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Market Analysis: Naomi Blohm

posted on January 31, 2014


Grain markets were mixed this week as corn rallied while wheat continued to look for the bottom.  For the week, March wheat lost 10 cents while the nearby corn contract moved 5 cents higher.  Soybeans traded sideways as the March contract settled with a weekly loss of 2 cents.  Nearby meal traded 40 cents higher per ton.  In the softs, cotton gave back all of last week's gain and then some as the March contract declined by $1.40 per hundred weight.  Another big week in the dairy market where Class III milk traded north of $23 as the February contract gained $1.14, while the deferred contract improved by nearly $1.00.  Lots to talk about in livestock too as the April cattle contract gained 32 cents.  Nearby feeders advanced by 55 cents.  And the April lean hog contract gained 68 cents. In the financials, the Euro declined by 19 basis points against the dollar.  Crude oil advanced by 85 cents per barrel.  Comex Gold declined by $24.70 per ounce.  And the Goldman Sachs Commodity Index lost nearly 5 points to settle at 621.20.

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: Let's get right into it.  Let's talk wheat.  We had an up week last week.  It seems to have broken through that price floor again this week.  Where is that market headed?

Blohm: Yeah, you would think that market would finally find a place of rest here sooner than later and that little bit of a push higher that we had was due to concerns of winter kills.  So that's what gave the market a little bit of support.  But, again, it's that same old broken record and same old song and dance of we have so much supply globally that this market just continues to limp along and just be stuck in this sideways to lower trend.  So right now theChicagomarket in the nearby March contract, we would hope that $5.50 finally has some support at this level and maybe now we see the market trade sideways again for some time.  And as long as corn is holding such solid support levels hopefully the wheat will just hold tight here.  But we have to have some sort of friendly news to get the market higher.  But right now there just isn't any to be found.

Pearson: Alright, so not a selling opportunity.  Hold onto it and hopefully we'll get some scare or rally later on.

Blohm: Absolutely. 

Pearson: Alright.  Well, now let's talk corn a little bit.  The corn has been holding pretty steady.  We were up a little bit this week.  Where do you see the old crop corn market headed?

Blohm: Corn actually I feel has a little bit of a supportive tone to it yet.  And looking at the March futures contract there is some nice resistance at that 35 price level.  And if we can get through there, there's an upside of another 25 cents.  So we're up against this resistance and all we need is one little piece of friendly news to make that market push higher.  And so I would say if you have any old crop at home be patient because we still have some very strong technical bottoming signals on the market not only in the form of daily charts but weekly charts and now even we're going to have a monthly bullish key reversal.  So if ever there was a textbook bottoming signal we have it.  We just don't have the news to get the market to go higher right now.  So at least prices will stay firm.  And we'll probably see a little bit of a bounce.  Looking at the new crop too, I was up inDoon,Iowayesterday and talking with a really great group of producers and I had to ask them, what are you guys going to be doing for planting this year?  And a lot of them did say that their corn acres would be down just a little bit and those bean acres up.  So that is actually something that should give also the new crop market some solid support here as we maybe need to do a little bit of fight for acres because if we do have a reduction of 4 million acres of corn, which is really what the market is already planning on, it keeps us in tune to spring planting conditions and summer weather because of how the ending stocks would fare depending on the summer growing conditions it keeps that market alive.  And so $4.00 absolutely will stay a solid support probably for the next four to five months until we get this planting season going.

Pearson: And probably wait for planting, find a weather scare and if you need to sell some new crop sell into a rally.

Blohm: Yes, absolutely.  So we're still looking for any tremendous rallies by any means it might be a year where we trade both sides of cost of production similar to 2009 and 2010 but overall I'm not in the $3.00 camp yet.  It's something that could happen maybe at harvest but for now the market is really well supported.

Pearson: Alright.  Now, let's talk about soybeans.  As we talk the old crop market there was a scare.  We thoughtChinawas going to start canceling orders.  Have we seen that yet?

Blohm: You know, we haven't yet and so what is interesting, I learned this week that part of the reason that the Chinese have been buying so much beans is because they're having a hard time getting money at the bank, loans from the bank.  So what they're doing, this is sneaky, they are actually using the beans as collateral so they go into the banks with their slips of their imports and then the lenders say sure, you've got this collateral available so I'll give you the money.  And then they can turn around and actually trade those beans to an actual different crusher if they need to.  Otherwise if the price is right cancel the order and then they walk away with their money that they needed.  So it is something to very much be mindful of but here's the thing, the old crop bean market right now is in tune to that and they're almost waiting for it.  They're waiting for it to happen.  So in a sense it is priced in already.  And the March beans have some real good support at $12.75.  We've been flirting with that level all week.  But one thing to note is that on the March contract there is a head and shoulders formation on there and if we fall below $12.75 the downside is $12.25 pretty quick.  So keep an eye on that market.  It's still a market if we see any sort of a little bit of a bounce higher here yet it is an opportunity to be making cash sales.  And especially with the new crop be focusing on cash sales because that market this week for the first time went below $11.00 and then I think today it kind of finished right near that area.  So we really want to be watching that closely because with these increased acres coming the market doesn't have much of a reason to rally.  It's kind of like the wheat where you're going to have this global glut and it's going to maybe hit that soybean market as well and we could see prices fall a little lower.

