The Agriculture Department released its latest estimates on supply and demand Thursday. The numbers failed to move the markets very much and were viewed by many analysts as bearish for both corn and soybeans. That proved to be a preview of coming attractions, however, because prices for both commodities plunged Friday on a long-range weather forecast calling for a dramatic increase in rain in the western Corn Belt. Despite those developments, however, grain futures contracts still managed to post weekly gains. For the week, September wheat gained 21 cents, while the September corn contract moved 20 cents higher. Old crop soybean prices declined 43 cents Friday, but gains earlier in the week softened the blow as the August contract settled with a weekly loss of 3 cents. Nearby meal prices, however, rallied more than $14 per ton. In the softs, cotton traded sideways as the December contract settled with a weekly loss of a nickel per hundredweight. In the dairy market, August Class III milk gained 15 cents while the September contract moved 4 cents higher. Over in livestock, the August cattle contract lost 10 cents. Nearby feeders were off more than $1.50. And the August lean hog contract posted a weekly loss of $2.85 cents. In the financials, the Euro gained 230 basis points against the dollar. Crude oil soared to a contract high en route to weekly gain of $2.73 per barrel. Comex Gold gained nearly $65 per ounce. And the Goldman Sachs Commodity Index gained 14 points to settle at 644.95.
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: We've got a lot of news this week. Let's start off, as we look at the equity markets, we've seen a continued rally on Wall Street, we saw the Dow and the S&P 500 touch historic highs and NASDAQ at an all-time high. What is the driving force behind the move in Wall Street?
Blohm: Big move this week and it was because the Fed minutes were released from the report earlier and investors found solace in the fact that the Fed is going to hang in there with the QE program until the economy really is better. So there was some more verbiage specifically as far as what better is and when better will be. But yet it's nothing that's going to be anytime soon. So the stock market just continued to rally, rally, rally and the money is staying in the markets for now.
Pearson: So we've shaken off the jitters from Bernanke's earlier comments about people feared pulling QE sooner than expected.
Blohm: Right. And adding on top of that the International Monetary Fund this week came out and actually forecasted growth yet for 2013 globally to stay at 3% and they looked out for 2014 and they have got growth just under 4% growth. So it's not the dramatic big movements that people were maybe hoping for but it still is growth. So that's really supportive for commodities overall.
Pearson: And now as we look a little bit more commodity specific, is China predicted to continue growing quickly? I know there's been some concern with their banking sector. Is that predicted to continue for a while?
Blohm: Right. The growth is there, yet it's kind of harnessing back to a 7% growth and they had always said that they needed 8% growth to really keep things on track and on target for where it needed to go long-term. So they're pulling it back to the 7% area but it still is plugging along.
Pearson: Okay. And that didn't seem to spook many people. We did see increased Chinese purchases of new crop corn and beans this last week.
Blohm: And wheat.
Pearson: And wheat.
Pearson: And yet that didn't seem to have much effect today in the markets. Talk to me about the wheat market. We saw a pretty big move today.
Blohm: Yeah, so the wheat market over the past couple of weeks has actually pushed maybe 30 cents higher overall and for the week we had some gains. Today was a quieter day. We're still dealing with the USDA report which was out yesterday. And the report itself for wheat, they put the all wheat production number down just a little bit from the June number and then they actually pulled back the ending stocks. They made them tighter for the U.S. and globally. So it is giving wheat some support yet overall we still have this global supply that is out there. But China is definitely buying up wheat and they're buying up the corn and the beans. And so what I think we'll see for the wheat market is the bottom forming and we'll probably see prices maybe be able to push 20 to 40 cents higher at that time though, likely a selling opportunity for the Kansas wheat, the Minneapolis wheat, the Chicago crop too. So make sure that you're selling the rallies when they come.
Pearson: And you see this 20 to 40 cent move coming after harvest thinking in the next --
Blohm: I would say really probably over the next two to three weeks, just more of a sideways, slow grind higher. The markets overall I'm not quite ready to give up on them yet. So I think we'll see a little bit, one more little push higher.
Pearson: Alright, and sell the rallies. Be prepared.
Blohm: Yes, yes.
Pearson: Now let's take a look at the corn market. Corn did have a down day today. As we mentioned earlier there were some changes in the weather forecast that caused traders to get a little hesitant, especially heading into the weekend. Talk to me about where you see corn headed and let's talk new crop December contract. What are your thoughts?
Blohm: December corn right now has some real good support at the $5.00 area and that likely will hold for now. We still, of course, have the question of are the acres there or are they not there and that we'll find out in the coming months. Now if you look at a longer term chart on corn, the December futures chart, a weekly chart there is a long-term uptrend that points to $4.50 as support, not only from an uptrend standpoint but that is also a horizontal support level from going back to 2009. So if by chance December futures slip below $5.00 on this projected potential better weather pattern, $4.50 is going to hold it. I am not in the $3.00 fan club at all right now.
