Grain prices fell modestly this week despite a weaker dollar. For the week, December wheat lost 15 cents, while the nearby corn contract moved just over a penny lower. Soybeans continued last week's rally as the November contract settled with a weekly gain of 9 cents. Nearby meal prices improved by $13.40 per ton. In the softs, cotton moved sharply lower as the December contract declined by more than $4.00 per hundred weight. In the dairy market, November Class III milk gained 44 cents, while the December contract moved 26 cents higher. Over in livestock, December cattle gained 95 cents, nearby feeders declined by 20 cents and the December lean hog contract posted a weekly gain of nearly $2.50. In the financials, the Euro gained 13 basis points against the dollar. Crude oil lost $3.26 per barrel. Comex Gold advanced by $38 per ounce. And the Goldman Sachs Commodity Index lost nearly 15 points to settle at 624.65.
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: Last week the hot topic during our discussion was wheat. This week wheat seems to have cooled off a little bit, moved down 15 cents. What's going on in the wheat market?
Blohm: Well, the wheat market is at a point of price discovery where a lot of the fresh, friendly news which pushed it higher has absolutely been factored into the market right now. And so right now we're balancing the fact of a decent start to the American crop as far as what got planted. We have 80% of the winter wheat planted and 50% emerged and it is rated 65% good to excellent. So things are progressing quite well in that regard. And then globally, as far as other things that could maybe keep the market a little higher, in the Black Sea region there's concerns about the crop there and if it will germinate properly. So that is something to be monitored. But then on the flip side of things, Australia is going to be able to be harvesting very soon. And so even though we've had a lot of that Brazilian demand, now perhaps Australia can feed their needs as well. So for Chicago wheat prices and the Kansas wheat prices to stay between $7.00 and $7.25 in that area seems like a likelihood over the next couple of weeks until fresh news emerges sooner than later hopefully.
Pearson: So Australian wheat is priced at such a discount it is cheaper to ship it from Australia to Brazil rather than the U.S. to Brazil.
Blohm: Yeah, at times it can be. So that's something we have to watch. But if the dollar can continue lower that might give us the advantage. And Brazil actually is looking to potentially import more, they're trying to reduce their tariffs and so that way they could potentially import more from us. So lots of things that could be developing over the next couple of weeks. But in the meantime we'll probably see that price just stay stagnant.
Pearson: Alright. Now, you mentioned the weaker dollar and that has been something we've been watching. Talk to us a little bit about what is driving that. Why are we seeing the dollar continue to weaken?
Blohm: Yeah, that's a great question and a lot of it is just having to do with global economy, U.S. economy, things like that. So right now with the dollar it's on a support level near the 76 area and it looks like it maybe can potentially go lower to lows that we haven't seen in the last two or three years. And so if that continues to happen then hopefully it will help with our export market. But it's a lot with just the U.S. economy and things in Washington and how we just kick the can down the road and we have to wait until January and so lots of things to keep an eye on there as well.
Pearson: That's a telling slide from just earlier this spring when we were touching that $84 mark in the dollar.
Pearson: Alright. Well, that's going to be something to keep an eye on and definitely Washington politics are playing a role there.
Blohm: Yes, very much so.
Pearson: Well, now let's take a look at the corn market. We've got harvest pretty solidly underway. Where does the trade think we're coming on yield? Early reports were a lot higher than we had expected. Is that still where the trade is?
Blohm: Yeah, that still is what we're hearing from our producers and the next USDA report will be on Friday, November 8th and trade is expecting that the USDA will increase yield towards the 160 area. So if that's the case then we have definitely a lot more supply available. On this next USDA report they also will be giving us an up-to-date version of the planted acres, the harvested acres. So there's a lot of things that could come as fresh news from there. But in the meantime expect to see December futures stay between $4.25 and $4.50 as it tries to just find its balance in the world right now as far as demand and trying to understand where the U.S. producer is just going to be putting their crop in the bin and sitting on it. So I'm really expecting quiet market prices there and then that USDA report might be the next thing that gives us some sort of price movement.
Pearson: Now, with that being said, looking at this range $4.25 to $4.50 pretty narrow trading range, perhaps a reduction in volatility. Does that create some opportunities for producers to affordably prepare for some action on November 8th?
