight. Over in the dairy parlor, October Class III milk futures declined 47 cents. Another up week in the livestock sector. October cattle gained 8 cents. October feeders added 80 cents. And the October lean hog contract improved $2.10. In the currency markets, the U.S. Dollar index lost 84 ticks. October crude oil skyrocketed $6.64 or nearly 11 percent per barrel. COMEX Gold expanded $35.90 per ounce. And the Goldman Sachs Commodity Index improved more than 34 points to finish at 527.65.

Yeager: Now here to provide insight is one of our regular market analysts, Naomi Blohm. Hello, Naomi, good to see you.

Blohm: Yeah, good to see you, good to be here.

Yeager: It's a far cry a difference a week makes. Last week everything is down, pretty much everything reversed almost the exact same course. Let's start with wheat. The story that we keep hearing about, I keep getting these messages from people following the Russia story saying it is being underreported on the dry conditions and the impact on the global stage. Do you agree with that?

Blohm: It's not only Russia, but let's start there because the drought there that they have had is so important to be talking about. Whether or not it's more or less than what we are aware of, that's what we'll find out I'm sure sooner than later through social media and through other reports. But Russia is one of the top five producers of wheat and they are the largest exporter in the world. So remember, the thing about the wheat story in general is that we have these huge ending stocks for years and years and years and if one country had a weather issue no problem because there's all these other countries who can make up for it. But this year is different. We have Russia with a drought, Canada, the United States, we have dry conditions now in Argentina and then in Europe, another large, large producer, the German crop is down 4% and in France they're having substantial quality issues. So between all of these things we have a lot of countries that are under producing and the demand for wheat has been there this whole time. So we're really digging into global ending stocks and global supplies. And then early next week the Canadian, they're going to be having their production report for wheat and for canola so we'll get an update there. But the wheat story I think is developing and if you're looking at a Chicago wheat chart there is substantial resistance at the $8 area. So either we're going to get some fresh news from the Canadian report next week and then we're going into first notice day and prices can re-test that high, or if we don't get some fresh news prices maybe just slide back down, but we stay in a long-term uptrend because it's not just the wheat that has the tight ending stocks, as you know, there's actually 9 agricultural commodities now in the Northern Hemisphere, 9 that have tight ending stocks.

Yeager: Sound like you're Ferris Bueller's principal there when you say 9 times, Mrs. Bueller. But droughts don't end overnight, although it certainly tried to in corn country this week. There were some heavy rains, Northern Iowa, Southern Minnesota into Wisconsin. Is it too little too late to save that corn crop?

Blohm: For some of the corn crop it would definitely I think be too late because when you look at images on Twitter people have shown how the ears are developing and then they're cracking the ear in half. You can see the light test weight already in parts of Minnesota and Northern Iowa and parts of the Dakotas. So in some instances the rain is too little too late because the crop is already dented and it has matured so fast. But other parts of the Midwest I'm sure received that rain as beneficial. But again with corn market right now that market has been trading more in a sideways fashion where $5.50 is just holding us. The Dec contract can't get above $5.90. It's not going below $5.10 because, again, ending stocks are tight. So that theme is going to continue to carry the market as we go forward. And I'm so curious come September on that quarterly stocks report I really think the ending stocks in this country are a lot tighter than what the USDA is letting on and we ran into that years past where they weren't forthright enough and then bam, it caught up to them. And so now we have another situation. I don't know hardly any producers that have corn in the bin at home and then you hear about the elevators who have some supplies and then they say, no it's okay, but then there will be a flash buy in the middle of the week and they say okay, here's $1 over basis and we need your corn. So something is not quite adding up.

Yeager: Believe the social media of, how come I don't see any barges going down the Mississippi River, which goes to the story you're seeing. Here's another thing that might be going to what you're saying that is playing a factor and this question came from Phil in Dresden, Ontario. He's asking, the price of corn on China's Dalian exchange reached a new low for 2021 Friday at $9.75 equivalent U.S.. Phil is asking, has China successfully rationed their demand? And what does this mean about future Chinese corn imports from the U.S.?

Blohm: They may have short-term rationed it but not for the long-term because they did not have perfect weather there this year and so I think what they have been hoping and waiting to see and why they haven't been buying much corn lately is where is this U.S. crop ending up? But ultimately China is at the point where they need to now be importers of corn and I think you're going to continue to see that. U.S. corn export sales overall are actually at 30% of USDA projections and normally they're only at 15% this time of year. So China bought early ahead for this new crop year and I think that you'll continue to see that demand there, especially when the truth gets out that there's no corn here in this country for ending stocks. I am adamant about that.

Yeager: Throw the old crop story out. Let's talk new crop. If I'm sitting here going, I did get some rain, I might have some more crop than I think, what do I do?

