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Market Analysis: Naomi Blohm

posted on February 10, 2012


Market Analysis: Naomi Blohm

Pearson: Naomi, welcome back. Good to have you back with us. All right, let's talk about a lot of stuff that's going on. The USDA Report, we want to get to that. Obviously as we visit, the situation in Greece remains unstable. What do you think is going to happen?

Blohm: It's very unstable and there is actually a six-step process that's been needing to --

Pearson: It's been unstable now for how long?

Blohm: Two years at least.

Pearson: Yeah, I'm getting very fatigued by Greece.

Blohm: Well, I think the whole marketplace and it's becoming old news and people are frustrated with it. And what the world is needing for them to have happen is get through the six-step process and make sure it happens, but the odds of and likelihood of it continue to become less and less on less, and so many feel it's just a matter of time before they are asked to exit the European Union. But of course, everyone is really trying to do their best to keep them involved and everything like that, but the biggest concern still is that if the Greek default on any of this payment, that the euro is going to crash, in which case our U.S. dollar is going to rally.

Pearson: You know, Greece has been in default of its sovereign debt 50 percent of the time for two hundred years. It's one half of one percent of the world's economy, and it's driving our markets --it's driving our stuff, corn, beans, wheat, and certainly the impact of the dollar. Like you say, near term really not much of a closure ahead.

Blohm: No, there's not. In fact, I think that it's going to be something that once we are through the Greek hurdle, then we have to go look at Portugal and then we're going to have to tackle Italy.

Pearson: Italy's banks are issues again this week. --

Blohm: It's not something that's going to be resolved anytime soon, so it's going to be hanging over in the market for a while.

Pearson: And like I say, the biggest impact is probably going to be a rising dollar, which is a head wind for agricultural exports, so we want to talk about that. But it's also the wind is at our back when it comes to oil, so we want to talk about all those things. Let's get started. Let's talk -- let's talk wheat prices first and what you see happening there. I know you've been up in wheat country the last couple of days. I was down in Kansas City and talked with some folks down there. It looks like the U.S. crop is in decent shape, but there's some problems over in Eastern Europe.

Blohm: Yeah, the Ukraine crop is actually expected to be about 40 percent less, so that is keeping the wheat market supported right now. A lot of the global market placements actually finally coming to the United States and asking for our product, which is a big thing. So wheat right now for July, Chicago has a big hurdle to get above $7 price, but I think right now we are well supported, at least of the 650 area. The big pictures would suggest $6.something new that's developing, which is very interesting, is that some of the wheat producers in Texas, Oklahoma, and Kansas have been approached by dairy producers and livestock producers, and they've been asked, hey, would you be willing to consider chopping your wheat for silage. Now, if that happens, they can actually guarantee themselves $65 an acre of profit if they do that. And in order to get that kind of profit with wheat, you have to have 60 bushel average. So right now a lot of wheat producers are thinking, well, it's pretty dry year. We might have some opportunity to guarantee somebody, and then if that happens, also, that's going to be 500,000 acres of wheat that go unharvested as far as wheat production. So that might keep that wheat market really well supported.

Pearson: All right. That's a couple interesting things. Like you say, the weather in Eastern Europe and the situation of maybe chopping some wheat, which is something we haven't seen much of. Now, pricewise what's your strategy? What do you want do to? What should a producer do right now? Let's take some -- let's say we've still got some old crop left and maybe thinking about pricing some new crop. Do you think we'll see that $7 again? Like we said, that's a pretty -- that's a pretty big lid on that market. It is a big lid, but I think that over the next probably three to five weeks, we're going to continue to see the wheat market consolidate, and I think it will probably go back up above that $7 board price. And I think that if it does that, that is a great opportunity to get current on some sales for old crop and then use that as your point to be thinking about what is the production and price doing for the next year and then use that as an opportunity to make some sales -- small sales to get started because there's still is so much that could happen globally but it's a good point to get started.

Pearson: All right, let's more to corn. Obviously old crop corn is incredibly tight. A lot of producers are holding on because we've seen this movie before. And the happy ending usually comes in July and August. Do you think that's going to be the case this year on old crop?

Blohm: I am actually quite favorable with the old-crop corn. Right now we're going to see corn price -- July corn futures especially have $6 support and 675 resistance. And again, for the next three to five weeks, probably see the market edge and bounce back and forth. If it gets up to 675, make some sales, but if you do a swing objective on the chart, the upside points to 750 potentially, futures price, not $8, 750, and I think that that is a great place where people can unload a lot. But at this time I don't think that there's any reason for the market to go any higher than that.

Pearson: What about new crop, though? You hear of this big acreage number. You know, less fuel being used; is that going to hurt ethanol -- you know, a lot of stuff. They're very bearish and we haven't even planted a seed yet, and everybody is bearish.

Blohm: There are so many different scenarios that are going to be affecting the price of corn this year. Of course, weather and acres the biggest. It's no secret that if all of those acres get planted, we've got the potential for ending stocks to just swell. Absolutely. And the other factors, of course, as you mentioned, would be ethanol. And right now, of course, people are saying, well, the blenders credit has expired and there's actually some extra stockpiles of ethanol out there. Seasonally this happens. This is normal because gasoline, right now use is down and that happens this time of year. But come spring and summer, the gasoline demand will actually come up higher, and that's when the ethanol becomes used up again. The other factor that's going to be affecting the price of corn besides weather and acres is crude oil price. If Israel and Iran can't get their act together, that's going to be a big thing, because that could really send crude oil $25 a barrel higher, and we'll get through that $100 resistance level easily. So we have to keep an eye on all of those possible scenarios, but most likely it is looking like the price of new-crop corn is going to be just consolidating for a little bit, but it's going to wait and it's not going to make its move until those planters get rolling.

