This week, the Commodities Futures Trading Commission approved increasing the daily trading limit on corn from 30 cents per bushel to 40 cents per bushel beginning next Friday. Nevertheless, grain markets proved to be a bit more stable than the equities this week.
For the week, September wheat gained 24 cents, while the September corn contract moved 9 cents higher.
Soybeans, however, traded in a sideways fashion as the September contract moved fractionally lower. Nearby meal prices also declined ever so slightly with a weekly loss of 20 cents per ton.
In the softs, cotton also trended lower as the December contract settled Friday with a weekly loss of just over a dollar per hundredweight.
In the dairy market, September Class III Milk futures declined 66 cents and the deferred contract lost 79 cents.
Over in livestock, the August cattle contract gained $3.78. Nearby feeders were up more than $2. And the October lean hog contract lost $2.38.
In the currency markets, the Euro declined 12 basis points against the dollar. Crude oil lost more than $1.50 per barrel. Comex Gold traded in record territory, flirting with $1,800 per ounce this week before settling Friday with a weekly gain of $92.
And, the Goldman Sachs Commodity Index fell a little less than 5 points to close at 640.50
Pearson: Here now to lend us her insight on these and other trends is a newcomer to Market to Market, Naomi Blohm of the Stewart Peterson Group. Naomi, welcome to the Weekly Journal of Rural America.
Blohm: Thank you, pleasure to be here.
Pearson: It's good to have you here. What a wild week to start.
Pearson: Let's talk about the S&P and let's talk about the stock market first. Wild gyrations in the Dow this weekend and in the Standard and Poors. Obviously the debt debacle was part of it. There's a lot of concern about what's going on in Europe there too.
Blohm: A lot of concern with Europe right now. The primary interest is actually coming from Italy and from Spain and the market is really concerned that they're going to be defaulting on their debts and so the European Central Bank this week really came in and bought a lot of their bonds. But then later in the week France came out and said we might be next. And so the market, the stock market just reacted and plummeted lower, people took their money out and put it over to the bond market and into the gold market, traditional safe havens.
Pearson: The S&P, the U.S. debt had been downgraded, it finished stronger for the week.
Blohm: Yeah, isn't it something? I think what happened there was that once the downgrade came in the panic started but then on Tuesday when the feds came in and said that they were going to do their best to just really keep the interest rates low for two years, it gave investors a little bit more of a reprieve and a little bit of relief and they could do some longer term planning. And so investors came back in and said, okay, if we're that kind of room and time then we can try to figure this out a little longer and see if we can keep markets supported.
Pearson: Were you surprised by that, Sherman Bernanke saying, we're not going to do anything until 2013 if then?
Blohm: Oh, absolutely. I think --
Pearson: That's bizarre.
Blohm: It's very bizarre. In July though he did come out and say that they would potentially make the interest rates stay low for a longer term but most people thought it would only be a year and for them to come out and say two years was really almost what investors needed to hear to bring in some confidence.
Pearson: Let's talk about the gold market, obviously that's another safe haven and up again this week.
Blohm: Well, gold market this week hit $1800 an ounce which was a new high and some feel that the gold market actually could go up to about $2500 an ounce which seems like a phenomenal number and it is. Most likely what we'll see though is the market kind of set back lower on profit taking, it's really overbought right now but an interesting factor is that in the early 80s when gold hit $850, which was the high then, if you take that into inflationary terms for this timeframe it would correlate to $2400 so that number of $2500 is not out of the question.
Pearson: We'll see what happens. Real quick before we talk about our farm commodities, a huge sell off in oil. Oil is cheap, that's got to be a plus for consumers.
Blohm: It is, it is and the inventories for crude right now are up and so that is what is bringing the price down and, of course, our reserves, we brought some oil out of there. $70 in crude oil is going to be a tremendous support level and in that $70 area over the past two years we have hit support prices about six times. I think investors are going to come in and at that $70 area it's a buy. It would be really unlikely to see that market ever go back over $100 especially by the end of third quarter and into fourth quarter, there's so much economic uncertainty right now.
Pearson: So, if we get a break like that we want to get some of that fuel need hedged on the farm.