Blohm: That's a great question and it can because when the market isn't as volatile it can make option strategies more reasonable. It can allow you to kind of take some time and really figure out your scenario planning for what you're going to do in case we get a friendly reaction on the report and the market goes higher or what you're going to be able to do if the market goes lower. So the other thing too, the more that a price will go sideways and for the longer duration of time then something explosive will potentially happen down the road. And it could be a price move where we actually see the futures price go down to $4.00, maybe something will happen where we get some sort of excitement news where we could see prices go to $4.75. But probably just quiet, quiet trading range for now.
Pearson: Now, as far as the trade is anticipating from the private reports put out, what we've seen from FSA so far, we're probably anticipating a reduction in acres plus that increase in yield. Are they anticipating just a bigger corn number? Should that be what producers should plan on do you think?
Blohm: Yeah, it's priced in, absolutely it is priced in so if they tell us what we're thinking it's no big deal and then we try to go back and trade other things. Potentially with harvest coming to an end the seed reps are out there already trying to get producers to figure out what they're going to do next year. So maybe a battle for acres could come sooner than later. The world is really anticipating that we're going to be planting more soybeans next year so maybe corn will try to come back in and fight for the battle and have to have some price rally movement in order to entice the producer to do more corn acres again.
Pearson: And that’s a great segway as we lead into soybeans. Held $13.00 this week, we pushed up above it, pushed up above it a couple of times and closed right at $13.00. Where does that set the market up as we move into next week?
Blohm: For the next week, for the November and January contracts, really thinking that those prices will be able to stay near $13.00 to $13.25. The market still is paying the producer for their beans. Now, yet there's so much demand potential coming down the road because there's no one available to sell beans except for the United States right now that we are definitely the supplier. So we'll probably see the November and the January contract stay firm. If China comes in and does any major buying we could easily see probably the January contract because the November will be expiring sooner than later, shoot up towards $14.00. We do not have any reason to say higher than $14.00 at all because of the ample global supplies and the fact that South America is planting a huge crop, a record crop potentially and if they don't have any weather issues coming down the road then we will see those deferred contracts, March, May, June, November stay at a weaker price point. But for now if you're a producer keep watching the markets over the next month because your pricing opportunity is now for what you've just harvested.
Pearson: So advice, maybe hold onto a few bushel of beans?
Blohm: Hold onto a few bushels but don't think it's going to go crazy higher because it really doesn't have to. So when the opportunity arises and we see any sort of a rally please do your part to sell your cash and take advantage of it.
Pearson: Feed the market. Now, one of the interesting stories this week, we saw Russia buying some beans. Does that happen very often?
Blohm: No, it doesn't. I was really surprised to see that too and for me I thought, well what is that telling us?
Pearson: And what did you decide?
Blohm: I don't know. I'm really quite surprised and so it's just a telling sign to say that we are definitely a supplier in the world right now. So it's something to keep an eye on for future markets too.
Pearson: Alright. Now, let's take a look at the cotton market. We've seen cotton sideways, a little bit lower and then this week $4.00 down. What happened in cotton?
Blohm: It was a major technical support area that fell apart and therefore it was a lot of technical selling that happened. Right now in cotton we have such a huge global supply. Ending stocks are just humongous. And so that is what is pressuring the market lower right now. And we'll probably continue to see that for the short-term. We'll see the market be able to have a little bit of a technical retracement higher but because the global supply is so big right now cotton is just probably going to go back and test the lows from a year ago. And then it will have to do its fight for acres. So I don't think we'll see prices go low and stay low but first we have to go a little lower before we can come back up.
Pearson: The market is going to test to see where the support really lies. And the lows from last year, off the top of your head do you remember what sort of numbers?
Pearson: $75. Okay. So, could be another $4.00 down potentially.
Pearson: Alright. Now, let's take a look at the dairy market. We did see a move this week, 44 cents in the nearby contract. What happened? What's going on in dairy?
Blohm: We still have strong export markets. Exports overall are up 13% from a year ago level. Our cheese is in major demand and especially our whole milk powder to China. And so that is what has been pushing that market a lot higher. We have coming up though in the first week of November some bigger dairy reports coming out, cold storage along with a production report, and those are expected to show on the production side that the U.S. supplies are big and getting bigger, especially with corn being cheaper we'll probably see some bigger production numbers. But because the demand is so strong we're expecting that potentially we could see the fourth quarter price get up towards $19.00. But that's a point to be making some sales because New Zealand, who had its drought, is now producing more milk. They're recovering from it. Their production is up 4.5%, which in terms of milk is a very big number. And so the global supply is getting larger and so even though our export market is great we're going to have some competition soon.
