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Market Analysis: Naomi Blohm

posted on March 22, 2013


Grain futures contracts traded sideways this week as the market pondered acreage estimates from private firms ahead of USDA’s Prospective Plantings report next Thursday. For the week, May wheat gained 7 cents, while the nearby corn contract moved 9 cents higher. Soybeans also posted modest gains as the May contract gained 15 cents. Nearby meal prices followed suit with an upward move of 50 cents. In the softs, cotton’s rally ran out of steam as the May contract posted a loss of $5.21 per hundredweight. In the dairy market, April Class III milk gained 41 cents, while the deferred contract moved 59 cents higher. Over in livestock, April cattle gained 43 cents. Nearby feeders were off a dollar. And the April lean hog contract posted a weekly loss of $1.62. In the financials, the Euro lost 71 basis points against the dollar. Crude oil declined by 11 cents per barrel. Comex Gold advanced by $13.60 per ounce. And the Goldman Sachs Commodity Index lost nearly 6 points to settle at 646.05.

Market Analysis: Naomi Blohm

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, thanks Mike.

Pearson: We've heard a lot in the media the past week about what is going on in Cyprus and what is going on in the Euro zone in general.  Is the, the bailout catastrophe in Cyprus going to affect the Euro zone as a whole do you think?  Is that going to affect the dollar in your opinion?

Blohm: That's a great question and there is a lot going on there right now.  We started the week on Monday of this week where the market just all of a sudden was like, what is happening, because there was so much activity with Cyprus and they're going to be kicked out of the Euro if they can't get the bailout money together.  And so that sent our dollar higher because the U.S. of course is viewed as a safe haven for money.  And then later in the week of course we see some positive economic data happening here in the U.S. which kept the dollar firm.  And then QE came out again, with the feds, and they said that we're going to continue to implement it until the unemployment rate goes lower.  So we have something where the dollar is being affected positive and negative so it's a little bit of a tug of war right now and we're going to continue to see that. Now coming up on Monday Cyprus is going to be back in the news hot and heavy just because the EU has now said you have to make almost $8 billion by Monday and accept the terms of our bailout agreement or you're going to be out of the European Union.  So Monday is going to be another wild day in the marketplace.  And then if you couple that with it's going to be the end of the month, end of the quarter and then we're going to be heading into a three day weekend because the markets are closed on Friday for Good Friday.  So it is going to be a wild one next week with a  lot of focus on Europe, absolutely we're not done with that yet.

Pearson: All right.  Now looking at the dollar for our exporters we've had some analysts on the show say that the dollar index at about 84 is when we should begin to worry about exports.  Is that kind of a -- is that going to be within reach here possibly in the next week do you think?

Blohm: That's a great question and if the situation with Cyprus can't get figured out and then if people think that the U.S. and the U.S. dollar is the place to be then our dollar absolutely will go higher which will affect our exports.  So that 84 number is right on.  It is something to be very mindful of in the coming weeks and months.

Pearson: All right.  Definitely keep an eye on where the dollar is headed.  Well let's look at grains a little bit.  Now we've had, we haven't seen a lot of life in the wheat market.  It has been back and forth, back and forth, thinly traded.  We did have a viewer out in southwest Nebraska who said the wheat in her area is the worst they've ever seen, farmers are expecting, you know, nearly total losses.  Is the market taking that into consideration?  What are your thoughts on wheat?

Blohm: Yeah, the wheat market this last week finally actually was able to rally about 30 to 50 cents depending on which contract you were trading.  And the market was able to rally because of some export sales that we had over the last couple of weeks which were really important.  But overall the global situation is still that there's a huge supply, global ending stocks are still monstrous and just huge supply numbers and now every week we're reminded that there's another country in the world who can supply wheat to whomever needs it whenever they need it.  Now back here in the United States absolutely our plains are in bad situation, there's no doubt about it and the market is aware of it and the market wants to I think trade on it but at the same time because there's so much supply globally it just can't rally off of it, there's not enough news to rally off of it.  And we had export, I'm sorry, we had the weekly, the quality crops on Monday afternoon and that came out to say that the crop in Kansas and the crop in Oklahoma actually improved a little bit from the previous week.