Pearson: Do we make some sales now if we're nervous and we've got a lot of overhead? Should we be making some safety sales now?

Blohm: That's a great question. I had a conversation with some growers in Northwest Iowa yesterday, and a lot of them told me that right now their breakeven is at $4.50.based on where the new-crop price is at right now and even with basis, they can get 520 cash. It's a profit. And absolutely you should be doing something to get started because the old-crop fundamentals and the new-crop fundamentals are totally different.

Pearson: The USDA Report Thursday, the Argentine number where they dropped it down to 23 million metric tons -- I talked to people who said it's 18.people that are on the ground in Argentina have told me it's 18. USDA is going to be slow dragging that number down. That tightens this old-crop corn thing up more, really in potential carryover for new crop.

Blohm: Absolutely. And it's one of those scenarios that's going to be one of the factors that could come in and be something that keeps the market supported overall so that we don't see that dramatic price lower. So we're going to see a lot of scenarios unfold over the next two or three months. And just be patient, but have a plan ready to go in case all of the factors come in to be the perfect storm and take those prices lower. But right now I think we're that we're going to see prices stay firm.

Pearson: Soybeans?

Blohm: Soybeans right now with the old crop, there is nothing really to talk about. It's kind of a boring marketplace with, again, consolidation. But the new crop excites me, and it is because I think there could be the potential of the last bid for acres higher. If you look at what's happening on a new-crop chart with November beans, there's an inverted head and shoulders formation on there, which is actually suggesting $13.50 new-crop price if the fundamentals can happen to justify to push it higher. So I think, though, with the possibility of beans needing to buy those acres and with production down in South America a little bit and demand strong, we might see that happen.

Pearson: Interesting. All right, so what is your scenario, old-crop, new-crop sales? What are you going to do?

Blohm: Old-crop sales, I'm just encourage people to keep plugging along on those sales as prices have a chance to bounce a little bit higher, and on the new-crop, what you really have to watch again is that 1250 resistance area. If prices touch that point, be making some sales. It's a profit. But again, if prices can get through 1250, be patient because there is a better path coming.

Pearson: I was in Wisconsin a couple times the last couple of weeks, the Corn and Soy EXPO, had a blast. Up in Menomonie a couple days ago. You're a Wisconsin connection, tell us what do you see these milk prices. We've had pretty deep falloff here.

Blohm: It's been a tough week for milk. What happened is that with the mild temperatures, production is up. So therefore all this extra production is going into the cheese plant. Cheese price has really come down the last couple weeks and along with the whey price. The average 2012 price for milk -- Class III Milk right now is right around in the 1640 area, and that is a huge support level. If that breaks because of production staying higher -- and the USDA just said that they think it's going to stay higher --we're going to see that price -- average price for 2012 go down to 16, which is breakeven for a lot of people.

Pearson: Okay. Kind of frustrating news there. But good weather is really driving it, which is, I guess, the flip side of it. We weren't scooping as much snow as we went out to milk the cows. A challenging winter on that front. And again, looking at some higher feed inputs as well for the dairy industry, which we kind of thought would soften up some now. Are you hedging anything right now on milk?

Blohm: We have been. And so I think we're at the point of continuing to just implement what's already been in place.

Pearson: All right. Cow numbers are going up. We talked earlier about the beef numbers being so tight and this cow herd being so tight, beef numbers being so tight. We've got a tremendous fed cattle market going right now, a tremendous feeder cattle market going right now. Is it going to continue in 2012?

Blohm: Absolutely it is, and the reason is, of course, because those production numbers are so far down, historically low. The one surprise in the USDA Report in the inventory report was that they increased heifers being held back for breeding by 1.4 percent, so what that means is by the short-term, the next year, there's not going to be a lot of supply for the marketplace for beef. But they are trying to rebuild the herd, and that's going to be coming up two years down the road. But in the meantime, that beef price is going to stay high. It's been high. Going in at the retail sector, the price is up, and the choice value is up about 10 percent from a year ago. The select price is up about 8 percent from year, ago and it probably is going to continue on that path.

Pearson: All right. And strong prices for calf prices as well. Okay, all right. Some good news there on that front, because they are facing some high input costs. Talk about the hog market. We've seen awful good export demand in there for pork.

Blohm: Yes, and that is expected to continue, very much so. The production numbers are a little bit higher and the weights are up, so that's what's kind of keeping that cash price down lately. Overall front-month contracts have solid support in the 80 price area on the board, and summer contracts have solid support at 90. I wouldn't be surprised to see the marketplace set back a little bit on a correction, but if it does, it's most likely a buying opportunity of the good support area, and we'll probably see the price firm for a while yet.

Pearson: All right. Absolutely great insights. Naomi Blohm, thank you so much. But that is 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, visit the market plus page at our website. We'll also get to your Twitter comments and Facebook comments. You'll find expanded market analysis, audio podcasts and, of course, streaming video of our program, and links to those Twitter Feeds and Facebook page all at the “Market to Market” website, and it's all free. Be sure to join us again next week when the Vice President of China visits the Heartland. So until then, thanks for watching. I'm Mark Pearson. Have a great week.  

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Tags: agriculture cattle commodity prices corn economy feeders hogs markets news soybeans wheat