Grain prices trended lower this week as part of a broader commodity and equity sell off. For the week, December wheat lost nine cents while the nearby corn contract moved 24 cents lower. Soybeans bucked the bearish trend as the January contract settled with a weekly gain of 27 cents while nearby meal prices advanced by nearly $20 per ton. In the softs, cotton gave back 80% of last week's gain with a loss of $4.50 per hundred weight. In the dairy market, November Class II milk futures gained 48 cents while the deferred contract moved 25 cents lower. Over in livestock, December cattle lost $2, nearby feeders were off more than $3 and the December lean hog contract moved 72 cents lower. In the financials, the Euro lost 75 basis points against the dollar. Crude oil continued its downward trend with a loss of $4.16 per barrel. Comex Gold declined by $11 per ounce. And the Goldman Sachs Commodity Index lost more than 15 points to settle at 639 even.
Pearson: Here now to lend us her insight on these and other trends is one of our regular market analysts, Naomi Blohm. Naomi, welcome back.
Blohm: Hi Mike.
Pearson: It was a big news day for the broader markets today with the release of America's GDP results. Can you talk to us a little bit about that?
Blohm: We had some decent news this week from the United States which was finally welcomed. We had third quarter growth of two percent which was much welcomed for many aspects. And, of course, second quarter was only at 1.3% so this is great news and it was enough to keep the market supported for the weekend. And looking at the bigger picture we're still struggling and for the year now growth is at 1.73%, which is a little bit lower than last year. But I would say if things weren't so bad in Europe, prices and our economy might even be doing better. Right now in Europe, of course, today they had some poor news from S&P downgrading some French banks which weighed on the market a little bit this morning earlier. And now in Spain they have 25% unemployment which is just horrible. One little bit of good news came out of Germany, though. Their five year, their consumer confidence is at five year highs so that was really supportive there. Moving over to Japan they had a rough news week because their exports are down 10%. Of course, their exports are down because Europe isn't buying any of the electronics and China isn't buying electronics now either because of their little rift over the islands. So that is not helping things. And then bringing it back to China also they had a decent week for news also. They had a little spurt in growth over the last three months. Their PMI number came in at just under 50 so things starting to try to get back on track there. The big picture there also, they're struggling. They are at three year lows for their economy but everything is trying to get back on track. It's just a matter of time.
Pearson: All right. And we did mention earlier in the show crude oil prices falling this week. Where do you see crude oil prices going? And do you see that as a bullish factor as we look to the future in terms of economic growth?
Blohm: That's a great question and I would say right now because of the supplies that we have for crude oil it's going to keep prices on the defensive without a doubt. It's going to be on the defensive with the only thing maybe spurring it higher is if some unforeseen bad thing would happen in the Middle East. But right now in the bigger picture I would say that 86 is going to be some support for crude oil with the bigger picture suggesting 80. Now, in the larger scale of things, the Middle East and even here in the United States always between 70 and 75 is everybody's break even. So I don't think we'll see the market go below there. We just can't afford that from the production standpoint.
Pearson: All right. Let's move into the commodities and let's talk wheat a little bit. We still had exceptional dryness in parts of the plains. How is that -- what is that doing for the wheat futures?
Blohm: Well, the Kansas wheat futures, that is supporting it right now because planting is going well and it's right on target but it's just not looking good as far as when it actually comes up. And so we're really concerned about that and the market is watching it. That's what is keeping it supported. Right now for wheat the bigger factor is more the demand factor. And with Ukraine cutting exports that is a big one and Russia, of course, following suit. There was a little bit of supportive news this week from Argentina that they would be having some quality problems with their production just because it's been a little bit soggier there. So that gave the market a little bit of lift. But overall we still have wheat in that sideways to slightly lower trend. $8.40 is supported in Chicago December and $9.00 is resistance. Any time that prices get to the higher end of that range be making sales because until our export market picks up we're not going to have a reason for the market to get above $9.00. But if that can happen the up side would be $10.00. But most likely we'll expect to see prices just stay in that sideways range.