Pearson: Picked up some moisture.

Blohm: Yeah, but the crop in Texas is not improving.  But still it's not like it was going to be this fabulous crop and the market needs to realize it and soon it will but in the meantime any rally is probably going to be met with a little bit of selling.  The market will just stay stagnant.  But that wheat is being used in ethanol now and we are seeing the wheat being used a little bit more in feed so the demand is happening slowly but surely.  I would say we're done going down.

Pearson: Okay.

Blohm: But we're not going to have a reason to go too much higher.

Pearson: Okay.  Now, as we look to the future, particularly in new crop, are there any price targets you think might be out there?

Blohm: I would say that right now we could maybe see the market only in the short-term maybe go another 20 cents higher and beyond that it just depends on what corn can do.  Corn is still leading the grain complex right now.  Wheat will follow but wheat is not the leader.

Pearson: All right.  Well let's talk corn more specifically.  Where do you see the market headed in the near term?

Blohm: Well, in the short-term we had the market able to on the May corn stay above the $7.25 number which was a really big deal because there are some 100 and 200 day moving averages there and then that is also staying above the down trend that the market has been in.  So for the short-term I think the corn futures for the May contract can maybe go to about $7.45 on the futures contract.  We won't have a reason to take it higher than that because with basis being positive some guys are going to be able to get real close to $8 cash and some will be able to get up to $7.75 or $7.80 and that is good enough.  They're going to pull the trigger and let go of some corn sales and so we'll see the market pressured lower.  At the same time because the ending stocks are so tight I don't think we're going to see corn fall apart on the old crop but more just stay sideways.  And when you talk about new crop a lot of that will be dependent on the report on Thursday, huge variance in opinion on that.  You know, we went from 99 million acres down to like 96.5.  So Thursday's report is going to be very intense.  And I think a lot of the trade too right now is very interested in of course our growing season when the western half of the Midwest is in a drought.  I was up in Doon, Iowa yesterday in the northwest part of Iowa and the producers there were telling me that there's still a foot of frost on the ground and they're not anywhere close to being planted and there's another storm, snowstorm coming in.  So we are not having an early planted spring.  We're going to maybe have an on time planted spring and the market is going to start to be interested in that very soon.

Pearson: All right.  Now looking at the effect the report could have on the markets one way or the other since it is going to be such big numbers, what is going to be the best way for producers to get a handle on that?  We've heard a lot of talk about CME's, new short dated option contracts.  Would this be an opportunity to take advantage of something like that?

Blohm: Yes, absolutely.  You could use one of those options or just a regular, traditional option and I would say like the day before the report or even the morning of the report go ahead and implement some of those strategies because that way you have coverage and then if the report somehow is friendly or something you can exit those puts right away because you wouldn't necessarily need them. 

Pearson: Sure. What sort of price levels would you be looking at?

Blohm: I would really try to stick to something close to where the futures market is trading in because you want to protect the value that is there.  And a lot of people that have that really good crop insurance right now so that is really protecting value as well.  So there's a lot of marketing tools available that producers can use to make sure they're lacking in profits.

Pearson: All right.  Well let's take a look at soybeans.  Soybeans, we saw some pretty drastic moves this week.  And we're still having a hard time getting supplies out of Brazil.  What does the near term look like for soybeans in your opinion?

Blohm: The front month contracts I think more just sideways trading.  We're stuck between $14 support and $15 resistance on the charts.  The ending stocks in the United States are very tight, historically very tight but again here we have this situation where globally there's a lot of supply.  Right now we're China's toy in a sense and the reason I'm thinking that is because China was able to do a lot of export buying so they were buying, buying, buying United States soybeans and then now they have this stockpile at home.  So that pushed our price higher.  It has gotten the producer to be more interested in planting soybeans and buying some of those acres back and conveniently enough they've got that price a little bit higher to make sure we're going to plant and now they have supplies out of South America that they could choose to use and they cancelled some of those purchases but they can come right back in and buy those as soon as they want.  In the meantime though, here's what is interesting, they're going to be able to sell to their own crushers in the country between over like a million and a million and a half tons of soybean product.  So they aren't in a hurry.  Even though they cancelled all those bean orders from Brazil they're not in a hurry to have to buy anything from us or buy anything from Brazil.  They can buy at least a month, month and a half at a time because they have enough supply at home right now.