Blohm: So -- and I think that for end users that will be an opportunity to book some longer term needs. I mean, China came in today and bought 900,000 metric tons of corn and earlier this week they bought corn too. So clearly there is value at this price point. And if the USDA comes out later to say that maybe there's 3 million acres of corn that were not planted that takes a half billion bushel of crop off that ending stock number. So right now the USDA pegged it at 1.95 and quite frankly it could really be 1.45 which is $6.00 corn. So, looking forward, $4.50 I think the low, $6.00 the maximum high. If we get higher, sell it.
Pearson: And for the end users be hesitant, or be aware as we get down to that $4.50 level, take advantage if that acreage should change, harvest should change.
Blohm: Absolutely. Absolutely. Yeah, a lot of scenarios unfolding and a lot of things to be prepared for.
Pearson: And now we have also, as I talk to producers out there, a lot of farmers, it turns out, still have corn in the bin. This last week we've seen some selling. Is now the time to unload any corn you've had left in the bin?
Blohm: Any time over the next two to three weeks be making some sales on the corn. The July contract went off the board today just over $7.00. And so the big question is will the September contract move higher or not. And if it doesn't, the cash market will stay firm, the basis will count on it, it will make up for it but we still don't have a reason to see the corn market just rally too much higher. The market likes the $7.00 cash area and so any time it's up on the higher end of things do be making the sale because there is potentially a larger crop coming down the road no matter how you slice it.
Pearson: Certainly. And even if it does come a little bit later this year, it will be coming nonetheless.
Pearson: No, what are we hearing from South America as far as imports go? Is that picking up at all, importing South American corn or Canadian corn?
Blohm: There still is market chatter about it yet I haven't heard anything concrete about it. I think it's more of a verbal threat to try to keep people on their toes. But I haven't heard too much.
Pearson: No big movements that you're aware of. Now let's take a look at soybeans. Again, same as corn, a down day today. Talk about the supply and demand estimates. How did that impact the market versus this weather scare today?
Blohm: Great question. With the old crop they continue to stick with that 125 number, not budging, but they did actually increase the ending stocks for the new crop and that makes sense based on the crop conditions so far, really looking good out there. And what we'll probably see is the November futures price continue to waver between $12.25 support and maybe $13.00 resistance. And in three days this week it went from $12.25 up to $13.00 and then today, of course, it set back. And so I think over the next couple of weeks as we know more about weather it will just chop around in those trading ranges. We won't fall apart unless the weather is absolutely perfect over the next two weeks to the month as the beans get into their growing season. But one thing I read today that was fresh news is that down in the south, the Mississippi, Alabama, Louisiana and 30 counties down there the soybean rust is becoming apparent. And so a little early yet but something to just be aware of.
Pearson: Certainly. And now as producers are looking, we're in this trading range next two to three weeks, what is your advice for folks marketing wise? Get through this range and kind of see where weather goes? Or would this be a good time to maybe make some sales and begin to hedge if they have extra hedge?
Blohm: It's a really good question and I would say that anytime that we get tot he higher end of the range to be starting the cash sales now. A lot of people have not been aggressive with cash sales yet, rightfully so, wanting to make sure that the drought was over depending on where you lived and wanting to see how the crop was faring. Well now we have pretty good reason to think that you'll have something out there. So do be making cash sales on the rallies. We’ll probably start to look at doing some different hedge ideas in the coming weeks and on the rallies as well. So start thinking that way.
Pearson: As the weather starts to play more of a factor. Now as far as the market is concerned, is there much fear that come harvest time we'll find considerably more soybean acres than the USDA had estimated because of the late planting? Or is the market pretty much happy with what we've got estimated so far?
Blohm: It's a mixed question because there's a lot of potentially double crop beans that haven't been in yet because the wheat harvest is late. And so that is a real unknown factor that could, we maybe won't know until harvest. So that's something to keep an eye on and even as of last week's crop progress report, four million acres were not even emerged yet out of the ground. So it's hard to answer at this stage.
Pearson: Okay, so the farmers who maybe gave up on corn planted beans, that added acreage could be replaced by wheat farmers who were not able to get into the field and plant soybeans. Well now let's take a look at the dairy market. We don’t get a chance to talk it very often on the show but we'd really like you to give us your perspective. What are your thoughts for producers as we look through the rest of the summer? How is demand shaking up for dairy products?
