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Market Analysis: Naomi Blohm

posted on November 5, 2011


Market Analysis: Naomi Blohm

Pearson: Here now to lend us her insight on these and other trends is a relative newcomer to Market to Market, Naomi Blohm. Naomi, welcome back. Good to have you back with us. Let's talk a little bit about some of these things. One other fact we didn't mention, MF Global. I mean there's a lot of elevators and a lot of farmers out there that are doing business with MF Global unrelated to the Corzine debt bet over in Europe wondering what to do. How much of an impact is that having on our commodity markets? Blohm: The impact on the commity market is not actually as much as people might have anticipated. It was a one-day scare. But right now I think the biggest impact from it is that it's bringing a little bit of uncertainty to trading in general. The focus on the whole MF Global thing is that the European situation is far from over. The G20 Summit today concluded with no results. And so Europe, I think, is going to hopefully be able to avoid catastrophe, but the biggest thing is they are not going to be able to avoid a recession. That's going to have a global impact. Pearson: That's certainly a cause for concern. Of course, the other thing, I guess, when we're talking about default, like Greece and a situation that lingers on like this, you have these days where that becomes the dominating factor, regardless of what the fundamental situation is. We have some changing fundamentals. We've got government reports out next week. Blohm: We've got a lot of things happening. I think the biggest thing right now with the European situation; it's not going to go away. The biggest take away from it is how it's going to impact our markets, and here is how. With the European situation not having any growth, we are not going to be able to have any growth here in United States, but the bigger impact is what will happen with China. But the bigger impact is what will happen with China. China needs to have at least 8-percent growth every year in order to have social and economic stability right now. Right now they are forecast for 9.3 percent and next year at 9 percent. If the European situation can't get under control in the recession and even the debacle should happen, the European market is China's largest export market. In September it was down 10 percent. So if that continues to happen where the export market is down, China as an economy is not going to be able to grow the way people are hoping it would, in which case, commodities as a whole are not going to be able to rally with the gusto that people are hoping still. So it's going to have a major effect throughout 2012. Pearson: On this upbeat note let's move forward talking about individual commodities. Let's talk about the wheat market first. What is your take on wheat? What are you telling producers? Blohm: Right now with wheat, I think we're at a point where we're just going to continue to hold steady here. The winter wheat crop is 90 percent planted and 70 percent emerged. With the recent rains and the bits of snow that have come upon it, no immediate threat of extreme danger. So, of course, we have to watch dormancy as the winter progresses. Now, as far as the export market, there is tremendous pressure from everything and the black sea and that's not going to go away. So I think wheat is still just a follower. I don't think it's going to fall apart, but it's going to have a struggle to rally. Pearson: Are we making sales or are we holding off for a rally or what's your thought? Blohm: Holding off for a rally. I think if the corn price can have a break up move higher next week after the USDA Report, wheat will follow. There's a lot of short positions in the wheat market. And so just on short covering, we will see a nice bounce, and I think that will be a selling opportunity. Pearson: Okay, that's a really good point. So let's talk about the corn market. What do you see happening on that? We're about to wrap up the crop in most of the Corn Belt and, by and large, not the bin buster a lot of people thought we would have. But it's a decent crop. Where are we going to go from here pricewise? Blohm: Pricewise for corn, I think we're going to continue to see corn hold a $6 area for the bigger picture. At the most, I think we'll see $7 as the upside. Next after the USDA Report, we'll have our answer. We are sitting right now at 650. We'll either be down to $6 on the next wee or we'll be up to $7. I don't think we will see prices go higher than seven because of the global situation. And the market wants to wait to see what the La Nina pattern does in the Southern Hemisphere, as well as just the global implications of trade. Pearson: There is concern about the La Nina pattern and what is it doing to the Upper Midwest at this point. We've got some extreme droughts and moderate drought areas in Western Illinois, in Southeast Iowa, North-Central Iowa, Southern Minnesota. Not a huge trade factor yet, but it's starting to be a concern to people. Blohm: Absolutely it's a concern, and I think that a lot of people are really monitoring the moisture situation right now. It will absolutely slowly be monitored this winter in terms of snowball and how that will play out next spring. I don't think that the market has any reason to rally or fall apart until we see whether as the biggest factor for next year. Pearson: We've got South American weather too, and will we see more corn in South America too, do you think? Blohm: We've already seen it, absolutely. Brazil is already forecast to have an additional 9 million tons of corn planted. And so that's already being priced in. I think with the report next week on Wednesday, I think the USDA is probably going to reduce our yield here a little bit. The market is already factoring it. But the other implication is that they are going to most likely raise some global production numbers, in which case the global spreadsheets will be balanced and prices won't have any reason to rally substantially unless there is a major weather issue in South America. Pearson: Strong demand for cash. Should we be selling corn? A lot of people will say I've got these storage bins, but do I really need to use them. Blohm: That's a great question, and I think right now the basis is so great for corn. We are seeing tight basis in a lot of places and that's something that you want to capitalize on. A lot of producers, they're not wanting to sell until next year for tax reasons, and understandably so, but at the same time, there are a lot of people who are going to be selling come first of the year, and so the basis is going to probably widen out by then. So I would encourage, if you can, get more current with the cash situation. Pearson: Good point. Let's talk about soybeans. What's your outlook there? We sort of count on China for big purchases and, again, big numbers in South America too. We've got to watch their weather. Blohm: Right, right. With the third-largest growable crop and ending stocks, we are not going to see prices do much of anything. Quite frankly, I think that