Pearson: And New Zealand has long-time been an export partner with China on milk so that would be a direct competitor right there. So $19.00 look to make some sales.
Pearson: We heard earlier in the year $20.00 might be in the realm of possibility before January 1st. Probably not? Just don't think we're going to quite touch it.
Blohm: Not so much just because our production levels in the United States are up 1% from a year ago and so with the report coming out in that first week in November that might be the next thing that potentially tells us it's larger than that. So it's really something to be mindful of.
Pearson The market -- the producers grew a lot faster than it anticipated.
Pearson: Now, let's take a look over at the cattle market. We saw some interesting news on the fat cattle trade this week on the cash side. Producers paying $132 to $134, record cash prices. What is happening?
Blohm: The demand is really staying strong. And we also found out this week that our exports are up from a year ago level. Japan is buying our product like crazy and so that is where our product is going to, the demand is staying strong and even in the United States the economy, now that we got this government issue somewhat over with, is really hanging in there. And so with gasoline prices lower and holidays coming up people are maybe in the mood to spend a little bit more. And so as we all know beef tastes great and so the demand is keeping the market strong. And with the supply being so low, that is of course another reason for the market to stay strong in price. I would think that prices will continue to stay firm over the next couple of months definitely. I'm curious to see if they can go too much higher because that's really expensive. But I don't think it's going to fall apart though either. So it's one of those things I wouldn't be complacent because just when you get comfortable something could happen. But at the same time with the demand being as strong as it is and the supply being as low as it is prices should stay firm.
Pearson: This was welcome news to producers who fought through the high feed prices and they've been paying high prices for feeders. And now that is the flip side of this coin this week, we did see the feeder price begin to decline a little bit on the Mercantile Exchange. Anything fundamental happening there or just producers taking a step back?
Blohm: I think a little bit of a step back, some technical trading there as well because when the price, if you look at a chart it had gone into an upward channel and it hit the high end of the channel line so it just needs to set back a little bit. We might see it set back maybe just a little bit more but overall it still is in a long-term uptrend. So it's also, like the live cattle, something that will probably stay firm to higher because, again, the supplies being so tight.
Pearson: And supplies are expected to be tight for the remainder of this year on into next spring.
Blohm: Absolutely. But, you know, people I'm talking to they're wanting to expand, they're thinking about it now that the pasture lands are better and now that the corn price is lower so the expansion word I think is starting to emerge. But it just takes time obviously.
Pearson: You bet. You bet. Now, let's take a look at the hog market. We did see hogs another big move upward this week, nearly $2.50 higher. We're over $90 in hogs. Was that expected? Was the trade anticipating us to continue moving upward in hogs?
Blohm: I'm mixed on it and the demand side is staying strong but yet this week the weights are heavier. Our weights are up five to six pounds over last year. And also the cutout values were just a little bit lower. So there's things happening where we're not quite sure if the demand can stay strong, we've got more supply potentially coming onto the market, yet this price is staying higher. So it's probable that we could stay in a sideways range here until we get one or two more pieces of news. Maybe it's going to be on the cold storage report coming out. That might be the next piece of news that could help us with price direction. So probably firm for another week or two. But that is just a mystery market to me. It definitely has some friendly fundamental outlook to it but at the same time there might be some more supply coming out soon.
How should producers be anticipating or preparing for this situation given the uncertainty?
Blohm: The suggestion I would say is to put some sort of a mental stop under the market. So what that means is that if the price goes lower than a support area that you have the discipline then to pull the trigger and that might mean doing something in your cash market, that might mean putting a hedge on the board or using a put. In the meantime though as long as it is going up let it go but don't be complacent and have plan B ready to go.
Pearson: How far in your estimation should producers let it slide? $89? $88? $87? What would be a good number?
Blohm: Yeah, actually that's kind of the range that we're in so $90 is kind of where we've been, $88 is support and I think we'll continue to stay in that area.
Pearson: Thank you so much, Naomi.
Blohm: You're welcome.
Pearson: That wraps up this edition of Market to Market. But Naomi and I will continue our discussion and answer some of your questions in our Market Plus segment on our website. You'll also find audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account exclusively at the Market to Market website. And be sure to join us next week when we'll take you inside the conference committee meeting on the Farm Bill. Until then, thanks for watching. I'm Mike Pearson. Have a great week.