Blohm: Demand for dairy is red hot. The U.S. domestic demand is stagnant. I think when people go to the grocery store they know they're going to get the same milk, butter, cheese every week. But our export market is on fire. The powder market we have record exports to China, Mexico, Algeria, Pakistan even. In fact, China over the March, April time period, their powder imports are up 233%. And we actually have record cheese exports going on right now too and it is because the New Zealand drought, they're still getting over it so the U.S. is the market where it's at. And we have huge production right now too so it's really good that the export market is as strong as it is because in the month of May record production ever for milk, 17.7 billion pounds, so it's really good that we have a good, strong export market. And we're feeling that milk prices overall for the next two months, depending on the month you're looking at, will easily stay -- it won't go lower than $17.00, probably $18.50 might be the max and just kind of chop and go sideways in that range.
Pearson: Kind of the same range we've been in almost all year.
Blohm: Yeah and, you know what, it's okay. It's above people's break even and that's alright.
Pearson: And perhaps they'll have the opportunity to buy some corn, source some corn here at a little lower prices in a few weeks.
Blohm: That will be good.
Pearson: Well now let's take a look at the livestock market. Heading from dairy into live cattle, we've talked it about it on the show, the past few weeks we've seen a nice rise in live cattle futures, hasn't always been matched by cash cattle trade. What are your thoughts? How are things starting to shake out?
Blohm: Yeah, we had a quiet week for cattle this week on the live cattle market. The funds defended the long position even though the box beef values were setting back lower. So it's more of a tug of war. Of course, fundamentals are supportive long-term because of production declines yet the consumer is always the sketchy one as far as will the U.S. consumer keep buying. Our export market picked up a little bit and actually a third of our exports in May went to Japan and Japan is really our strongest market right now. And even China, even though they don't directly import from the United States, it sneaks its way through Hong Kong, but they have been importing ten times more than normal. So there is major demand from China that will be met from Australia potentially but it's a strong market and we'll probably seem firm prices. We're not looking for rallies, not looking for it to sell off but October live cattle $126 is support and then it's $125 and then it's $124. It's just these nice little baby steps that will keep us sideways and firm for a while.
Pearson: Okay. Now as we look at feeder cattle, with that demand built into the live cattle market, what are your thoughts on feeder cattle? Pretty bullish situation as we look forward?
Blohm: It's a friendly situation because there's such a nice picture in the live cattle market and now they've got better pasture conditions, they've got better chances of sourcing feed in the coming weeks and months so it is keeping that market supported overall and likely will see a little bit of a setback on the futures price because that market had been overbought but there's solid support in the August contract at $150 and then at $148.5 so like live cattle, just a nice, solid, firm, sideways price action for the next few weeks and months.
Pearson: And you mentioned how funds were a player in the live cattle market. Are they also a bigger player in the feeder cattle market? Are they in the livestock in general?
Blohm: You know, in past years they haven't been in livestock so much but right now because of the fundamentals being so friendly for cattle they have been attracted to go there. So I don't think that they're in the feeder cattle quite as much but the live cattle market they're definitely making their notice there.
Pearson: Does that -- as we look forward does that create any uncertainty in the market pricing? As we saw last summer when funds get into the market we can see big price swings upwards and downwards. Is that an additional layer of risk? Are they that big of players in the market do you think?
Blohm: They can be and this instance in the cattle market they aren't the huge player but if they decide to go away absolutely it will affect our prices. But yet they're not quite as involved as maybe like they would be crude oil or the corn market, that type of a thing. But they're making their presence known.
Pearson: Okay. Let's take a look at the hog market. The hog market was up, all-time highs or close to it here the past few weeks. Taking a little bit of pressure off this week where do you see it continuing from here?
Blohm: A little bit more of a sideways to lower movement and the wholesale prices are down, cutout values are down, exports have not been the best lately, production for third and fourth quarter are expected to increase, the PED virus might be something that factors in longer term but we're not sure how it's going to factor in. And so because right now we just don't have any immediate gratification news to take the market higher we'll probably continue to see a little bit of a setback like the October contract right now is near the $85 area and it could maybe sit back I think at most to $82. And then we have to keep an eye on the belly market and then after the belly demand is kind of done from the summer bacon demand then the ham market is what we have to watch. And then if that ham market can stay strong then we'll see the hogs easily maintaining the $80 levels probably for the next two or three months.
Pearson: Okay, throughout the remainder of the summer. For producers looking for a chance to sell, keep an eye on that $85 range maybe as an opportunity?
Blohm: That is resistance for the short-term, it's good support area kind of for now and any kind of rally we may get there in the coming weeks could be a nice hedge for the shorter term just because of this expected increase in production down the road. But at the same time, demand overall isn't diminished. It's a little bit slower right now but it will keep the market supported.
Pearson: Alright, well thank you so much Naomi.
Blohm: You bet.
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 outlook for cattle prices. Until then, thanks for watching. I'm Mike Pearson. Have a great week.
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