The report had bearish implications for wheat, was mostly neutral to corn and was friendly to soybeans. For the week, March wheat lost 23 cents while the March contract moved 9 cents lower. Soybeans traded in a sideways fashion this week as the January contract settled with a gain of 2 cents. Nearby meal prices, however, advanced by $5.00 per ton. In the softs, cotton traded higher again this week as the March contract advanced by nearly $2.81 per hundred weight. In the dairy market, December Class III milk lost 8 cents as the January contract also moved 8 cents lower. Over in livestock, February cattle were unchanged. Nearby feeders advanced by $2.60. And the February lean hog contract posted a weekly loss of $1.83. In the financials, the Euro gained 4 basis points against the dollar. Crude oil lost just over $1.00 per barrel. Comex Gold gained $5.60 per ounce. And the Goldman Sachs Commodity Index lost nearly 10 points to settle at 623.35.
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 had a bit of a down week in the outside markets, especially in the Dow this week. Talk about what is going on there.
Blohm: Those markets are facing two major fundamental things right now. First being year end profit-taking and I think with the tremendous rally that the stock market has had this year we might definitely see that continue into the end of the year. The other part of it is that the investors are really paying attention to the federal government and will they end the QE program before the end of the year? Will they do it next week even some are talking about with all of the big meetings that are still happening in Washington? And then some are just thinking, you know what, let's just take it easy, take some money off the table and just kind of cruise into the New Year.
Pearson: But that money they're taking off the table doesn't seem to be coming back into the commodities.
Blohm: No, it's not and so that might be something to watch for in the coming year, will some of those major funds move their money around and will commodities get it or not? Major question to be watching.
Pearson: Alright. Now, speaking of commodities, as a buying opportunity we're down 22 cents in wheat. Is this a buying opportunity? Where are we at in the wheat market?
Blohm: You know, unfortunately I don't think it is a buying opportunity and the reason is because we have been holding support so well at $6.50 on the March and on the December board in Chicago prices. And then just this week with the USDA report showing larger ending stocks both here in the U.S. and still just globally that wheat market just took a hit and we're going to probably see a continuation of technical selling, even pushing the futures price closer to $6.00, in which case then that's your buy.
Pearson: Okay. $6.00 is the buy. Now, as we take a look at the quality of winter wheat that is out there with this cold snap the market didn't seem much phased.
Blohm: Yeah, and that is kind of surprising. Usually we get some sort of buy the rumor, sell the fact and the market gets a little animated about it. But it just hasn't paid much attention to it. So, again, I think it's more that it was in decent conditions heading into winter so maybe that is keeping the market not quite interested in it. But something to be mindful of in the coming weeks for sure.
Pearson: Okay. Keep an eye on that $6.00 level.
Pearson: Alright. Now, Naomi, as we take a look over at corn there has been some, it has been unsettling to a number of producers to hear the stories about China rejecting some of our cargos. Can you talk to us a little bit about what is going on there?
Blohm: Yes. They have been rejecting our cargos because of the GMO issue. And so they are going in and saying they're finding it and so far thy have rejected about three loads. And so the good news is that those loads can be diverted to South Korea or to Japan. But part of it is that they're playing their games, being China and they're trying to actually support their domestic prices for now and also I'm sure trying to continue to get cheap corn because our market reacts to that and the futures price stays low at this $4.00 level. And any hope of any sort of a rally is just, it gets squelched because little pieces of negative news just keep popping up along the way.
Pearson: Now, speaking of little pieces of news, we did have the USDA report there. Any longer term trends this report shed for you?
Blohm: I would say that for now, in my opinion, we're going to continue to see $4.00 corn hold in support and then the question becomes what is going to get planted next year because if we plant 3 million acres less corn then that does absolutely put our carryout over 2 billion bushels but if we plant 5 million less acres of corn then that keeps our ending stocks exactly where they're at right now, which keeps $4.00 totally something in a major objective holding pattern. So there's a lot of question that can happen in that corn market yet. I don't think it is fair to just write it off and say $3.00 is coming because there is so much uncertainty and those questions won't be answered until in to January and February when the producers I think know more or better what they're going to be planting.
Pearson: So for folks out there, producers with corn in the bin, advice to hold off until January/February?
Blohm: Absolutely hold. And if you at all follow technical markets, if there's anything that can come up maybe in the January USDA report that could allow some short covering, if you look at a continuous March corn chart we could see a 23% retracement point and I'm talking on a weekly chart so this is longer term. But that could put prices up to $4.96 for the futures price, not $5.00 and again this is futures price so your cash market may not get there. But, again, if we can see some reason for a short covering then that is your target point to be pulling the trigger and making some aggressive sales because we are going to no matter what have a bigger crop next year.
Pearson: At $4.96.
Pearson: Alright. Now, as we take a look at soybeans we did get a little bit of friendly news out of the USDA report but we didn't see much of a rally. What happened?
