Market Analysis with Naomi Blohm

Paul Yeager:Weather is again the dominant issue, but for a few different reasons this week as the global picture has been the dominant story in this shortened trading week.

For the week… 

The nearby wheat contract fell 9 cents and the July corn contract lost 16 cents. 

The soy complex may be tiring of playing the waiting game on trade deals and RVO figures. 

The July soybean contract dropped 19 cents while July meal put on a dime per ton.

July cotton shrank $1.02 per hundredweight. 

Over in the dairy parlor, June Class Three milk futures declined 18 cents.

The livestock market was mixed. June cattle weakened $1.10. August feeders cut $1.55 and the July lean hog contract added $3.38. 

In the currency markets, the U.S. dollar index put on 29 ticks. 

July crude oil lost 90 cents per barrel. 

COMEX gold subtracted $63.20 per ounce, and the Goldman Sachs Commodity Index sold off almost 10 points to settle at 524 - 05.

Joining us now is regular market analyst Naomi Blohm. 

Naomi Blohm: Hello.

Paul Yeager: We can easily talk weather. And that's kind of what we have too for wheat to start us off. It's not so much the United States weather, although the wheat belt would argue with us. It's the global weather that's become a story. Which one is dominating the headlines in your mind?

Naomi Blohm: Well, actually, I think they've been a little bit equal this week because we started off the week with some gains because crop conditions for the spring wheat crop and also the Kansas wheat crop declined this week. And so traders are very much in tune with this too much rain pattern. So we're starting to see quality issues become a concern. And we're seeing again the crop ratings decline. So when you look around what's happening in the world, it's been a little bit of a different story. Some parts of Europe have been improving for weather and that kept the market in check this week. And also interesting was that India came out. The country said that they have had a good enough crop that they're not going to need to import, and that sent the market lower this week. But then the next day, India came out and said, we need to make sure we're going to do some rationing and make sure that we're not going to be having people do hoarding, which I thought was kind of ironic because if they have such a great crop, why are they taking measures to make sure that people and their country are not going to be doing hoarding? So the wheat market has been in a little bit of a back and forth pattern. I feel like wheat futures don't have a reason to sell off too much more, because we need to for sure find out where are U.S. crop is. Of course, it has the potential to be fantastic, but those quality issues really could become a big deal. And I'm still hearing portions of Tennessee or southern Illinois that are struggling with what they're trying to do with planting and things like that. So things are an issue in a lot of different places.

Paul Yeager: But haven't we found over the years the United States wheat crop, the market just tends to yawn at it more. So why is it different this year?

Naomi Blohm: Well, I feel like it's different just because of the global picture is a little bit different. Because everything China grows, they need and China needs to import some. We saw them with importing Australian wheat a few weeks back. Everything India grows, they need. And with the Black Sea region of course, the war still a turmoil there. But they haven't had the best crop growing conditions either. And so the world is always two countries away from a major wheat rally, depending on production. And so that's what we're keeping an eye on right now. And we have really fantastic new crop exports on the books for American wheat. So that's been encouraging. And we'll see what crop progress ratings bring on Monday afternoon.

Paul Yeager: And the funds are in some pretty short positions. Do you agree with that?

Naomi Blohm: Well they are and they have just been sitting on those short positions for months now. So if something were to occur in the world that makes us feel like there could be a production issue, that would be a reason for the funds to start to exit those short positions.

Paul Yeager: Speaking of exiting, it looks like a lot of people are heading for the exits on corn. Why?

Naomi Blohm: Well, that was this week because the Brazil crop was viewed as getting larger to the tune of about 4 million metric tons. And remember that suffering a crop that's the second crop in Brazil, that 75% of their total production. And that's the corn that gets exported to the world in August when our crop isn't quite ready. So because there hasn't been a weather issue there, and because they're going to have a good enough crop, the corn market started to shift a little bit lower this week. But we still have corn that needs to get planted and the farmers in Illinois are not happy. They've got 2 million acres to plant yet in Illinois, a million acres in North Dakota, 1.5 million acres in Ohio, and we have about over a million acres in Indiana. And now we are up against the crop insurance deadlines. And the University of Illinois, Iowa State, Purdue University have all done studies that show when this crop gets planted after June, it yields less. So it makes me wonder if the 181 yield that the USDA is touting is actually going to be a possibility.

Paul Yeager: Well, we have some scenarios. I was going to ask you that and beans. But let's, I want to stick with corn for a minute. You mentioned Ohio. That's where Matt is. And he sent us this question. He says Naomi says the market between Mother's Day and Father's Day, the funds have went short on corn here in Ohio. We can't get everything planted. Have I missed the boat or should I just build an ark?

Naomi Blohm: Yeah. And so what he's referring to is there's a seasonal tendency for on the five year, 15 year and 30 year pattern where December corn futures. We'll find a summer seasonal high between Mother's Day and Father's Day. But right now, they have not we haven't seen any kind of a price rally. And the funds have gone short over 100,000 contracts of corn. And so it's quite frustrating when this is occurring because of course, farmers had their best price in January and nothing has happened since. And here's what's really interesting is that a year ago, at this time when we were talking about markets, all crop carryout was at 2 billion bushels. New crop carryout was going to be at 2 billion bushels. July corn was trading at $4.50. December corn was trading at $4.80. Now we have U.S. all crop ending stocks at 1.4 billion bushels. 600 million less than a year ago. At this time, with new crop only going to be pegged at 1.8. And yet the prices are lower than a year ago. And it's not just the U.S. supply that is going to be smaller. It's the global situation. Global ending stocks are tighter for both old crop and new crop, much smaller than a year ago. And while it's nice that Brazil had a good crop, it is not going to fix the tight ending stocks situation. And the Brazilians are thrilled because they can use that for ethanol. So I still feel like there's a weather story that has the ability to develop here. We are just starting June. The crop is not fully planted yet. And again, Illinois with 2 million acres to plant is significant. So I feel like we're going to see some sort of a market push higher here from a seasonal perspective. And they're still talking dry conditions for July and August. It's just a matter of what is actually going to be the catalyst to get the funds to exit some of those short positions.