Blohm: Absolutely, absolutely.
Pearson: Let's talk about our farm commodities. A big report from the USDA. Let's talk about wheat first. And the USDA looked at all of these numbers and there was a lot of challenges out there. Talk first about what you see going ahead in the wheat market.
Blohm: Sure, the wheat market right now they acknowledged that the planted acreage situation is down but what happened in the end is that they kept ending stocks unchanged and I think that is an important factor and it is because our export market is not really happening right now. Russia has been undercutting our prices a lot because they're trying to really bring back their market because of being out for the last summer. And so with that as a factor and with Australia crop coming along okay right now there's a lot of supply available for wheat. But I think what you want to be watching in the weeks and in the year to come is that with the Canadian crop having 13 to 14 million acres unplanted or washed out and with our winter wheat crop nearly non-existent we're going to see prices probably holding at the $7.00 area for December Chicago and December Kansas. $7.00 I think is a buy. Prices maybe can hit resistance of about a dollar higher. And then the Minneapolis market we have December support of $8.00 and I think that too is going to be a buy.
Pearson: Those are places people should be noting. Let's talk about the corn crop. But before we do that let me just mention this. A friend of mine, Lloyd Funk down in Hillsboro, Kansas brought me in some samples of his crop and this would be south central, southwest Kansas where it's been so dry. And, of course, chopped into silage is what has happened to most of that corn crop. That's pretty sad looking. The USDA reflected that in their report. They cut the acres and cut the yield.
Blohm: Right, so what the USDA did was an astounding jump lower of 153 on yield and I think that was a surprise. We were expecting them to reduce it but not by an amount like that. And so when you have reduced acreage potential and the demand as strong as it is and the crop even potentially being less than 153 we're going to really see the market well supported. And with ending stocks being as tight as they are we're going to see I think the December corn stay in a range of $6.65 on the lower end with $7.25 as the upper end of the range. We'll probably stay in that range until the end of third quarter going into fourth quarter and then if we can get above $7.25 up side absolutely $8.00 on the board and then I think we're going to probably see the market stand still there because demand has to make sure it can keep up.
Pearson: But you wouldn't be embarrassed about selling corn at $7.25 or better?
Blohm: Oh, absolutely right.
Pearson: Let's talk about the soybean market, also some changes in the soybean numbers too, they reduced that.
Blohm: Sure, they reduced yield by two bushel and I was kind of surprised by that, I thought it was a little premature but at the same time the weather hasn't been the best and even though right now we have cooler temperatures and so for the pod filling stage it's nice but at the same time that heat may have really done some damage initially. That bean market for eight months has been in a range between $13.00 and $14.00.
Pearson: And not a terrible range for those who have to make sales.
Blohm: Right, but it's really like you're reining back on a horse and it's chomping at the bit, it's ready to run and I think what the bean market is waiting to do is waiting to see can corn push higher. If corn can push higher the beans are going to really take a swing up side potentially to $15.00, ultimately $16.00 matching the highs from 2008. But it just needs to see what the corn market can do and if global demand can keep up.
Pearson: That's right and everyone start rationing.
Pearson: So, again, strap in, it's going to be a volatile move here on out and weather is going to be a key factor. Let's talk about the cotton market where they've had drought issues down in Texas and I showed you the Kansas corn crop, I mean, throughout the plains we've got problems down there and they did reduce the number on cotton but not much of a reaction in cotton.
Blohm: Not much of a reaction and I think a lot of the trade was anticipating that perhaps it would have been more of an aggressive cut because of the production problems. But the thing to note right now in cotton is that globally there's a lot of supply out there and Australia is on track to have their second largest crop ever. The export market is red hot and a lot of the demand did wane just because of the price being so high and a lot of the cotton fabric makers are blending with synthetics and so that demand is down. I think cotton though has tremendous support at $80. I think we're going to edge lower to $80 but then that's the point where a lot of investors will probably come back in.
Pearson: Let's talk about livestock. It's been a frustrating series -- we talk about these high corn prices, high bean and meal prices and then you see the folks out there and of course we're seeing a lot of switching to wheat for feeding. We also saw some wheat being used out in northern Ohio for ethanol. Give us your take on fed cattle, where you think we might be headed.
