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Market Analysis: Naomi Blohm

posted on May 18, 2012

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. Good to see you. Let's talk about it. Lots going on. These markets are under some pressure. The commodities have been under some pressure. Little bit of a rally for the grains here this week. The wheat situation is interesting and dynamic. Let's talk about the dollar first. The dollar had the 14 consecutive day run of being higher. We haven't seen that in a couple of decades. It's certainly taking some of the air out of commodity prices right now.

Blohm: Absolutely it is. The U.S. dollar right now has had that recent rally, and a lot of it is that the investment money out there is coming to the dollar. It used to be in the gold market. That used to be where it was hot and heavy, but right now the U.S. dollar is seen as the safe haven. So the dollar has pushed up to near 82, which is a major resistance point. It's becoming overbought, so we'll probably see it set back a little bit. But you're right; it is affecting commodities as far as exports, and we're seeing that. Absolutely.

Pearson: As you look at this market, obviously we've had the strength in the dollar. We've seen, of course, the weakening of crude oil and the concern about what's happening in Europe driving so much of this. I had a farmer call me who said that people are coming to the dollar because we're the best house in a bad neighborhood. What's your take on it going forward? Do you think we're just going to see more of this dollar bouncing? Will we hit that resistance point? What if we go through that resistance point next week?

Blohm: I think for the short term, we're going to see the dollar stay between 80 and 82. For right now we are going to be the country that is definitely the lesser of all the evils. If we can get through 82, the upside would then be 84. But most likely, we'll probably see prices just consolidate here for just the time being until further is known in Europe. So I would say it's going to hang tight for a little bit. It does absolutely have the potential to go higher, but for now it would probably just hang tight.

Pearson: All right. A wild situation in wheat. Already some global weather concern, concerns about what's happening in the former Soviet Union countries relative to dry weather, dry weather in the U.S. as well. What's your take going forward on wheat prices?

Blohm: This week rallied a dollar, which was a fabulous move. That market had been oversold and so it needed the bounce, and so you saw mostly short covering, which propelled the market higher. Now we've got the Chicago wheat and the Kansas wheat at $7 resistance with Minneapolis wheat with $8 resistance, and that's likely to hold for the time being. The situation in Russia, it is serious. The last time this happened in 2010, it decimated a third of their crop. That did make the market rally. Now, at the same time, we do have ample supplies yet globally, so that's going to keep some pressure over us. And on the crop here in the U.S. for the winter wheat is still rated 60 percent good to excellent compared to a ten-year average. The ten-year average is 47 percent good to excellent, so we have crop.

Pearson: That's right. It's going to be interesting to see where this thing shakes out. Is this a sales point? You have old crop wheat to sell. Do you want to make some sales? Do you want to sell new-crop wheat?

Blohm: I think it is a sales point right now. It has been a dollar rally in the week. That doesn't happen that often. The likelihood of it rallying further from here is just weather dependent, and it's going to have to get pretty horrible in order for it to go too much higher.

Pearson: All right. Let's move over to the corn market and what you see happening on that front. We had the news about the positives in ethanol. In terms of cost, $1,225 savings per family in the United States. That's all positive news. We've got a lot of acres planted in corn. We've had a lot acres replanted. We've had a lot of texts from folks that have said that they've been replanting. What's your take on the corn crop at this point? Obviously a big acreage number. USDA is offering an almost above trendline yield for corn this year.

Blohm: For right now, that is seeming like an aggressive number to have happen but, at the same time, it's not. Here's the reason why. With corn and how the USDA calculates it, they take the summer average, which right now is 74.3 degrees for summer average, so they're going to assume that as normal for now. With the crop being planted so much earlier, they're not going to necessarily have that extreme July heat potential for pollination like it is had in years past. So the USDA now is going to assume normal. It's going to assume aggressive. For right now, we'll probably have to see the market prove us otherwise. I think, though, the good news for December corn is that we'll see it well supported at $5 for the time being with resistance at 550, and it will just be trapped in that range, especially for the next month until the big reports at the end of June.

Pearson: And you are still in the really strong weather market. A lot of volatility ahead. What are you telling producers? Old-crop corn, we had some premium basis levels out there in areas that normally don't see a premium basis. Should we be cleaning up old crop corn, or do you want to hang on and see what happens later this summer?