Paul Yeager: Many things, I think of our friend Matt, who's still trying to get things planted in Illinois, and he is not alone, as you mentioned, the 2 million acres. But given what you've said, the year over year thing and the weather opportunity and the up against a deadline, is there one giant moment that you're expecting that's going to shift this thing? Is this the reason for the optimism all year is the carry out and now the weather hasn't. I mean, how are you putting a finger on what's the real reason here?

Naomi Blohm: Yeah that's what we're all trying to figure out what's going on. Because normally when you have 1.4 billion bushel carryout that used to be like $6 corn back in the day. And the fact that the market is ignoring it, it's just really odd. It's very perplexing to me at this time. And so I'm trying to figure out if the funds just feel like there will be enough corn to get by until there's actually a weather story to trade. So it could be a year where maybe that summer high comes in July. But out of the last 17 years, five years, the high has come in May, seven years the high occurs in June, and five years the high will come in July. So we'll see. At some point, you would think there's going to be a weather event to get things turned around.

Paul Yeager: And I have many more corn questions we'll get to in Market Plus, let's get to beans. You have four scenarios that you plan out here that we're looking at when it comes to carryout, crop size, beans has been the weaker commodity for a long time, but it has shown strength lately. Yeah, granted it fell this week, but what's the biggest factor right now? Well, it's tight US supplies because of course lower acres and tighter in general ending stocks for both old crop and new crop because of the lower planted acres. it'll be interesting, of course, to see if we can hit that high yield number of 52 bushels an acre. That would be a record. but of course, the soybean market is struggling to rally because the reality is that global carryout is record large. But we still have to make sure we're raising a crop here in the United States. And the other reason that the soybean market just kind of continues to spin its wheels here a little bit. Of course, concerns on where the biofuel demand will be, concerns on where exports will be. One thing I wanted to point out, though, regarding exports, is that the USDA has new crop exports pegged near 1.8 billion bushels. And I went back and I looked at 2018 to 2019, the first round of tariffs that we were dealing with. And the USDA kept, the export number for soybeans throughout that turmoil between 1.7 and 1.9 billion bushels throughout that whole time frame. And so right now, there are a number of 1.8 matches, essentially, what happened in 2018. So we know there's uncertainty as far as what China will buy. But right now the USDA is using a number that matches what happened in 2018. Sure. Could we see Brazil come in and, you know, take some more of our export business as possible? but I don't think that they can grab all of that business. So I, I'm very curious what will happen, of course, with exports and with the biofuels.

Paul Yeager: Let's go to dairy for a moment. again, smaller herd. Better for the industry as a whole right now.

Naomi Blohm: Well, it's been all about the cheese, Paul.

Paul Yeager: Still is.

Naomi Blohm: Yeah. So it's been the cheese demand that's been pushing that market higher. So the, dairy class three markets gained about two and a half bucks over the course of late April into May. And so the cheese demand has been strong. Dairy export demand has been really pretty good overall. And the most recent milk production report actually had milk production up 1.5% from the previous year. And so that kept the market in check. And it made the market not have a reason to get over $20 milk. So we've seen a little bit of a pullback here. And we'll be keeping an eye on cheese demand and also on how the cattle complex does. but dairy complex with potential summer heat coming through. And how that affects production.

Paul Yeager: In live cattle, cCash had been king for quite a while. Early this week that wasn't the case. Has that trend ended?

Naomi Blohm: Well, we saw a quieter week with cattle for cash, but the big hype this week was that false rumor of the screw worm coming into Missouri. And so what that demonstrated was how a rumor, true or false, can really make the market fall apart. And that's how, this cattle complex is going to be varied upon headlines, and the market is going to be just really ready to react and respond to things. So we had news this week that cash was, you know, a little steady. We saw box beef demand okay. Exports were okay. But traders are cautious to take the market higher until we get some bigger concrete reasons of still strong demand showing up and the bearish reversal on daily charts from a couple of weeks ago is still out there as a major topping signal. So we'll see what the cattle complex brings next week. And just a reminder, on Monday is going to be expanded daily limits for the cattle complex. So that'll just add to the volatility.

Paul Yeager: In the hog market. Finally a little bit of seasonal activity. What else?

Naomi Blohm: While the hog market is really just been working higher overall, it had a pullback last week and a little bit earlier this week. But we finished the week with some strength. We had decent export numbers this week and exports overall have been pretty strong. And the consumer demand I think has been there in general, just because we're looking for cheaper substitutes for beef. And I know that a lot of people have been using pork more. And in fact, I was at a spring tailgate for Platteville and one of the moms was grilling pork chops, and I had not seen that at a tailgate before. So the demand is there and the consumers are starting to respond. And the hog market, the funds are long now and we'll see if they do any profit taking as summer goes on, or if that pork demand is just going to keep on improving.

Paul Yeager: I can't believe it. We get to talk tailgating in Market Plus now. Thanks, Naomi. See you in a bit. Okay. Thank you. And we have been watching the analysis segment. And in a moment we will continue our discussion about these markets in our Market Plus segment. You can find both analysis and plus on our website of markettomarket.org. This is also the place to register for our next live event Tuesday in LeClaire, Iowa. Information about the gathering is on our website.

We also leave the email inbox open at all times - drop a line with a question, comment or picture to market to market at iowapbs.org. 

Next week, a look at the view of the overall cattle picture from the heart of the feedlot.. 

Thank you so much for watching. Have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.