Blohm: I would say make sure that you are taking advantage because most likely you are going to have a dollar profit right now per bushel because of where cash sales are right now and where the market is at. So make sure you're still rewarding the rally because not just because of the ending stocks story -- so here's what is going on. We've got all these tight ending stocks in 9 commodities, there's going to be a fight for acres in this country and in North America. But South America is already coming on board with more acres and if they don't have any weather issues this winter they're going to have record crops. The fourth thing in this is the value of the dollar and you led the show with that and it's so important because if you look at all commodities right now, all these commodities are starting to trade sideways, they're spinning their wheels, waiting to see where the demand is at and a lot of that depends on the value of the dollar. If the dollar can go lower that is going to be so fantastic for agricultural commodities, that would make the price of corn go up. But at the same time if we start to see the value of the dollar work higher, if the USDA doesn't make ending stocks tighter on the next reports, if they don't change yield too much on the next reports we're not going to have enough bullish news to keep the market going. So then that can make prices slip a little bit lower. So I would say you've got profit in front of you, make sure you're focused on that. But there is potential for the market to go higher for sure.

Yeager: Okay. Where I just said corn write the word bean, same questions. What is the bigger story? The weather, the dollar or the Chinese in soybeans?

Blohm: It's equally important because when we are looking at the soybean crop out there, as you know, crop is made in August and the weather has been horrifically hot, some places got rain, some places didn't so we still don't know what is out there. In Wisconsin we have multiple reports of white mold. So this is becoming an issue. And the Chinese have been buying 14 out of the last 17 business days, just buying little bits here and there, just trying not to ruffle people too much and get them to notice, but they're in the market. So the one thing about soybeans that I have noticed is that last week they put in a bearish reversal on a weekly chart so maybe that was the market trying to say that it's a little bit tired. But so far this week the market didn't totally fall apart, we're going into first notice day, and seasonally soybeans and corn usually find their low in the early September timeframe. So that is why the market has been at this tug-of-war as far as prices in all of these commodities because the long-term fundamentals are still friendly yet short-term it's mixed and we need to see where the exports are. And again, it comes back to the value of that dollar also.

Yeager: All right. The dollar maybe not as big of a story in the live cattle market but there's a whole lot of people who have entered the live cattle market, a whole lot of people with new entry in contracts. What is that telling you about live cattle?

Blohm: Yeah, the open interest has been increasing, there has been more people coming into the market, especially when we had that friendly cattle on feed report saying how the placements have been lower and lower than expectations. So the market still is in a beautiful uptrend for live cattle futures. We had a big push higher earlier in the week and then had a pull back and I think you're going to continue to see that pattern where we'll have a price spurt higher, the market pulls back and trades sideways, but overall that long-term uptrend continues, demand is great, the beef demand is record for exports right now, record amounts. And so there is just this demand for our product. Packers are still making a killing and the cash prices just kind of hanging in there. So I'm still friendly to cattle for the longer picture.

Yeager: What about for dairy?

Blohm: For the dairy markets a little bit of a different story. So, in the dairy complex we still have overproduction. Now, it has been trending lower and so that is the good news, so trending lower on production but prices just can't get out of the $17 range and some of the deferred contracts starting to actually trend a little bit lower but the export market there has been phenomenal. So if we get this lower dollar boy that is going to help immensely. But the dairy market just needs some fresh news. It has been spinning the same story for months.

Yeager: The government buying? You talked about that I think a year ago, that was a help. Is that going to be enough help for the dairy market, this new government round?

Blohm: Yeah, good question. I'm not sure because it's a slightly different program than before. So we're not sure what it all entails yet but something to watch.

Yeager: Hog market, ridiculous today because of a limit up move right towards the end of the day. What is happening?

Blohm: Multiple things. We have hogs futures trading at a substantial discount to the cash market, so the futures have been wanting to climb higher. Just like the other commodities, hogs have been trading in a sideways pennant flag formation and with today's close they were able to almost close above the down trending line. And so people really worried about the African swine fever that's in the Caribbean and making sure it doesn't come to the United States. And then also we had news that the USDA attaché has said, you know what, that hog production in China isn't quite as robust as what they've been trying to play it off as. So that news also came out this week. So if we can get some more friendly news for the hogs we can finally see that market take another push higher, but we need that news to come up next week.

Yeager: Is the news of, you mention ASF, is that a hold your breath moment for the industry watching it, Dominican Republic and Puerto Rico if it crosses one border to the other?

Blohm: It has been a hold your breath moment for the hog complex for a couple of years. Remember how they canceled the one hog get together in Des Moines, so that was canceled because of the fear that there would be a spread and then of course COVID happened. And so now it's always a question of is it going to come to the United States and when and are we ready to deal with it when it happens?

Yeager: Always something to see, isn't it?

Blohm: Always.

Yeager: All right. We'll talk about an anniversary in a moment in Market Plus. Thank you, Naomi.

Blohm: Thank you.

Yeager: That will do it for this installment of the TV show we call Market to Market. We will talk more in Market Plus, hope that tease gets you, join us there. Find that on our website of MarketToMarket.org. Class is always in session at Markettomarket.org/classroom. This section of our website provides modules on innovation, entrepreneurship and the Farm Crisis the updates with new material each and every week. Next week we will look at how scientists are working to repel rabies. Thank you for watching. Have a great week.

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