Pearson: All right. Let's talk corn a little bit. We had kind of a bearish week in the corn futures. Where do you see corn going in the near term?
Blohm: I would say in the next week or two we'll probably see corn stay in this little short-term range that it's been in with $7.35 as support and $7.75 as resistance. The bigger picture suggests $7.00 still is support with $8.00 as resistance. End users if you need to be a buyer, buy down when it's at the $7.00 end of support because with the supply being so short the market will likely hold above $7.00. Now, on the flip side we don't have a reason to go above $8.00 because that's too high and it really kills the demand. So any time prices get up to the higher end of the range then be pulling the trigger and making some sales. Keep an eye on the basis because that has been really strong yet and that is where producers can make the extra pennies. But for the next couple of weeks tighter range and then probably into year end I don't think we'll see anything out of the $7.00 to $8.00 range.
Pearson: All right. So just sideways movement from here through New Year's. All right. Now in soybeans are you seeing a similar action take place? Or what is your advice to producers there?
Blohm: Producers there I would suggest that if we can see the November/January contracts, they're trading about the same, if we can get that back up towards $16.00 that is a good place to do some sales yet I wouldn't be overly aggressive because the ending stocks for the old crop is so tight that if there are any weather hiccups along the way in South America we could really see the market retest the old highs. Now, that being said, there are some weather concerns starting to pop up in South America. It's really wet in the southern parts of Brazil and in Argentina and northern Brazil is dry. It's nothing yet to make the market panic but I think it's enough to keep the market supported overall. So trade those ranges.
Pearson: All right. And now with the weather in South America, when do you see that having the biggest impact on the futures market? How soon -- what should producers be watching for timeline wise with news out of South America?
Blohm: I would say it's really going to affect the market and hit the market in January, possibly even February because that would be the biggest part of their growing season. And so until then prices will likely just stay firm but the panic button won't be hit unless it's bad weather in that timeframe.
Pearson: All right. Well, let's talk cotton briefly. We had a big move last week and another big move this week in the opposite direction. What is going on with that market?
Blohm: Well, it's trapped. It's trapped in this range where 77.5 is resistance and 70 is support and it doesn't have a reason to get out of that range. The euphoria last week was about potential quality concerns with our U.S. crop. There was something with the coarse fibers and it might affect spinning and things could break during that process. But in the reality, we have, as a global supply, 270 days worth of product, which is the most ever. So we're not going to see cotton rally. And, in fact, even if they cut production next year in terms of acreage, if we go from 12.2 million acres down to 10 million acres and even if we have good yields this year it's not going to do a whole lot as far as affecting the ending stocks. So cotton is stuck. It's just stuck.
Pearson: And we'll see that for a while.
Blohm: A while, yeah.
Pearson: All right. Let's talk dairy market. Where do you see dairy headed?
Blohm: It's actually a favorable picture yet for a while. The milk market right now has actually been more affected by cheese. The black barrel cheese price got up to a resistance area on charts near $2.08. If it can get through there than it will go up towards about $2.14 which was the summer highs. And cheese demand has been strong lately and, of course, we're heading into holiday season so that's part of it. The other factor with milk right now, which is going to keep probably the November/December contracts between $20 and $21 is that our production is actually down. And the reason production is down is because we have been bringing more cows to slaughter. And over the last nine weeks the slaughter rate has been over 60,000 head a week which is really a substantial number. So that is why the production is down. And then even looking at first and second quarters of next year because demand is strong and we expect production to stay lower it is keeping that market price between $18 and $19. So for now prices look to stay firm but we don't have any reason to see anything go substantially higher or lower.
Pearson: All right. So just things to keep in mind for the producers out there.
Pearson: Let's look at livestock. As we've seen corn slip slightly from its summer highs what has that done for the feeder cattle market?
