Market Analysis with Naomi Blohm
Naomi Blohm discusses the commodity markets.
Weather stressed the corn crop and market this week before USDA cut the outlook for the harvest on Friday. For the week, the nearby wheat contract added 30 cents, while the September corn contract improved 30 cents as well. The soy complex sold off initially after a raised yield projection, but was not enough to offset weather rallies that happened earlier in the week. The nearby contract put on 72 cents. September meal increased $27.20 per ton. December cotton surged $12.46 per hundredweight, that's actually 13 percent. Over in the dairy parlor, September Class III milk futures rose 60 cents. The livestock market was mixed. October cattle added 62 cents. September feeders dropped a nickel. And the October lean hog contract put on $1.63. In the currency markets, the U.S. Dollar index shed 91 ticks. September crude oil rallied $3.03. COMEX Gold expanded by $27.50 per ounce. And the Goldman Sachs Commodity Index rallied by more than 22 points to finish at 677.30.
Yeager: Joining us now to provide some insight on our markets, Naomi Blohm. Welcome back.
Blohm: Thanks for having me.
Yeager: Report day. So we'll start with a question from Glen in Ohio. How about that?
Yeager: He takes all my work for me. Glen wants to know, since we had the Field of Dreams game this week here in Iowa, he wants to know if the report was a pitcher, if it was a pitcher, which pitch did the USDA just throw at us? Was it a fastball? A breaking ball? A change up? Sounds like it was a get me over type pitch to just get us to the next at bat.
Blohm: Yeah, the four seam fastball to just get it over the plate kind of a thing is definitely what the USDA gave us on this report. A lot of the things were expected. A few little pop ups of oh, that's a little bit surprising, were there. But ultimately no big dramatic changes. So they lowered the planted acres for corn, soybeans and wheat and I think for soybeans we were looking for that increase to happen. So that was a little bit of a surprise. And on corn they did lower yield, as people were thinking, pretty much in line with pre-report expectations so not a big surprise there. And for soybeans the bigger surprise was that they actually increased the yield just a little bit. So going forward we're in a situation where in the bigger picture yeah, the ending stocks for corn are a little bit tighter than they were last month and the ending stocks for soybeans are now a little bit bigger than we were last month and the wheat ending stocks now are a little bit lower than they were last month. So it's enough of a dramatic non-event that the market is going to keep I think marching sideways similar to what it did last year. So going forward we'll keep watching weather but this report today did not give us enough new fresh bullish news to justify any price breakout higher. And at the same time, if we see prices kind of set back a little bit lower they should be well supported as we go into fall.
Yeager: Let's start with wheat then more specifically not as much of a headline for wheat in that report. But we've had headlines this week, thoughts about being oversold, we've had some stochastics that were in a certain area, the carryout. What was the biggest driver for you this week?
Blohm: Well, I did like that the USDA lowered the U.S. carryout number, that was a little bit of a surprise. So that just really echoes the fact that our supplies are lower. They did on the report raise wheat exports and they also said that they're going to be needing more wheat for food demand. So domestically that number is a little bit stronger. So the wheat market does feel like it's trying to bottom between all three cities. It's trying to bottom but I don't think it has enough news yet to justify a breakout higher, especially when we're hearing reports that the grain from Ukraine is moving, it's getting exported and the USDA increased the corn numbers for Ukraine and for Russia. So the global supplies, it's not building, but it's not falling apart either.
Yeager: And given the story we had about the weather in Europe, that also is playing a factor. But is it more wheat or more corn is the story there with European weather?
Blohm: Well, I think it's a little bit of both. The weather has affected their crops in general. I know that right now the price of corn had been higher than the price of wheat. And so we always thought well maybe is there going to be a need for Europe to be importing any of our products? So that is something to monitor of course going forward. But the bigger picture right now I think for this grain market is again that this report did not give us any over the top bullish news so it's going to be hard for our U.S. grain prices to go a lot higher from here, especially with wheat we've got the Russian market cheaper than the U.S. market and for corn we've got the Brazilian corn cheaper than U.S. corn right now. So I'm almost wondering if prices need to actually move a little bit lower in the short-term. Do we see that seasonal pullback where prices work a little bit lower into the end of August? And I know that folks are thinking hey, this crop is still burning up and it's not made out there yet. But remember folks, the USDA isn't going to give us those friendly bullish numbers that we're all hoping for until the January report. And so the boots on the ground for surveys are going to be of course watched as we have those surveys happening. But we're not going to get those bullish numbers, not yet.
Yeager: Not yet. We're getting not bullish weather reports, specifically on that soybean -- well I guess you could say in the soybean we are. Hot and dry is what you expect with soybeans. But we're pretty hot and dry.