Pearson: Okay.  And with that in mind there was a lot of talk about the strike predicted to happen in Brazil, the port worker strike on the 26th I think is when they rescheduled that for.  With that in mind, China having this extra breathing room, is that thing going to have less impact on the market do you think?

Blohm: Right.  It really will because there's not this immediate threat of things and we expect that out of South America almost every year now.  So it has kind of factored into price and factored into market shock value or non-shock value.

Pearson: All right.  Now, for folks looking at new crop beans, again with the report coming up, what sort of options should they be taking?  Would this be a good time to begin looking at selling?  What are your thoughts for new crop producers?

Blohm: I would be a little bit more aggressive on the beans than I would the corn because there's this huge global supply with the soybeans and now with this potential shift back to more acres there if you look on a November chart there is a very strong support line at $12.50.  If that support line breaks it will be a quick wash down a dollar lower to $11.50 just on the futures side that the market will just do and the traders can do it.  That market is not overbought or oversold going into this report so there's room to run either way.  I would be very aggressive on either some sort of a cash sale if you're comfortable or a hedging strategy going into that report maybe with some November options or those short-dated options like you had talked about because it's just still good value.  And in the bigger picture there's a large head and shoulders formation on weekly charts for the November contract.  That would point to almost $8 lower but that would be assuming perfect weather from here on out and that is, we're a way off on that.

Pearson: What sort of acreage estimates would we be needed with the perfect weather to get into that worst case scenario?

Blohm: Anything over 78 million on the beans would be something that would make the market really react negatively.

Pearson: And in your opinion where do you think we're going to fall acreage wise?

Blohm: Probably on the beans somewhere between 77.5 and 78 because I really do think that they bought some acres back from corn.  I'm kind of hoping for a friendly number on corn on next week Thursday.

Pearson: Friendly number you're thinking 96?

Blohm: Same as last year would be great, like 96.5, 96, anything below 97 but I don't think we'll get anything too much lower than that, that would constitute a reason to have a limit up day but it will be enough to just keep us in check because there's so much weather issue to come yet this summer.

Pearson: Sure, a lot of uncertainty out there in weather.  Well, let's talk dairy real quick.  We don't get a chance to discuss that very often on the show.  Can you give us your opinion on where the dairy market might be headed especially as we look into summer?

Blohm: Sure.  The milk market this week actually had a nice rally.  There was a global trade summit for milk and there was an auction and so the traders there gave us some positive news.  There's an index that talks about how much milk globally and cheese and product is being used and that index increased by 14% which is a huge number.  So that got traders excited, that got the cash markets excited and because of that then the whey market rallied, the butter market rallied, the cheddar market all rallied and so the futures contracts we had April milk rally 50 cents. May milk rallied $1 and finally we've got milk back up into the $19 area which is perfectly where it is supposed to be.  We also this week got a production number report that talked about how February production was actually down 3.5%.  On milk that's a huge number.  Any percent change is usually a huge situation and so for it to drop 3.5% was just astounding.  We also have still less cows from years ago yet because of the higher prices and things like that.  So that is something that is going to keep this milk market supported and now I think we are in the clear to be able to stay up towards $19.  We don't have a reason to go too much higher but I think the worst is behind us.  We'll probably see the exports pick up because actually in New Zealand they're in a drought and New Zealand and Australia are some of our bigger competitors globally so that's going to put a little more emphasis back on the United States.  Of course it goes back to Cyprus though and the dollar so there's a lot still that's going to happen yet.

Pearson: All right. 

Blohm: But at least a little bit more favorable news.

Pearson: All right.  Well let's talk cotton real quick.  We saw a nice rally last week.  It was followed by a bearish week this week.  What is happening in cotton?

Blohm: Yeah, cotton is kind of the same thing as soybeans where China gobbled up all these supplies, exports happened and they were able to push that market price higher.  The cotton market got up to $94 and it was extremely overbought.  The traders said, that's enough, let's sell it off and so it's more of a technical sell off right now than anything.