Blohm: Cattle market in general right now we're going to see live cattle futures consolidating between $100 and $125 and I think we're going to just be stuck in that range for quite some time. Export market of course is red hot and the reason it is red hot is because our dollar is low but also South America is not exporting right now. Their export rate is 20% lower than in years past and it's because they're rebuilding their herd. So, as long as we can have demand stay strong we're going to see that export market remain and I think something interesting to note is that even though we can not export to China the market is actually going to Hong Kong and their inputs are up 158%.
Pearson: Gee whiz, being train shipped perhaps.
Blohm: You're right.
Pearson: Let me ask you this before we go on. I want to talk about the calf market first and the feeder cattle market, obviously we shrunk this cow herd. If the economy is even slowly recovering, which most people we've talked to think that that's the case, hopefully that beef demand is going to pick up, we're not seeing much in the way of any calf or heifer retention at this stage so not much expansion. I assume this calf market you expect to be strong too?
Blohm: Yes, I think so. I think we're going to see that market stay strong, it's cautiously strong but I think over time it's just going to stay at higher prices.
Pearson: You're a Wisconsin girl so I have to ask you about milk prices. What do you see? What happened this week? Obviously we had a big sell off there.
Blohm: The sell off this week was more because the cheese price came down. So, if you're not quite familiar with the milk market there's a few factors involved, cheese price, butter price and all those types of things. So, the cheese price it hit highs from 2004, 2008 and the market set back lower. When that happens the milk price comes down too. We're at some longer term support levels now. We're most likely going to see some short covering, the market is going to have a bounce higher. And so the other factors affecting milk right now are butter, we're rebuilding that inventory but the biggest factor right now is that we've got $7.00 corn and in the deferred months we've got milk that is trading at $16.00, $17.00 and that doesn't work, it doesn't work. So, if we can see demand pick up either the milk price has to go higher or the feed price has to come down but overall this is a shifting area. If we can hold support here we'll go back up into the $20s.
Pearson: So, you think that will happen, I mean, we're going to see that recovery? You mentioned exports on beef certainly and milk has been another huge export either in the powder form or one of the byproducts, butter, we're seeing the product move.
Blohm: We're expecting that to continue. One little sneaky thing that might be coming into the market is that Australia and New Zealand production is up and they are really doing their best to enter our export market and become competitive so that could be something that comes at us from that field but overall I think we'll be all right in the end.
Pearson: Aggressive marketers over there too. Okay, let's talk about the hog market and what you see happening on the pork front.
Blohm: Right now demand, of course, staying strong. We're exporting millions of pounds to China and to South Korea. And the key thing to watch right now in the hog market is the $80 area in the October contract and in the December contract and how that correlates with ham. The demand for ham has to remain strong because traditionally in the fourth quarter we see supply levels come higher and prices go down. But if that ham demand can stay strong that should keep the October and December futures above $80 which will keep it in the long-term up trend and keep that market as a longer term friendly buy.
Pearson: What do you think for expansion?
Blohm: I think we're going to maybe probably start to see it but people are still cautious just because of the whole economic situation and I think they remember history of times with expansion and then prices just sharply trend lower. So I think people are cautiously thinking about it.
Pearson: Real quick, we've got about fifteen seconds, covering feed needs at this stage of the game, what do you do, just take the breaks when you can?
Blohm: I think so, absolutely, because with that short crop out there we're going to assume that the economy is going to come back and I think you definitely want to buy the breaks.
Pearson: All right. Naomi Blohm, your rookie season here on Market to Market, thanks for being with us, we appreciate it. That's going to wrap up this edition of Market to Market. If you'd like more information from Naomi on where these volatile markets just may be headed please visit the Market Plus page at our Web site. You'll find expanded Market Analysis, you'll find audio podcasts, streaming video of our program and, of course, links to our Twitter feed and Facebook page. By the way, it's all free at the Market to Market Web site. And, of course, be sure to join us again next week when we'll follow President Obama as he stops in the Corn Belt to discuss specifics on reviving the rural economy. So, until then, thanks for watching. I'm Mark Pearson. Have a good week.
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