Market Analysis: Naomi Blohm
Naomi Blohm discusses the commodity markets.
The planting window opened but the ‘word of gov’ had more to say on the direction of the trade. For the week, the nearby wheat contract added 69 cents, while July corn declined 4 cents. The reaction to USDA was mixed in the soy complex before a breakout day higher to end the week’s trade. The July soybean contract expanded by a quarter. July meal dropped by $4.30 per ton. July cotton gained $1.59 per hundredweight. Over in the dairy parlor, June Class III milk futures fell by 56 cents. The livestock sector was down. June cattle lost 67 cents. August feeders shrank $6.67. And the June lean hog contract decreased by $3.35. In the currency markets, the U.S. Dollar index increased by 98 ticks. June crude oil strengthened 26 cents per barrel. COMEX Gold fell $76.10 per ounce. And the Goldman Sachs Commodity Index lost almost five points to finish at 765.50.
Yeager: Joining us now to provide some insight is Naomi Blohm. Dull week, huh?
Blohm: Never a dull moment in these markets.
Yeager: It hasn't been. Let's start with wheat for a moment. It applies to a lot of these markets. We think that we -- you always talk about the traditional, the weather market is now until pollination. So when you have strange weather, a delayed planting season, the market reacts one way and then a report comes out and the market reacts in a different way. How can both of these things happen in the same week?
Blohm: Well, this is a year where everything is not normal. Again, it goes back to those nine commodities with the tight grain and oil seed, the tight ending stocks. And that is what still is setting the stage for this whole thing. So as far as the wheat market goes, on the USDA report this week they cut the old crop ending stocks, they cut new crop ending stocks so that they're going to be smaller than the old crop ending stocks for next year. The weather was a factor because we saw abandoned acres on the USDA report for Texas and Oklahoma. So that is definitely affecting the market because production is down for the winter wheat crop and the winter wheat ratings are still bad. And then you look at the spring wheat market where that crop is really behind on planting just like everything else with producers in North Dakota and Minnesota really going to be in a struggle to get anything in the ground. So weather markets and USDA reports combined for an explosive wheat market this week. And I think actually you're going to still see that wheat market continue to climb and we're not out of the woods yet.
Yeager: So we mentioned it earlier talking about the President's idea of double cropping and putting some more wheat into the pipeline domestically. We can't really do that right now. That is very hard to do but something to think about maybe in October. But is it needed?
Blohm: Okay, so here's the skinny on that. So, with what was suggested it still needs congressional approval and it's not anything that is going to be helping this wheat because they need both soybeans and wheat. This is what the reality of the situation is. So if this were to go into effect it's not until for next year and then I don't know if there's time that we get the congressional approval, is everybody on the same page, that type of a thing and between now and then we still have to find out for sure what India is going to be growing because they're crop is getting smaller along with who knows how the Chinese crop is going to fare. So there is still from a global perspective we're not out of the woods. And yes, it will help that the United States could grow potentially a little bit more wheat or more soybeans. But we'll talk about the double crop acres for the soybeans too. It's not going to be enough.
Yeager: Well, but that's the thing, as we move into corn for a moment, you mention these areas, we have a couple of questions about prevent plant and things like that, North Dakota, South Dakota, Minnesota. It has been nonstop rain, no action. Those are new corn acres that have helped contribute to the greater commodity total in this country. We needed trendline. Where does the market go if we don't get there with anything into the ground?
Blohm: Yes, so for corn and trendline, the USDA did something they haven't done in over a decade where they did not use their February baseline projection yield number. We were thinking it would be like 181 because that's what they said in February for yield and they already backed it down to 177, which is still near record, same as last year kind of a situation. So you're still asking the market for a lot. So if we don't have 177 yield we're in trouble and the price of grain has not reflected that yet because the ending stocks -- no, if we don't have the yield out there, if we don't have 177 we're sunk. We are sunk. The demand is that strong. The new crop demand in the new crop marketplace we have ending stocks tighter than this year already projected for next year. So looking at the corn charts right now, we saw the market get up to the $7.55 area for Dec contract and then back off, go back up and test it, back off, and now we're back up to that price point again. If we can get through $7.55 you'll see December corn hit $8, that is the swing objective higher. So we're going to be trading crop progress reports, we're going to be trading every single weather forecast, we're going to be watching demand and watching of course the weather around the world still.
Yeager: Okay. What do I do?
Blohm: Well, as a producer I think a lot of producers for old crop have been moving it because they have been able to get that $8 cash marketplace and seasonally there is a strong tendency for corn, soybeans and wheat to now work higher from this point in May until the middle of June. A lot of times that June price peak will coincide with the USDA report. So on any sort of a rally you're going to still want to be looking at making cash sales for old crop if you have any. You're going to want to be courageous then to go ahead and pull the trigger on new crop sales if you're feeling comfortable with your crop. And then that is the price point where we'll want to start looking at doing some hedges to protect unpriced bushels because you just never know what black swan might come in or maybe we'll end up having perfect weather when all is said and done. But I don't think for right now the market is done going up. I think we will see another leg higher.
Yeager: Well, I have Mitch in Hull's question that is very similar to what we've discussed. I'm going to be real quick. He just said the same things you just talked about. But his last part is a little more specific. Do you expect us to set new highs on the Dec contract before June?