Pearson: We saw some profit taking.

Blohm: Yeah, absolutely.  So we'll probably still see the export market strong yet for the United States but now we have the report next week on Thursday and there's thoughts that cotton may be bought back a million acres.  So that is important for the southern states too.  So -- but mostly technical trading this week is what happened.

Pearson: Okay.  Well now let's take a look at livestock.  We had livestock slaughter come out yesterday and the cattle on feed report today.  Cattle on feed report expected to be pretty bearish.  We saw numbers down about 7%.  What does that tell you?  What should we be looking at come Monday in the cattle market?

Blohm: Yeah, the report today showed the on feed number at 93%, the placement number came in at 86% and then the marketing numbers was at 93%.  So those were on the lower ends of the trading ranges coming in for the expected ranges.  So we'll see the market have some support on Monday, nothing that is going to make the market rally or fall apart or anything like that but I think what it's going to do is just keep it from going any lower.  We need some demand to pick up.  We need the weather to turn nicer so people can start grilling again and actually be excited about, you know, cooking steaks and things like that.  And once it happens we will definitely see the demand pick up, seasonally demand picks up also this time of year so I think we just can give it another week or two things will start turning around.  But the cash market has been lower and things like that and even the feeder market, just like eight month lows this week.  It's just been traumatic and a lot of the guys are telling me they're losing $300 a head.  I mean, that's just really horrible for them and so we need something to happen and it's going to start with the demand market first because we still have historically low numbers of cattle out there.

Pearson: Okay.  Looking at live cattle what sort of prices do you see us hitting here in the next week or two weeks maybe when we get back into that seasonal buying range?

Blohm: Sure.  April futures on the live cattle looking for about a bounce back up to about $129.  We're in a downward trend so I think we're going to get to the higher end of that channel and then maybe start to trade sideways after that and hopefully once the demand picks up be able to do a bigger retracement up.  But right now we're done going down I think.

Pearson: We'll be lucky to be sideways.

Blohm: Yes, that would be great.

Pearson: Okay.  Looking at feeders do you think we've hit bottom?

Blohm: Yes.

Pearson: Okay.  All right.  So with that in mind what is the next level we should be looking at for support?

Blohm: Just small steps higher, you know, maybe one or two dollars just to get things going, just more sideways to trying to establish demand again.

Pearson: Okay.  And now for the guys that, like you said, they've been in the red now for a year, what is the best way to trade a market like this when you've been in the red for a year?  What is your best advice for folks in that position?

Blohm: Well, if you were someone who had a little bit of a risk appetite I would try to find a way to put some icing on the cake.  A baby step to kind of come in, it's a marginal position but I would like to sell puts under the market because the market is technically oversold.  If you sell puts and then the more the market can go sideways or even a little higher you can collect on premium.  It might be a really good way to just start right now.  If you had a bigger risk appetite you could jump in there and buy some futures in a sense.  But I don't know that I would do overly too much.  But have patience.

Pearson: Okay.  Real quick let's take a look at hogs.  Bearish report on hogs today.  What does that tell you for the next week?  What should we be anticipating?

Blohm: Hogs are just not getting any love at all lately, they have just low wholesale numbers and low cash numbers and now today we found out that the pork product -- and the freezer is five percent more than a month ago so they just are not getting any demand.  But too I think it is once the grilling season starts up again that will help.  But fundamentally the news just continues to get worse.  So unfortunately probably see things a little bit lower but technically on the charts the market is really oversold so we should see a little bit of a lift from someone to step in and just be a buyer and we'll see it soon.

Pearson: All right.  Keep an eye out for that in the hog market.  Naomi, thank you so much for being with us today.

Blohm: You're welcome.

Pearson: That wraps up this edition of Market to Market.  But if you'd like more information from Naomi on where these 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 along with links to our Twitter feed and Facebook account all free at the Market to Market website.  And be sure to join us next week when we'll examine the market impact of USDA's prospective plantings report.  So until next time, thanks for watching.  I'm Mike Pearson.  Have a great week.


Tags: agriculture analysis cattle commodity prices corn cotton drought economy hogs markets Mike Pearson Naomi Blohm soybeans wheat