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Market Analysis: Naomi Blohm

posted on May 16, 2014

The Agriculture Department reported Monday that nearly 60% of the nation's corn crop had been planted. That is twice the amount reported just one week earlier and prices, like the seeds themselves, went in the dirt. For the week, July wheat lost 48 cents, while the nearby corn contract moved 24 cents lower. Soybeans couldn't escape the selloff as the July contract gave up 22 cents. The nearby meal contract followed suit with a loss of more than $7 per ton. In the softs, cotton lost ground for the second consecutive week as the July contract gained, excuse me, declined by $2.54 per hundred weight. In the dairy market, June Class III milk lost 74 cents, while the deferred contract gave up 29 cents per hundred. Over in livestock, the June cattle contract lost 15 cents. August feeders advanced by nearly $2. But the June lean hog contract lost $1.25. In the financials, the Euro lost 5 basis points against the dollar. Crude oil gained $2.27 per barrel. Comex Gold advanced by $5.80 per ounce. And the Goldman Sachs Commodity Index gained nearly 5 points to settle at 653 even.

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: Thanks, Mike.

Pearson: We're glad to have you with us. It has been a busy week in the grains as we saw a fairly tremendous selloff in the wheat pit. Talk to us about what happened in the wheat market.

Blohm: A lot of technical selling in wheat this week. Last week Friday's USDA report actually was friendly as far as U.S. production goes because the production is down, the U.S. ending stocks are lower. The problem, though, is that the global supply continues to get larger and larger and without just any new fresh news, the funds sold it off and then that just brought this huge wave of technical selling. And it's really frustrating when you look at our winter wheat crop, which is the worst it has been in decades and the market isn't responding. It responded a while before but now it is ignoring that factor of it. And then when you look at the spring wheat crop, it's only just over 30% planted and that is very behind schedule. It's normally about 65% planted right now. So there's room for that market, you would think, to have a rally but at the same time it's this global factor that is just putting its thumb on the market and keeping it lower. So hopefully this next week we see the market have a technical bounce, a little bit of a correction. But just because of this global situation right now the bounce is probably an opportunity to make some sales if you needed to do so.

Pearson: On the technical levels looking at the bounce, about where do we expect that to occur?

Blohm: It could take the marketplace, between all of the different wheat contracts, about 20 to 30 cents higher just on a technical bounce or a correction. So that's what you're going to be looking for this next week. And that's, again, across all three marketplaces.

Pearson: Now, as you look longer term, with this large global overhang, is there any opportunity for the market to get that chewed up for some more optimism in the wheat prices longer term?

Blohm: It's going to take an issue regarding supply to be affected and so it has to come from primarily weather. And so there's already talk in Russia that there's some hot and dry temperatures coming. And so if that continues and if they have a hot summer then their crop will absolutely be affected. And with the El Nino pattern a lot of times that affects the Australian wheat and years ago it was the Australian wheat that led a huge market rally for all of the grains. And so those are things to be mindful of. But, again, just because the whole supply situation is bountiful right now and demand is constant it's going to have to take weather to make the market move higher.

Pearson: And in the meantime, watch for that 20, 30 cent bounce --

Blohm: Yes, capitalize on it.

Pearson: Good time to make some sales. Now, as we look at the other grain, looking at the corn market, we had another selloff, both old and new crop this week. Tied to wheat? Or what happened there?

Blohm: That was, again, tied to that USDA report. And what was frustrating was that the old crop number on the report last Friday was so friendly, so friendly and the market just ignored it. And the reason it ignored it is because the USDA did two things with the new crop. They gave a USDA yield number for the new crop up at 165 and then they increased the global supply and the global ending stocks. And so it's not enough news right now to justify corn prices to stay above $5. So then again technical selling came in, especially on Friday last week, when they posted a bearish reversal on the market. Sunday night the market gapped open lower so that's like the biggest signal ever for technical traders to say sell me, sell me and then the market did just fall lower. But going forward, what is important to keep in mind is that if the weather going forward isn't wonderful and that yield goes even from 165 down to 162, that makes carryout go from the 1.7 number down to 1.4 and that absolutely justifies corn to get back above $5. But most likely you're going to look at a situation where we have nothing to talk about for three weeks until the next USDA report. It's going to be a great time for the day traders to have some fun just trading the market ranges. And we have to just sit and wait for weather.

Pearson: Alright. Well, now speaking of weather, we do the Market Plus segment where we take questions on Twitter and Facebook and we had one here from Shannon S. on Twitter. And she is curious, as you mention weather, is the trade ever going to take into consideration this very cold start to this year's corn planting season? In Wisconsin and parts of Iowa tonight we're talking frost warnings. Would that be enough to get this market moved one way or the other?

Blohm: It's enough to get the traders' interest back but I think it's going to take maybe a couple of weeks from the standpoint of the Monday afternoon crop progress reports, if the emergence numbers on those reports start to just get behind schedule then the traders are going to start to pay attention again. And then that affects the June USDA report because maybe we'll see that yield number go from this huge number of 165, maybe it will creep down just a little bit. So watch for it on the crop progress reports.

Pearson: Alright. Now, for this next three weeks, as we're range bound, $5 look to be the upper end of that range?

Blohm: It does. And so most likely seeing it stay between $4.60 to $5, which is a big range, but at the $4.65 area there's big support from the 100 day moving average and the 200 day moving average and then that used to be resistance from years ago, or months ago, so that is a really good support area now. So take advantage of those ranges. You could strangle the market as far as sell some calls, sell some puts and take advantage of time. And on the upswings do make some cash sales because if we don't have weather issues then you want to absolutely take advantage of it now.

Pearson: Certainly. Without a weather event it is going to be a big corn crop.

