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Market Plus: Naomi Blohm

posted on March 22, 2013


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Pearson: This is the Friday, March 22, 2013 version of the Market Plus segment.  Joining us now is Naomi Blohm.  Naomi, welcome back.

Blohm: Thank you.

Pearson: We got a little short on the show talking about hogs.  We were talking about there's some bearish sentiment.  They've been in a slide.  They're not getting a whole lot of love. Would you be able to go into a little bit more detail, what sort of price ranges we might be looking at here in the short-term?

Blohm: Absolutely.  So on the April contract we're down near the 78 area, it's really oversold technically.  If there was any positive news today it would have allowed for a nice little technical bounce come Monday.  But we didn't get the news.  So we might see the market slide a little lower yet, potentially down to 77, 76.  However, on a retracement point we might see the market go back up to the low 80s, mostly due to short covering and then any sort of positive cash news would really get the market hopping fast.  The other thing that is happening in the hog market right now is that our exports are not quite as strong as they were and, again, it's because of that U.S. dollar being higher.  Now, Japan is one of our biggest customers.  They take 20% of our pork product.  And their Yen has come down and with our dollar up it's not quite the best thing for them to be importing from us.  So I think they're only buying what they need to get buy just in the short-term.  So the hog market unfortunately has a little bit of a battle ahead of it but I do think that there's going to be a light at the end of the tunnel.

Pearson: We will start to see demand pick up once we kind of get through this whole period --

Blohm: Yeah, absolutely.  And the other thing too is that in the stores the product is going to really become cheaper and the consumer is going to see it soon and then once the grilling season happens we just need some heat.  We will definitely see people firing up those grills and the demand will pick up very quickly.

Pearson: And you think for consumers there's still going to be a pretty good price break between that beef and the pork at the grocery counter.  I mean, pork will be the discounted protein?

Blohm: Absolutely, I think so.  And what is interesting right now is that chicken is the most expensive. 

Pearson: Interesting.

Blohm: Isn't that interesting?  It really is.  And so there's been discounts on the beef and then the pork will be cheapest and I think because pork and beef have been so expensive for so long and chicken has been the cheapest people are ready to go at the pork and the beef again.  We just need the heat to make it happen.

Pearson: Get a little something different on the plate once it is worth standing outside to grill, which it doesn't look like that's going to happen in the next week or two.

Blohm: Right, right.  No, it's not going to happen soon, right.

Pearson: Okay.  Well, now, we do have some great questions from a lot of our viewers and one of them, we touched on this a little bit, it comes back to dairy.  Kristen in Cameron, Wisconsin is asking, will dairy exports improve?  And I know we talked about there's going to be some challenge with the dollar.  But looking at kind of a general worldwide demand picture it is leaning in favor of U.S. dairy producers?

Blohm: Yes, absolutely.  And with the New Zealand drought that's going to also put more favor on the U.S. market.  The other thing too is that in India and China and some of those developing nations, you know, they do have an increasing appetite for cheese.  They have an increasing appetite for other things like that.  But if their economies are slowly sputtering then it will affect their demand also.  But I think in the short-term, because cheese is good, people are going to want to buy it.  But we'll continue to see our exports increase.  It won't be a fast increase, it won't be anything but just a slow steady climb.

Pearson: A slow steady climb and with the decreased production how long does it take typically to get that production -- how long would it take to get us back up to 100% production?

Blohm: I'm not totally sure but I would say probably two to three months would be my guess.  And, of course, weather affects that as well.  And a lot of the cattle right now are not totally being fed their normal rations because of the price of feed so I think that's part of the reason that we're seeing lower production plus it was a harsh winter everywhere.  So those two things happening.  So as soon as we can get the grass to grow, the hay to come up and get some normal nutrition back in these animals then that will probably help production as well.

Pearson: We'll see production go back up.  But for the short-term anyway, couple of months we'll be looking at decreased production, hopefully continued increased demand in dairy.

Blohm: Yes.

Pearson: All right.  Now, Shannon is asking, how much corn demand has been destroyed?  And is there any strength or gas left in the tank for an old crop rally?

Blohm: Um, that's a really good question.  As far as demand being destroyed it's only a short-term destroy because corn is something that will be kind for a very long time.  And as soon as prices go a little lower I could absolutely see China coming in and buying the most corn they've ever bought just because of the value of corn as a product.  So it is short-term demand destruction, not long-term by any means and as far as price rally we have no reason to have corn go over $8 right now.  For that to happen it will be summer weather which we won't know until June and July. 

Pearson: Okay.

Blohm: Another thing to keep in mind is that last year we got the entire crop planted in three weeks, okay.  So when the heat hit in the summer the whole crop got decimated at once.  This time the planting is going to be a little bit more spread out so when the heat comes this summer maybe one portion will get burned up but the rest of it won't.  So it's going to be a very different growing year which is going to keep everyone on edge.

Pearson: We'll have a lot more distributed risk than we did last year.

Blohm: That's a really nice way to say that, yes.

