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Market Analysis: Naomi Blohm

posted on May 3, 2013

For the week, July wheat gained 29 cents, while the nearby corn contract moved more than 40 cents higher.  Soybeans also rallied this week as the July contract posted a weekly gain of 6 cents. Nearby meal prices followed suit with an improvement of nearly $2 per ton.  In the softs, cotton prices also advanced as the July contract posted a weekly gain of $2.18 per hundredweight. In the dairy market, June Class III milk lost 28 cents while the July contract moved more than 30 cents lower. Over in livestock, the June cattle contract lost 78 cents. August feeders were off nearly $4. And the June lean hog contract declined by 35 cents.  In the financials, the Euro gained 80 basis points against the dollar. Crude oil gained $2.61 per barrel. Comex Gold advanced by $10.65 per ounce. And the Goldman Sachs Commodity Index gained nearly 10 points to settle at 630.90. 

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: It has been a busy week.  Let's get into weather.  That has been the topic on a lot of people's minds.  What are your thoughts on this delayed planting season we're seeing?  How is this going to affect the grains as we roll into eventual springtime?

Blohm: That's a great question and certainly is top of mind right now especially with the snow that we've had throughout Iowa, Minnesota, Wisconsin.  I would say that the weather right now is definitely going to impact prices probably for another week or two on planting delay concerns and then the party is going to be over because the crop is going to get in the ground, it's going to be planted.  And historically speaking from a corn perspective even if there is a late planted crop it doesn't have a specific bearing on what yield will be.  Some years we've had record yields from late planted crops and some years we've had just poor yields and it just depends on the July weather for pollination.

Pearson: For pollination as we get more into the summer.  Well, let's talk wheat a little bit.  As we talk about how weather has affected the wheat crop, especially in America, we've seen multiple freezes now we've got snow, a lot of the wheat producers out there are getting nervous.  What are your thoughts on wheat this spring?  What are we going to see on prices?

Blohm: The price for wheat I think is going to just continue to hold firm for now which is a little bit disappointing I think to many producers.  The winter wheat tour this week showed that the average yield in Kansas is 41.1.  I think a lot of people were anticipating it to be worse than that.  and the fact that it isn't just says that the market is going to just wait and see what the May and the June weather actually come out to be and then we have to wait until the harvest actually happens before we know I think really how bad it is, which is what we're hearing from various producers throughout Kansas and Oklahoma.

Pearson: Now, if it does degrade over the spring, if we do see yields be worse than we're seeing on the winter wheat tour, is that going to have much of a -- is that going to be much of a market mover or is it still the global situation?  Are we still a little too oversupplied with wheat to have much of an effect?

Blohm: It's something where it will make the market move a little bit higher because of wheat being a substitute for corn lately and in that type of capacity it will keep the market firm, it'll keep a little bit of an uptrend but it's not enough to make it just rally because the global situation is still trumping at this time.

Pearson: So what is your advice to producers out there looking at uncertain yields and in this time of prices?

Blohm: I would say patience, your time is going to come because when harvest happens and the yields won't be there then I think you'll have your opportunities for the higher prices then.  So I would just say be patient. 

Pearson: Be patient, wait and see.  Well let's look at corn a little bit.  Now that is where we've seen the old crop really limit up on Monday.  Talk to me a little bit what happened there.  It was, we had planting happen over the weekend and yet we saw the market spike on Monday.