Blohm: Well, the feeder cattle market definitely has held some decent values. Right now the January contract has some resistance at $150 and ample support at $146. So it's been a factor with prices coming down that has made it a little bit more appealing to the feeder cattle market. Over the last week or two the market has kind of blown off the feed aspect of it and it has been trending more along with the live cattle market. So with supplies overall being down it's going to keep the feeder market well supported. But, again, with prices being so high the consumer demand is starting to come into question which is a really big thing. Going into the live cattle we actually saw the choice values go to nine year highs this week, $199.40 which is just a tremendous value. So, there again, they are in live cattle because the supplies are so tight and even our cold storage report this week showed that supplies on hand were down 0.5% from a year ago. So we're keeping up with demand, sort of, but the prices are really high right now that the market is getting a little skittish and live cattle futures have been trading sideways, the December contract since April and it's just kind of stuck in this rut and it will likely stay there. It is well supported fundamentally yet the market knows that it doesn't want to get too much higher because it is too scared to scare the demand away.
Pearson: And with that in mind looking from the demand perspective, consumer demand perspective, as we see the GDP increase is that something the market takes into consideration? Maybe people are feeling a little more wealthy? They are feeling like splurging on beef? Is that -- has that been a factor do you think?
Blohm: I would say that's a great point and something that is going into this. Part too of that would be that with the holidays approaching people are starting to shift towards Christmas presents but also there is holiday demand from parties and from entertaining and that standpoint. So it is a tightrope balancing act right now between all of those factors. It's helping, of course, that gasoline prices are lower. And with the economy seeming to be a little bit better there's hope. But at the same time reality is going to be coming to light over the next few weeks.
Pearson: All right. And what are you seeing in hogs? As we're talking demand we see maybe folks potentially shifting their purchasing from beef to pork. Is that going to be a real factor in the coming months if beef prices stay high?
Blohm: I think it already is a factor. At my little grocery store the pork was on sale this week and that was what everyone had in their carts. So it is happening. What is interesting with the pork market right now and with hog futures is that the cutout values have been up, slaughter is 3 percent higher than a year ago, cash markets are firm. So everything is current, the weights are down a little bit and I think the hog market has kind of found this happy little medium spot right now where everybody is having a little bit of a slice of goodness. And the December contract is going to have some resistance at $80 and because supplies are so current it doesn't have a reason to go too much higher than that. And likely, just from profit-taking, we'll see the market have a little bit of a setback towards $76. But I would say my outlook on hogs is that we'll start to see it also move into a sideways trend into year end but it is very mindful of turkey coming and also other holiday demand.
Pearson: All right. Now as we look at the upcoming week there is Hurricane Sandy approaching along the coast. Is that going to have any impact? Should folks be concerned about any sort of a sell off relating to that impact in New York and all those major centers up the East Coast? Is that going to be a factor?
Blohm: That's a great question. And it likely could be. Quite frankly I'm not sure how it would affect things other than infrastructure or maybe people in New York not able to get to work or those types of things. But it's going to be a factor and one that has to be watched closely because if this is the super storm that they say it is there is potential that we could have power outages for nearly a week in which case people aren't shipping so we have to really be mindful of the situation.
Pearson: All right. And one more quick question for folks planning for next year, what is your advice on selling next year's crop?
Blohm: 10% sale on new crop December. We had December '13 futures hit $6.40 this week so for most people that should be pretty darn close to $6.00. Get that first sale going and start looking for the November beans for $13 also.
Pearson: All right. Well, thank you so much, Naomi, we really appreciate having you on the show.
Blohm: Thank you.
Pearson: That wraps up this edition of Market to Market. But if you'd like more information from Naomi on where these volatile markets just may be headed, visit the Market Plus page at our website. You'll find expanded market analysis, audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account all free at the Market to Market website. Be sure to join us next week when we'll learn how traders are playing the presidential election in a unique political futures market. Until then, thanks for watching. I'm Mike Pearson. Have a great week.