Pearson: Alright.  Well, now let's jump over on the livestock side.  As we take a look at the cattle markets, we had the cattle report out today, showed some numbers were a little bit different.  Talk to us about where you see the cattle market headed.

Blohm: Yeah, cattle market, we had a cattle on feed report that overall continues to show us that there is not a lot of livestock out there.  The cattle on feed report was down as far as the on feed number, down 5.4% which overall is a supportive number but the market didn't react to that because they were looking for more of like a 6% drop.  So it didn't make the market rally.  Yet at the same time the fundamentals haven't changed and that is a very firm market for now.  We still feel that it's going to be firm for prices.  The market for futures is very overbought.  And so most of us think that we would see some sort of a technical correction happening.  However, the cash market is trading at such a premium to the futures market that you almost think, well, maybe this futures market has enough reason to stay firm, at least, if not go higher potentially but it's a day-by-day situation where we're watching the cash market, watching how the feeders trade and all of those types of things.  But overall we have just a nice solid demand in that market too and we saw that on the cold storage report, big drop in supplies there.  So the cattle market still looks firm as far as price goes for another month or two and then we'll see how production is going at that time and how demand is going but definitely firm prices.  If you see a correction along the way, right now don't panic but just look for a nice sideways trend from here on out.

Pearson: Alright.  And they mentioned today I think the USDA put out numbers, we've got the lowest cattle herd since 1951.  So the time it's going to take to rebuild that herd should add some legs possibly longer term.

Blohm: Absolutely.

Pearson: Alright.  So that's what we've got in the cattle market.  Now, as we look over at the hog market we're also seeing a very bullish story come out of there.  We're touching highs over the summer months.  Talk to us about where this hog market is headed.

Blohm: Yeah, the hog market I think is the most exciting right now.  It's kind of two things going on.  If you look at the February contract it has just been nicely trading sideways between 85 and 87 and the reason for the front months to be so quiet and calm is because the hogs that are coming to market right now are so heavy.  They are heavy, heavy animals because, of course, when you have cheap feed, sure why not, feed them up.  But the demand on the same side is so strong too.  So we have a very nice balance and equilibrium of supply and demand so that is keeping that February market just steady.  But the reason that the April contract is so high and even the June contract so much higher is because they're expecting seasonally production to fall because that's what happens in those months.  And then also this PED virus is out of control.  23 states now, 23 states and it's even up inOntario.  For the first time this week it was found there.  And now they're saying it is going to take over a year until it's under control.  And so pharmaceutical companies were actually out in different convenience stores in parts ofIowa, have you heard about this study yet?  Okay, this is fascinating.  So they went into 37 convenience stores and they tested floors and things just to see if by chance the PED virus was there in terms of people walking through the store and they found it in 30 of the 37 stores.  And so you have to take very extreme measures to control this.  And so it is something that we can't contain yet.  And so the market is also very aware of that.  They're expecting that to continue to affect the market and that is why those deferred contracts have such a high price.

Pearson: Is there still room to run in those deferred at record high prices?

Blohm: That's a really good question because the cash market isn't that high yet.  So the futures price needs to be fed constant, constant friendly news in order to keep that premium there.  But at the same time, for now, as long as the situation continues as it is it's a market that will stay firm.  It is a very firm market.  So we're not looking for anything to fall apart.  But firm prices.

Pearson: Now, while we're talking record high prices, let's look at that dairy market.  February at $23, deferred a little bit under.  Where is this going?

Blohm: Yeah, isn't that out of control.  It's at super high prices right now and the reason is because it is a demand led market.  Our export market right now is on fire, exports still up over 17% for all dairy products overall.  And the biggest market movers, of course, the whey market it's up, exports are over 50%, butter exports up over 100% and even the cheese market, the export there is up over 40% from year ago levels.  So who is buying it all? Mexico,Chinaand our product is still so good yet there still is the herd rebuilding happening inNew Zealandbecause of the drought that they had had there.  But what is happening domestically is that of course when you have high prices everybody is maxing out production as much as they can and that was evident on the most recent milk production report which was all of the December data.  We produced 15.7 billion pounds of milk in December which was actually up from the November of 14.9 billion.  So almost a billion pound increase.  That market is on fire, looking good to stay strong.

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

Blohm: Yes.

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 online.  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 impact of persistent drought inCalifornia.  Until then, thanks for watching.  I'm Mike Pearson.  Have a great week.


Tags: agriculture analysis cattle commodity prices corn cotton dollar economy feeders gold live cattle markets Mike Pearson Naomi Blohm soybeans wheat