Blohm: Yeah, it's kind of funny because, you know, in April we had all been saying the crop isn't getting planted, it's not getting planted but the market won't care until May 1st.  So we have the first week of May officially and then we come into a horrible weather cast Sunday night and into Monday morning and that is what pushed the market limit up.  So then when the planting progress report came out at 5% planted well the market had already traded up so it didn't have too much higher that it could go and so now for this week we'll have another slower week of planting progress shown on Monday afternoon but the market is already expecting that.  So what is going to be a major factor will be what the weather forecast is Monday morning.  And if the weather forecast continues to be soggy and Iowa and Minnesota and parts of Indiana aren't getting planted that is going to move the market higher.  But right now the December corn has some resistance at $5.70.  It's got to get through there first and it's going to take another weather bump to make that happen.  Now I would add if we see that price get through $5.70 the upside would be about $5.90 and that is the point to pull the trigger because right now the market is already thinking that we're going to have about 2.5 million less acres of corn that is going to get planted.  So it is already pricing it in and the traders are already thinking that yield is going to be around 153 or 154.  So the market knows that it's not going to be the best crop there.  And the market for new crop will not have a reason to trade above $6.00 futures unless the yield starts to look like it is below 145 in which case the ending stocks would be below a billion bushels.  But that we won't know until summer.  So sell the rally that we're going to have over the next couple of weeks.

Pearson: Sell the upside and then we'll wait and see if we get another weather scare.  That's what it is going to take to push it higher.  Now as we look to producers with old crop corn still in the bin what is your advice there?  As planting gets delayed further are we going to see better opportunities to move old crop corn later in the summer or should we take advantage of any rallies here in the next week or so?

Blohm: That's a really good question and it's something where take advantage of rallies as they come along the way because I think that between now and August and even early September we're going to see little rallies that come up and then set back and then come up and set back.  We don't have a reason really for prices now to go above $8.00 in the cash so any time it's close to there I would definitely pull the trigger.  But what's really going to be interesting is that there's not going to be any crop available for early harvest.  So now we might see a September futures contract suddenly decide am I going to be old crop or am I going to be new crop and we could see some fireworks down the road this summer.

Pearson: Okay.  So there is that possibility especially as planting gets delayed further and further.  Now as we take a look at soybeans, is the market anticipating a switch, either in wheat acres being abandoned or in corn acres as the rain continues, are they anticipating an increase in soybean acres?

Blohm: Yes, they are anticipating it and they are already expecting at least a million more acres to be planted to beans.  And so people are thinking well why isn't the new crop bean just falling apart?  And the three always stay together and in 2009, the last time we had a delayed planting, corn, beans and wheat all rallied up until Memorial weekend in May and then it was just downhill throughout the harvest.  So I think we're going to see that type of a thing with the beans too.  And so my suggestion would be if we can see this corn price move a little bit higher then I would definitely take that as a cue to sell some new crop beans in the coming weeks.

Pearson: Do you have a price in mind out there that you think might be a good level of resistance to keep an eye on for producers?

Blohm: Sure.  It's kind of a mixed area between $12.40 and $12.50 on the futures.

Pearson: Okay.  Alright.  Now as we look at old crop what are your thoughts there?

Blohm: That still has some tremendous support to it and that is really being shown in the cash marketplace.  The July soybeans, if you look at a long-term uptrend, like a weekly chart, it has just been holding onto this uptrend and just for about two months just wiggling around this whole uptrend line and so $13.50 is some really good support there and then $14.00 has been another target and then on the final upside $14.50 to $14.75 is the top of where the downtrend had been.  So I would say over the next month we'll probably see prices just consolidate in that dollar range potentially and any time it is at the higher end just go ahead and make sales because the cash market is going to give you an extra premium on top of the futures so pull the trigger.

Pearson: Take advantage of it.

Blohm: Yes.

Pearson: Well, now let's take a look at the dairy market.  As we've seen the dairy producers have been hammered this last year with high feed costs and milk prices haven't been moving all that much.  Can you tell us where you think dairy might be headed?

Blohm: The milk market right now is most likely headed to stay between the $19.00 and the $20.00 area in the bigger picture.  It is battling two major factors right now.  The first is feed costs, of course, and so that is something that is watched daily.  And the other little pickle that is happening is that in parts of Wisconsin and even parts of Minnesota the alfalfa crop has winter kill and it is dead and it is not going to be resurrected and so that is going to be a huge problem because these are producers who don't have hay to get them through and they were counting on this first crop of hay.  So that's going to be another issue.  And the production in the U.S. has been down just a little bit for milk and so depending on nutrition that may continue.  The other factor with it is that the cheddar price has been actually up a little bit but that is more reflective of what is happening in New Zealand.  The drought in New Zealand is continuing and it is really bad and those animals are grass-fed, they're grazing animals and so they do not have food.  So that market for milk and cheese has just skyrocketed higher and so we've actually seen a little bit of demand come to the United States and we're exporting out but at the same time we just don't have a reason for the market to just go higher than $20.00 yet at the same $19.00 seems to be a well supported area.