Blohm: Yeah, so we're hot and dry with the beans market and then with the yield there. But there's also chances of rain next week and so if those materialize it again just kicks the can down the road because you never know with beans what is really out there until you're actually harvesting. But I think that is the USDA's way of saying it's not an emergency issue for right now and the world is going to be able to get by. And so let me just be blunt, if people are waiting for $7 or $8 corn or dramatically higher prices, we're in a point right now of reset or pause and all of those stars that aligned so perfectly last year to give us $8 corn, they're behind us. So now going forward we're at the pause here and markets probably trade sideways until we can get to know some more information on demand, on yield. So for prices to go higher from here, from all these people who are barking about why prices should go up, let me tell you, you're going to need a lower U.S. dollar, you need confirmation that this corn crop is below 170 bushels, you would need confirmation that the soybean crop would be lower than probably 45 bushels, you're going to need to see demand pick up, you have to have early frost and then compromise by all of a sudden wet late harvest. So I guess what I'm trying to say, for the stars to align from here to get those higher prices it's probably not going ot happen in the short-term.
Yeager: Okay, December corn, I'm not going to put you on the spot for September, but December we're still at $6.42 is what we closed at today. Give me a quick range for the next three months on that.
Blohm: Yeah, $6.50 is going to be big resistance in that market, $6 is good support. Step back though and look. Even though our carryout is lower from last month on corn, it still is 150 million bushels higher than it was last year at this time. Last year at this time the price of December corn was $5.75. So we have more corn carryout and the USDA increased old crop carryout. So I know people are not wanting to hear this but I'm telling you I don't think fundamentally at this moment we have a reason for December corn to get higher than $6.50 and it will be a struggle for the November soybeans to get higher than $14.50. We would need, again, bad weather to happen or some big export news to come out to get prices to go higher.
Yeager: And $14.50 that is really what we're at with November right now, $14.54 today. Quickly on dairy, we've seen some resurgence in that crop, commodity.
Blohm: Right, so the dairy market, so we had our summer highs of 24, we've pulled back to 20 and now we're hanging out there. So what happened, we had the cheese prices come down. The block barrel average is hanging out right now hear 180 so that is actually a really good support level for the block barrel average. Our exports are still great, they're really doing well. But on the most recent dairy production report milk production was up .2% and that was the first time we saw a year over year increase. So that weighed on things a little bit. But like all commodities, everything is just sitting on these long-term uptrend lines and we're waiting for some more news and that is just where we're at right now.
Yeager: Well, live cattle has done that too. They're the highest in three months right now.
Blohm: Yeah, that market of course still supported by the idea of the fact that production is going to be down fourth quarter, down I think 5% from a year ago, first quarter production is supposed to be down 7% from a year ago and going into second quarter of next year production down almost 10% from year ago levels. So we know that it's a friendly story there. I would caution though with cattle and even with hogs they've gone up so much and they are where they're supposed to be priced but it wouldn’t surprise me if we see a little bit of a correction or some profit taking. But overall it still is a friendly story, unless we see demand falter, but right now our exports for beef are just phenomenal, the best they've ever been and as long as Americans are not getting laid off and they're still working I think you're still going to see the demand there.
Yeager: Well and I have a hog note here. Mexico has been buying, China has been buying some things. Is that what is propping up the hog market?
Blohm: A little bit of that. Our exports have been okay. They're behind where they were last year and the year before that but the pork cutout values have been really strong, the cash market has been strong and we've had really good demand overall this summer. So we're getting into that timeframe with heading into Labor Day that prices probably see a little bit of a pullback here. But what is interesting is that our hog numbers they're down a little bit from year ago levels and actually our weights are the lowest that they have been since 2017. So our production isn't going to be as triumphant going forward, we're still going to be scaled back a little bit. So that should keep the market supported.
Yeager: Losing weight there in the hog market, huh, is that what's going on? I mean, is that a little offset of the feed issue?
Blohm: Yeah, that's exactly what is going on. Higher priced feed is there and I think producers are just, they're very smart knowing that that herd in China had been rebuilding so they did a great job of controlling their inventory and kudos to them. They've done a fantastic job.
Yeager: You're going to be a hit in the hog barn this year at the Iowa State Fair with comments like that, Naomi Blohm. Thank you so very much for your time, appreciate it.
Blohm: Thank you.
Yeager: All right, we are going to put a pause on this analysis here and we're going to continue with Naomi and answer more of your submitted questions in our Market Plus segment. You can find that on our website of MarketToMarket.org and that is in both podcast and also on You Tube and all of these resources, as a reminder, are free. We've also isolated the Market Analysis, which you just heard, the Market Plus, which we're about to record and wasn't on TV and the MtoM, these are all three different podcast offerings that we have for you each and every week. And next week, we're going to look at the partnership shoring up and shortening up the grain chain. Thank you for watching. Have a great week.
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