Blohm: Yes.

Pearson: Alright. Now let's take a look at the soybean market. Selloff continued, a little more so on the old crop than the new crop. Was there any other major news on the old crop soybean side?

Blohm: Not as much. The old crop situation still is friendly but, again, the technical signals posted a double top, a bearish reversal so we had a lot of technical selling going on right there. The export situation seems to be good yet. We actually had really good crush numbers this week from NOPA. It is the best April numbers that they have had in about five years. And so that is not normal because usually this time of year seasonally they don't crush as much. So that is still showing that demand is really strong. But we just don't have enough news to justify it to go higher than $15 so we'll probably stay right around $14.50 and if there's any further technical selling it takes us down to $14, that should hold it at that time. But, again, another thing where we've got not too much to talk about for about three weeks. So look for some range bound trade.

Pearson: Alright. Now on the new crop we've got planters starting to roll with soybeans. Same story, just not a whole lot of news to move this market one way or the other?

Blohm: Right. That is exactly what's going on. And a lot of traders still keeping an eye on South America and global demand. The USDA did make the global carryout, again, large and so that is keeping pressure on the market. But November beans right now are doing a wonderful job of holding $12 support and as long as they do that we'll see them continue to trade range bound between $12 and $12.30. And the risk though is if the weather turns good and then we see the $12 support area fail because then there's not much to catch it to $11.50. So don't sit on your heels, keep an eye on it every day.

Pearson: Make some cash sales if you need to.

Blohm: Yes, I would.

Pearson: Now, in your conversations with producers, have you heard of many acres switching corn to beans with this late start and the projected cold weather coming?

Blohm: It's not talked about yet because there still is hope. But I've got to tell you, in North Dakota and Minnesota and Wisconsin, parts of Michigan, nothing is happening, absolutely nothing. And so now people are wondering, do they go past their prevent plant date if it gets to that point? Or do they switch it? And so it's going to become a conversation in about two to three weeks. But we haven't seen any evidence of it yet.

Pearson: Okay. So range bound until then.

Blohm: Yes.

Pearson: Well, now let's jump over and talk livestock. We had the cattle on feed report come out today. How do you anticipate the trade reacting to that on Monday?

Blohm: The report today came out as expected, so the on feed number down 1%, placements down 5% and it was, again, totally as expected. The opening calls are ready for next week, they're calling it unchanged. So the big picture still is the same old song and dance where we have just historically low numbers, demand keeping up, our export market actually though is down about 3%, which makes sense because the prices are high. But at the same time that demand is there and because of the supply being so low the price should stay firm for now. And that feeder cattle market, on fire this week. I just am amazed. If I were a producer I would really be taking advantage of this corn drop and be locking in some corn sales because we don't really have a reason for corn to totally fall apart yet. And if the weather gets goofy later then you want to make sure you have that booked in place. But I would just take advantage of what has been there. It's been a great ride.

Pearson: Well, now on the feeder cattle side, as we look, up $2 this week. You know, the nearby at $1.93. How would you tell a producer to take advantage of that? What would be your advice? Where are we headed?

Blohm: It's mindboggling that we've even gotten this high. And now I'm to the point where I would say, now you to protect it because in the past it's more like the outlook is still so good, you don't really need to do anything. But now you're coming to a point where there's this technical crescendo and the market is getting close to that big, almost like a psychological, you know, 200 point area where you're just like, what is this, this has never been seen before. So now this is something where technical traders might come in and slam it lower just from that regard. But at the same time, the fundamentals still justify higher prices. So we might see a technical correction. But the big picture for now it still looks really good.

Pearson: So a good time to get in there on the option side, maybe not selling futures.

Blohm: I would, just for safety floor, right.

Pearson: Get something protected.

Blohm: Just in case.

Pearson: Alright. Now, let's look at the hog side. We've got another down week in the hog market, third in a row, I believe down $1.25 this week. What is happening in the hog market? Is it demand that is trailing off?

Blohm: It is not demand, it's that these hogs coming to market are linebackers, they're huge. They are just heavy, heavy hogs. And so the supply right now is ample for the June contract and that's why you've seen the June contract work its way lower. But if you look at summer months, August is actually trading at a $10 premium than it normally would. Normally it trades at about a $3 premium to cash. So the August contracts and the October contracts have actually pushed a little bit higher this week and it's on the expectation that the production numbers will be down later this summer and into the fall because of PED. But then at the same time, with the weights that are coming in, they are offsetting any of that lower production that might be seen. So that's something that we have to really be careful of going forward. So if we continue to see the heavy hogs then that August price needs to come down. So that is something to really be watching very closely over the next month.

Pearson: Because we are seeing pork producers just pile on the weight and the tonnage is replacing the lost hogs.

Blohm: Yes.

Pearson: Wow. And that's going to continue and especially if corn continues its lower prices.

Blohm: Right, right.

Pearson: Alright. Now, as we take a look at, I'd like to talk a little bit about the crude oil market. We saw it come up a little bit this week, $2.20 some cents. What was driving that? It looks like we've got a little bit more stability and yet up it went.

Blohm: It's the most bizarre situation. It's a little bit of global circumstance along with demand picking up. I think people were a little excited that the U.S. had some good data this week, the stock market went higher. But I don't think it's anything that's going to continue. But at the same time, we don't see it fall apart. So look for crude oil to stay range bound probably for a few more weeks at least.

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

Blohm: You're welcome, thank you.

Pearson: That wraps up this edition of Market to Market. But Naomi and I will continue our discussion and answer more 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, Facebook page and the rest of our social media outlets exclusively at the Market to Market website. And be sure to join us next week when we'll continue our examination of efforts to improve water quality in a key farm state. 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