Pearson: Okay.  So stagnation basically.

Blohm: Very much so.

Pearson: But now as we look to the future with New Zealand being primarily grass-fed the drought is probably going to take longer for them to recover from than it would here in America where we have a lot of other feedstuffs we can use.  Does that give you a longer term feeling of relative security on that $19.00 level?

Blohm: For now I think it is and then things with that would just be dependent on feed costs here and then just demand in America from our consumers as well.  But for now it is giving us some security at the moment.

Pearson: Alright.  Well keeping in the livestock vein let's talk about live cattle.  We've got grilling season getting underway eventually, once the snow melts.  What are your thoughts on the live cattle market?

Blohm: It's been having a great week with cash prices, 206 and 207 on dress basis for cash prices in Nebraska.  Box beef values the highest since 2003 this week so that really kept the market supported.  And normally those are things that would just make the market go limit up, however, this cattle market is very aware of the consumer and doesn't want to spook them because that price can't go too much higher because even though, you know, our economy is better and gas prices are lower there's still a point at the store where you're like, I'm not paying this much for a steak.  But at the same time with that livestock herd being as small as it is we've got some long-term higher prices but most likely kind of like milk we're going to see the market just stay stagnant.  Trading weather, trading the economy and then just kind of a sideways price movement for now.

Pearson: So for producers take advantage of those upswings.  They seem to be relatively short-lived as we've seen both in live and feeders so take advantage of it, be aware of where the markets are headed.

Blohm: Right.

Pearson: Alright.  Well let's take a look at feeder cattle.  Big move up last week.  We saw corn price spike.  A little bit further down this week.  Is that primarily what was driving it this week?

Blohm: Yes, absolutely that has been what is happening.  The other part of it the volume has been light on the board and we're in this downtrend.  The support level has been holding, it's been holding, it's been holding and then we see the spikes up and I think we'll probably continue to see that for a while just until we have further information on the crop situation and what is going to be happening there.

Pearson: Okay.  What sort of levels do you see us trading around?  Is there any contingencies out there that you see could spike one way higher or lower?  What other levels of resistance are out there?

Blohm: Sure, so like on the August contract there's, well, there was some support at $149 and we finished I think a little bit below there today and now the next layer down is $147 and on the flip side it's $152.  So I'm thinking we'll probably see it just kind of be stuck in that range for a little while longer.  If it can break out to the upside it would be at least I think go from like $152 maybe to $155, $156 and we just won't talk about the downside right now.

Pearson: Okay.  Alright.  We'll wait and see what the weather and see what this crop does.  Well let's talk hogs.  We've seen hogs sort of, again, trading in that channel.  Do you have news out there for producers?

Blohm: It is a mixed market for hogs right now and I think right now probably one of the hardest markets to call because the cash market was better this week yet overall we had record high hog weights this week, like all-time high, two pounds heavier than year ago levels.  And then also if you look at the hogs and pigs report from March it is showing that animals are up 1.5%.  So we have more animals, higher weights, obviously more production and the exports haven't been as strong as they've been in weeks and years past.  So there's potentially more supply on the market and definitely demand coming because of the grilling season, in theory coming, and hopefully we'll see it continue.  But sideways for now.

Pearson: Sideways with some bearish overtones.

Blohm: Yeah.

Pearson: Alright.  Well thank you so much, Naomi, really appreciate you being here with us.

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 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 again next week when we'll examine the legacy of author, feedlot designer and agricultural advocate Temple Grandin.  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