Blohm: Well, a lot of that news was already priced in because the report came out pretty much as everyone was already thinking it was going to be. And so the fact is that with the tighter old stocks that we have now, the January contract will remain well supported. $13.00 is the major support on it. I think we'll continue to see that into the end of the year and then on the up side $13.50 just always every time we get up there it's resistance, resistance. So I think your window of opportunity is that you're going to be able to have over $13.00 beans into the end of the year and possibly into the New Year. But with the fact that the global production is just so tremendous and our global ending stocks are huge and the United States producer is probably going to be planting more beans next year, don't get cute and try to wait around because this is your opportunity coming I think over the next two or three weeks.
Pearson: And you mentioned U.S. producer planting more beans next year. We've got the November '14 contract still around $11.55, $11.60. Time to sell if you’re planning on planting more beans?
Blohm: Yes because last year think about what corn did. People said I'm going to be planting more corn but then they never priced it and then they lost their opportunity and it was exactly this time of year. On the November soybean chart on a continuous chart, a weekly chart there is a very big head and shoulders formation on it that would suggest potentially $10.00, $9.00 as the downside target if South American continues to have a good growing season and then if we have one also.
Pearson: And now, what are the reports so far out of South America?
Blohm: Good. Really good.
Pearson: Things are shaping up well down there, it does look like a big crop. Alright. Good things to keep in mind as we head into next year and start making your plans. Now, as we jump over to livestock, on the fat cattle side we're unchanged this week. Is that seasonal? Are we just looking at a slowdown heading into Christmas?
Blohm: I think it's partly that but then also we have had just production levels just standing still, demand is just constant and then if you look at the chart it has been trading into a pennant flag formation and then the January contract, the February contract has really good support at $133. I think that is going to continue to hold. If for some reason we get negative news next week maybe we could see that market slip down to $130 but overall still we have so much long-term friendly news to keep that market well at these current values.
Pearson: Now, when you say we're in a pennant formation does that also mean we're building energy potentially for a breakout one way or the other?
Blohm: That's a great point and the answer is yes. So it could be, if we break out to the downside, the downside is $130 and if we can break out to the upside, the upside is about $136.
Pearson: Okay. So we're split the difference right here at $133.
Blohm: Yes. So next week and then the week after. So it's just a matter of what news comes out, will it be friendly or not friendly, to dictate the direction.
Pearson: Okay. Now, in light of all of that we watched the feeder cattle market this week have a tremendous rally. Corn prices are staying stable and so are fat cattle. What is happening?
Blohm: Well, there's just not any animals that are available because a lot of those calves are being held back and the heifers are being held back. So that market is going to continue to look strong and looking at the January chart I think that $169 is the upside target which was the high from October. And I think that we'll continue to see that market just be the one bright note in the whole commodities right now for stronger values.
Pearson: Now, there has been a pretty decent amount of carry in that market up through about April and then we start to see it reverse. What is happening there? Is the market anticipating larger supply out that far?
Blohm: I think you hit the nail on the head and we'll probably see that next week potentially even on the cattle on feed report. So that's something to be mindful of. So don't get complacent that the prices will be there forever but for now things are looking really nice.
Pearson: Speaking of that, as we look at the cattle on feed report coming out next Friday, any ways to prepare before the report since there is that opportunity for news one way or the other on the fat cattle side?
Blohm: Yeah, I would say the simplest thing would be to go in and look at an at the money put and something just shorter term just in case there's some sort of a negative reaction. I don't think that you need to do anything longer term aggressive but just keep it shorter, simpler, cheaper and just get yourself some short-term coverage.
Pearson: Just get some coverage in case we hit that $130.
Pearson: Now as we jump over to lean hogs we saw a pretty decent selloff this week, $1.83 down in the hog market. Talk to us a little bit about what is happening there.
Blohm: Yeah, the key there is the heavier weights right now. And, of course, with the lower feed costs the animals are gaining very well. One thing to be mindful of is that our actual slaughter numbers are down 3% from where the USDA thought they would be. So normally that would be a fundamental factor that would be supportive except the issue is that the hogs are so heavy. And so the production is actually higher than what they thought it would be. So we've been trending lower for the past couple of weeks. $87 is a big support area and that's about where we finished today. So it's a major do or die point in this hog market right now. And hopefully we see exports pick up more. They're supposed to be up 4% into 2014 but we need that to start happening sooner than later otherwise the trend unfortunately looks like it may continue to slide lower, especially if $87 is broken on support levels.
Pearson: And we're going to continue to slide even though the PED, the virus out there is still a massive concern, the market has kind of pushed it aside or priced it in?
Blohm: I think that the market just doesn't know what to make of it yet because part of the reason that the slaughter numbers are down now, these are animals that were affected back in June so they would have been coming to market now. So that's part of the reason the slaughter numbers are lower and we will probably continue to see lower slaughter numbers go along the way but, again, just the weights are just so high. So the market is in a little bit of flex and it is trying to decide which supply or demand and production entity is the strongest right now and that is something we just have to sit and wait and see in the coming weeks.
Pearson: Okay. Real quick on the downside how low could they go if $87 is broken?
Blohm: Probably closer to $80 even actually.
Pearson: Okay. Alright. Down a big drop.
Pearson: Thank you so much, Naomi, for being with us tonight.
Blohm: Yes. You're welcome.
Pearson: And 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 examine the market impact of USDA's latest cattle on feed report. Until then, thanks for watching. I'm Mike Pearson. Happy Holidays.