Blohm: It's a good point to be more aggressive on some sales, yet to hold things back, because if the truth comes out that ending stocks are indeed a little bit tighter, then that should keep that basis firm and we could potentially see futures prices rally. July corn, how high could it go if it wants to rally and if the basis continues to stay tight, the upside would be $7, where the May contract hit not too long ago. But right now we don't have any reason at all to go above 7 because of this tremendous new crop potential coming in. So on the rallies, make some sales. When the basis is positive like that, reward it.

Pearson: The Chinese demand is going to be a big factor this year. Are you hearing that?

Blohm: It's always a strong -- for demand, and it will continue to be that way. I don't know if they'll have any further sneaky purchases that come in that just would escalate prices higher. At the most, I think it will just keep the market well supported overall.

Pearson: All right. And they'll be buying the breaks probably. Let's talk about soybeans and what you see happening on the soybean front, where we know we've got good demand coming globally. We've certainly seen a good rally on both the old crop and new crop. We had a little bit of a bounce down. Do you want to make some sales here, or do you think better times are ahead?

Blohm: Right now I would say that it is a good time to be getting current on sales for old crop and new crop. The new crop is very well aware that potentially almost 2 million more acres have been planted. With the winter wheat harvest going to be sooner than later, we could have the potential for double crop as well. Right now November beans are supported at 1288, where they finished out today. That's hundred-day moving average. If they can climb back above 13, they'll be trapped between 13 and 13.50 until weather comes along potentially down the road. And with the old crop too, it's going to be in a range between 13.75 and 14.50 until it knows for sure where the demand is staying and how the new crop is coming along. So do be making sales as prices move higher here.

Pearson: All right. Keep that in mind. Let's talk about the cotton market. We had such a wild year last year in cotton. The most tremendous prices. We're seeing the market back off from that. It seems to be a slowness in terms of global cotton demand. What do you see going forward for cotton prices?

Blohm: In the short-term cotton is due for a bounce. It's been stuck at about 77.50 this week and the upside potentially is about 88. That's where the fifty-day moving average is, and it's so oversold. If short covering happens, we could see a similar situation to cotton as what happened in wheat, where we just all of a sudden within a week just have a tremendous rally high. In the bigger picture, though, you're right, demand is down. And with the U.S. dollar being higher, it does just curb the appetite from the export market. So if there is a bound on a rally, take an opportunity to make some sales.

Pearson: You're a Wisconsin expert. Milk prices this week, a little bit of a rally. There's been a lot of frustration about this milk market and prices. Where are we headed? Is this a sales point in the Class III Milk Futures?

Blohm: The milk right now is real close to getting back up to $16. That's probably going to be your sale point. The supply right now for milk here in the U.S. and globally is so strong. It is so strong, production is up. The good news, though, is that the demand is very strong as well. It's just that right now supply is outpacing it. And the cheese market has had record numbers of sales. Every week since November it's been between 19 million and 23 million pounds of cheese being sold and the whey market is going strong. So overall the milk market will probably be supported between 14 and 16, but 16 is probably going to be as good as it gets.

Pearson: At that point, make some sales. And 16 works. Most people I talk to say they're not thrilled but 16 works for most Midwest and commercial dairy operations. Let's flip over to livestock. Fed cattle market had a nice rebound this week. We kind of saw a situation earlier this year where we have a lot of long positions going in the fed cattle market. Boy, when those folks leave town, when they lose interest, this market comes back to reality quick.

Blohm: Yeah, that's for sure. This afternoon we had a cattle-on-feed report, which actually was just continuing to justify and verify what we already know, that placements are down and the on-feed numbers are down, so that's going to keep the market well support overall, but recently the wholesale values have gone higher in cutouts for choice this week. We're at the highest since March. With gas prices finally down, people can finally get back to eating steak and things that they love. So we'll likely see the cattle price stay firm, probably almost till fourth of July because we've got Father's Day coming up, so that's going to keep the demand stronger now. Especially with those gas prices down, it makes make such a difference.