soybeans are going to probably test the $12 area for a while. It fails, we'll see prices go down to 11.50. I don't think it's going to really ever go below $11. If you look at long-term trend lines, $11 is phenomenal support. And I just don't think that we'll see prices go lower than that because the demand situation is so strong. At the same time, we probably are going to have a hard time seeing prices get over $13. So anytime you see a rally, be selling. Pearson: All right. Take advantage of it. Let's talk real quick on the cotton market. It's been kind of a see-saw market here for the last month or so. Very sensitive global development. Same concern about China and excess supply and a big crop in China too. Blohm: Absolutely. I think that cotton is going to have its day in the sun here, though. Next the week with report, I think the USDA will acknowledge the situation here in the U.S. and the crop that wasn't there. And then also, I think that the USDA has to adjust for Pakistan and the flooding that they had. So we're finally going to see some fresh fund fundamental news come into play. That will give the market a lift. And then like wheat, cotton is extremely oversold right now, and if we can just get the market to push higher on a 23 percent retracement Fibonacci move, we'll see prices go back up to the mid 125s. So I really think that's possible. Pearson: All right, the Fibonacci move. All right. Let's talk livestock. I want to talk dairy tonight too. Let's talk fed cattle first. As we look at the fed cattle market, it seems like demand has been holding in there, oversees demand has been holding in there. Tight supplies. We are still not holding back any heifers. That's not going to do us any good at 2012 at this point. What's your outlook for fed cattle market? Blohm: It's still a friendly marketplace. And with the news this week that Japan is going to be relaxing their rules and regulations, we are going to see that market continue to grow. So Japan went from twenty month and younger beef coming in to thirty months and under. That's a huge deal. So that is actually already factored to increase the market by 25 percent for exports. In addition to that, you said it quite well, slaughter numbers and the heifer slaughter numbers, we're not seeing any changes on those. So at this time I think that there is no herd rebuilding. It is going to continue to be that way till the market sees what the grain fall and how the pastures are going to be along with other food prices. But right now it's a really friendly picture. Pearson: So fed cattle looks good. Calf market looks to be strong as well because of the supply situation is going to be tight. Blohm: Absolutely. The charts friendly. The fundamentals are friendly. There's at this time no reason to suggest otherwise. Pearson: I've been in the cattle business all my life. Something will show up. I don't know what it will be, but we'll watch and see. So far right now, you're pretty optimistic. Do you want to hedge any of this stuff, or do you think we're going to look for higher prices in both the fats and on the calves? Blohm: I think with the cattle market, I would look at some bear put spreads maybe, just something there for just in case, probably some you're not going to use. But with a bear put spread, you're buying a put, selling a lower put, no margin calls, and then at the same time you've got protection there just in case something should happen. Pearson: All right. Good point. Okay, hog market, what do you see happening there? Blohm: A little bit of a lower price actually. I think we'll see the market go back and test the low 80 level. There is not much friendly news happening right now other than the export market. But seasonably this is the time of year when supplies are up, and that is weighing on price right now, so I think we'll have to see the washout back down. But overall 80 will hold, I think, strongly, and we will see the market rally. Pearson: All right. Let's talk about dairy milk prices. We've had a good recovery off the bottom; maybe some herd expansion there in dairy. What is your outlook for milk prices? Blohm: I would say for the rest of the fourth quarter and into first quarter we have really good optimistic prices. The reason for the increase this week was because of the cheese market. The cheese market, ten out of the last thirteen years in the month of November, cheese has a tendency to rally, of course, due to holiday demand, and we saw that this time. Once the cheese price was able to push higher, the milk price went along with it. We're not going to probably see much for excitement beyond that just because globally, we still have a lot of competition from New Zealand and also Australia in terms of the powder market and also the cheese market, so that's going to keep prices from rallying. And we're seeing a lot of hedging start up right now because it's just tremendous value at the $18 levels. Pearson: All right. I want to talk real quick on crude oil and gold. Crude oil, we're, what, mid 90s right now, in that neighborhood. Your scenarios are for a slower global growth outlet. Are energy prices going to soften up? Blohm: That's a great question and here's how OPEC will answer that. They thought that even though the growth is going to be slow, there still is going to be growth because of the emerging nations and the emerging economy and the people there are needing more energy. So I think that we are going to see crude oil probably test the $100 level. But I don't think it's going to be able to come through there because the world is not ready for that right now. Overall, we will just see the demand stay strong. OPEC wants to see actual production level not drop-off because they think that over an additional half-million barrels are going to be used daily into 2012, is right now the outlook. So most likely see it range bound between $80 and $100. Pearson: All right. We've had this risk on and risk off market going. Gold right now seems to be risk off. Blohm: Right and everybody is putting their money back in the gold market because it's traditionally that safe haven. And so when investors are nervous, that market is going to continue to see some price increases. Pearson: So you don't think we've seen the highs yet. Blohm: I think we'll retest the highs. Pearson: On gold. Blohm: Yep. Pearson: All right. So again, fairly optimistic on gold prices. Maybe commodities holding together. We'll see what happens to the rest of it. Thanks so much. Naomi Blohm with us this week. Pearson: Naomi Blohm, thank you so much. That wraps up this edition of Market to Market. But if you’d like more information from Naomi on where these volatile markets just may be headed, visit the "Market Plus" page at our web site. You'll find "Expanded Market Analysis," audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page-- all FREE -- at the Market to Market Web site. And be sure to join us again next week when we'll explore the economic impact of an oil boom in North Dakota. Until then, thanks for watching. I'm Mark Pearson. Have a good week...


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