Blohm: And that I can't answer because that would be dependent on the crop planting pace would have to be extremely behind and we are of course behind right now 22% planted, normally we're 50% planted. I don't think we're going to be more than 50% planted on Monday. On my drive here Wisconsin may be 25% planted and when I came through Northwest Illinois and Eastern Iowa it was barely maybe 40% planted. And that's where we've had some potential progress to get things done. You think about the poor folks in Minnesota and North Dakota who are just looking at swampy fields from all that rain. But I would say probably not necessarily that we can see that higher price before the end of May but definitely I think it coincides before we get to the June WASDE report.
Yeager: You've already talked about beans a little bit and how it folds with those other two. Is there anything different affecting the soybean complex right now other than meal?
Blohm: Well, soybean complexes right now is keeping an eye on making sure exports stay strong. We saw the USDA account for stronger exports for old crop. They increased export demand for the new crop year, they increased the crush demand for the new crop year. So those are things that are important and they used big yield numbers. So we are talking about all those extra acres, we're talking about big yields and so if we don't have the bigger yields of if we see any prevent plant acres come into play, especially in the Dakotas or Minnesota, then you have a situation where the new crop bean price would have incentive to rally because quite frankly we need all those beans, we really do. The world needs it and so we want to make sure that they get in the ground.
Yeager: All right, I'll look at the chart again on the Nov contract that is on the screen now. Similar to that corn, a couple of drops, headed back up but not quite to that technical level before. Is that a technical or a fundamental story right now impacting the November contract?
Blohm: The November contract has been brewing up a little higher because of the fundamentals. Technically speaking it's smack dab in the middle of its trading range. If it can get up to resistance, resistance is only about 40, 50 cents higher, if it could get through there, again that is going to be a combination of continued strong demand, we would need a planting delay story to continue to happen there. But the upside would be $1 to $1.50 higher to all-time contract highs for soybeans for that new crop price. So, again, we're not out of the woods. We have nine commodities with the tight ending stocks and we're not going to get it fixed this year. And the world then of course didn't have a perfect growing season either so now we're going to see the residual effects go into the next year. So it's going to be unfortunately high prices on grains for a while.
Yeager: High price in dairy too but then a little selloff. Are we stabilized yet there?
Blohm: Yeah, so front month dairy contracts have been up between 22 and 25 so near all-time contract highs. We've had awesome export demand, especially for butter and for cheese. Domestic demand has kind of softened a little bit as it is the end of the school year, that's a little bit normal. But overall milk production had been still kind of trending lower. We have a milk production report next week. That's going to be the next cue for the dairy complex.
Yeager: Meats and live cattle specifically, the story continues to kind of float around, there's political pressures on the packers right now and the prices paid. Has anybody benefited from all this chatter, the packers or the consumer?
Blohm: Well, I would say that the cattle producer has not benefited but we've known that for a while. Packer values I don't think that they've seen a lot of fantastic value here recently. But I think going forward what we're going to be seeing with the livestock market, probably just a little bit of back and fill action, sideways trading action, the front month contracts to just follow cash markets. They're oversold. I think they're going to start to work higher. But the friendly story continues to be those deferred contracts and how production is going to be down next year just because all those cattle have come to market here recently. Long-term cattle story is still friendly. I think the demand is going to be there for the rest of this year because the consumer from my understanding and from what I see at the grocery store they're not changing their spending habits too much and they're not changing driving patterns too much. So there is always that fear of gas prices are so high so they're not going to buy steak. Well, no, that's not true.
Yeager: Which gives fuel to the why lower prices if we're able to? If you're willing to pay it let's move forward.
Yeager: Okay, so the feeder though has been in a tough position because they had a two day window to buy some lower corn and then the big input has been a problem, we're falling off the table. How much lower can this go?
Blohm: Well, I actually think feeders are going to be at a point where they're going to start to stabilize here for just a little bit. Looking at charts they're at the lower end of their downward channel. Prices at this time I think probably just stay in some rangebound trade. But we're going to be at the situation where we're going to be watching to see who is going to pay up at these higher values? Who is going to be confident and comfortable going forward with the high prices that are there still overall especially with high prices grains looking to continue?
Yeager: And in the hog market?
Blohm: The hog market, here's one good thing about the hog market is that from a technical perspective front month contracts finished their downside objective that was a head and shoulders formation on the chart. So technically speaking I think they're going to come up for air and have a nice recovery bounce higher. The situation and the reality with the hog market though continues to be that the demand for exports has fallen back. We have seen the producers reduce their production amounts but overall we don't have the domestic demand to kind of fulfill a necessity to push the price too much higher but from a technical perspective we're ready to see probably a good one or two week recovery.
Yeager: Okay. We have to cover in Market Plus, we have to cover more of your drive and what you saw in your windshield tour and what's going on in Wisconsin and we'll have that in a moment.
Blohm: Sounds great, thank you.
Yeager: Naomi Blohm, thank you so much. That will do it for the installment of the TV show that we call Market to Market. We're going to keep going in that section I just called Market Plus so join us there. Find that on our website, which is free by the way, the website and the Market Plus, at MarketToMarket.org. Now, you may be watching us on delay from your normal viewing time. It's spring planting season and all. That's the beauty of the podcast. Download and go with any of our three offerings including the M-to-M. Check where you get your podcasts to also download our Market Analysis or Market Plus. Next week, we look at the work to repel rabies. Thank you for watching and have a great week.
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