Pearson: It's funny because some people are worried about the cheapening commodities. We have gas prices coming down. We thought that was one of the things that was going to hold back the economy this year. Now taking 22 cents off the prices of a gallon of gas since the peak, that puts a lot more money in people's pockets. You mentioned good beef demand, but from a producer standpoint, should we be looking at maybe some hedges as this thing rallies back, maybe get some coverage just to be on the safe side?

Blohm: At this time, that is a great idea to do some hedges. If you can lock in cash and in any way do it or put some puts under the market, just because demand is strong but, at the same time, people aren't going to pay a high price for steak and hamburger for too long. It's just not in the cards for right now.

Pearson: And we still have unemployment -- let's talk about the calf market, though. I think we saw some tension. I can't see it statistically but it looks to me like at these kinds of prices, it would make sense to hold back a cow maybe one extra cycle, but I can't verify that and I don't see it anywhere. Where do you think the calf market is headed?

Blohm: Most likely we'll see the August contract head up to about 164, and then I think it's done. Stick a fork in it because it's going to not have any reason to go higher. Demand just can't justify it at this time. We'll see it set back but at the same time, it's going to hold value and hold support overall just because of the tightness of the situation.

Pearson: Let's talk about hogs for just a minute and the pork market. It's been very export sensitive. You've got this dollar strengthening. That can't be a good combination.

Blohm: Right. The dollar going up makes the cash price for pork needing to come back down and that's why the export market has been able to hang in there, because that pork price has been down. At one time, we had the values under 80 cents, but now they've come back to about 82.5, which is really encouraging. The export market is coming back. It's not what it was a year ago, because China and South Korea are rebuilding their herds now and they just don't need our product quite as much. But at same time, with the Father's Day holiday and fourth of July, the demand is coming back. So we'll most likely see a decent bounce here. It's had a two-week rally, but pretty soon maybe, like, 90 -- I think 90 on the futures contract for June is going to be as good as it gets.

Pearson: All right. So producers take note. I want to come back to the other commodities that we track on the program. We talk about oil and we talk about the strengthening dollar. That certainly helps with oil prices, but we're at a twenty-two-year high for oil inventory. Is this stuff -- is gas going to get cheaper as we go through the summer?

Blohm: That's a great question. I looked at, when the inventories were this high, where the price of crude oil was, and it was at, like, $22 a barrel. So clearly inflation is happening. As far as are things going to get cheaper; I don't think so. I think that the crude oil market knows that demand is going to be strong here and for half a year, we've been between 90 and $1.10 on crude oil prices and they've seemed to have found this happy niche of prices and supply and demand, so I think we're going to be stuck with these prices for a while.

Pearson: Let me ask you about gold because we get a lot of questions about. Obviously we don't track it directly on the program. We keep track of it week to week. The gold market has had a tremendous pullback, and a lot of people are saying put a fork in that one. What's your thought?

Blohm: Fifteen hundred is a very support good price support point. It's, like, the similar thing between $5 corn. It's the same type of major fundamental support. If that breaks, we'll probably see just the funds getting out of the gold market. But overall gold is still viewed as a safe haven, and so likely we'll see some buying and just come back in for the short-term. I don't know that we'll have any possibility to go racing higher. It's just not the hot ticket anymore, but it definitely should hold some good value.

Pearson: All right. So, gold folks, beware. Don't jump off the ship just yet. And finally real quick, with just a few seconds left, we talked earlier about what the USDA is predicting for an ideal yield. What kind of a number are you poking in? Do you think we'll see an El Nino, La Nina battle? Do you think we'll stay neutral? What do you think corn yield is going to do this year?

Blohm: Well, based on what my producers are already kind of telling me, so far things are okay. And definitely there's points where it is dry out there, but at the same time, I'm going to say probably 161 until proven otherwise.

Pearson: 161. Naomi Blohm, thank you so much. That will wrap up this edition of "Market to Market." if you’d like more information from Naomi on where these volatile markets just might be headed, visit the Market Plus page at our website. You'll find expanded market analysis, audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page, exclusively at the "Market to Market" website. Of course join us again next week when we'll examine high-tech efforts to limit chemical drift on the farm. So until then, thanks for watching. I'm Mark Pearson. Have a great week.

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