Pearson: Well, thank you.  Sometimes I get lucky and string the right collection of words together.  And so that's a great question and kind of leads into a follow up.  Jay in Mason City is asking, and I'm assuming your answer is probably going to be no, he's say, should I empty the corn and bean bins?  Got a lot of corn in storage.

Blohm: I would on any sort of a little bit of a rally here, again, watch the $7.45 futures because the basis is different for everybody.  Someone in the country is going to get lucky and get $8 but somebody else won't.  But $7.45 is the number.  Should you empty the bin?  No.  No.  But you should sell something because it's really good value.  But definitely hold onto something because what's interesting too is that basis all the way out to September is still positive and we don't ever have that historically.  So that is telling us that the market already knows that we are not having as early planted crop and so they are wanting to stagger supply out as far as they can.  So there's a whole lot of room for prices to potentially go higher barring weather circumstances later though.

Pearson: Okay.  And now Jay asked an interesting question about emptying the bins at least by September, October, November of last year.  I've had the chance to get to talk to a lot of producers in the past couple of weeks and they've heard the headlines 99 million acres, 163 bushel trend line yield, which we'll see on that one.  But even if we get down 10% below trend line yield, we get into that 140s with 99 million acres potentially we'll be looking at, what, a 1.2 billion carry out next year?

Blohm: No, actually if we have 99 or 98 million with 147 yield assuming demand is right now it still has carry out at over 2 billion.

Pearson: 2 billion.  Okay.  So substantial carry out.  Would it be worthwhile for them to empty the bins and plan on carrying for a longer term on this new crop for anything they don't sell here to begin with?

Blohm: It's not a bad idea.  Yeah.

Pearson: If they could afford it, if they've got the -- so that's an option for the new crop guys depending on where weather goes and how this year shakes out.

Blohm: Yeah, absolutely. 

Pearson: All right.  Phil in Ontario is asking, he's got two questions on here that I think are very interesting. The first one, what specific numbers, crop stocks numbers should we be prepared to zero in on next Thursday?  Is there anything that really jumps out at you as having a major impact on the market?

Blohm: Okay.  Stocks.  Okay.  So the quarterly stocks for the corn we're expecting the number to stay small, we're not expecting it to grow.  It probably won't get too much smaller.  So we're not looking for anything there.  The one that is going to jump out would be wheat.  That has the potential to get smaller again.  Now the USDA acknowledged that in the regular monthly supply and demand report just a couple weeks ago.  This quarterly stocks report is going to emphasize that also because we're feeding wheat and we're using wheat in ethanol and we actually had some strong exports lately.  So that will be the friendly thing.  And as far as the soybean number goes, same thing, it's probably going to still show a tight number because our exports have been so strong.  But I don't think the surprise is going to be on the quarterly stocks.  It will be the acreage numbers that make the market move next week.

Pearson: Okay.  All right.  So those will focus on wheat for stocks and then acreage numbers for the rest.

Blohm: Yes, yes.

Pearson: All right.  Keep an eye on that come Thursday.  Phil's other question is interesting.  He wants to know, how is the cheap Ontario corn that we're importing, it is depressing basis in Michigan and Ohio.  How long is that going to continue?  What is driving that this year?

Blohm: That's a great question and I honestly just learned about it this week myself.  And so the basis had been strong in parts of Michigan and Ohio and business people do business moves and it's nothing personal, it's business moves and so they are looking for corn wherever they can get it, even if it means bringing it in, you know, from Ontario through Michigan, they're going to do it.  So now there is a little bit of a supply.  You know, it's nothing where it's going to just save the day and just rescue this whole situation but it is enough to just depress the basis.  And how long will it last?  It will last as long as it needs to last.  So it could be through the summer.  If there is supply available there it's going to happen.  And like down in Virginia and in the southeast part of the state, of the country they're going to be importing from South America.  So the ending stocks are so tight yet that those things are not something that is going to break the market and make the market fall apart but it's just enough to say we don't have a reason to go above $8 because where there's supply they're going to get it.

Pearson: And so for producers in that area, really keep a close eye on the cash markets because they're going to be different than we're seeing in the rest of the country.

Blohm: Yes, absolutely.  Absolutely.  Basis -- and it's not only tracking the basis in your backyard and in your areas, I think it's really important to be keeping an eye on what is happening all over the country because then that affects what is happening at the Gulf, it affects what is happening, you know, in Virginia where they're importing and all those types of things.  So you have to watch the whole country.

Pearson: Okay.  We've got one final question for you.  Ben in Cedar Rapids, Iowa is asking, where's the bottom of the fed cattle market?  Hopefully we've seen it.

Blohm: I think it's here.

Pearson: Naomi says we've seen the bottom and we're all thankful for that on the cattle production side.  And then he asks, Ben is asking, why has the fed cattle market been continually dropping over these past few weeks?  Just sort of as a retrospective what caused that?

Blohm: I don't know.  I've been asking the same question and I don't know.  I would think that it would not be the case because there is just not that supply.  And so in my thinking it would be like the best commodity to own in a sense but I'm not sure.  I can't think that the demand is down so much that it should make it fall.

Pearson: How are exports on beef?  Have they been picking up at all?

Blohm: They're a little lower yet but they're not, you know, like, you know, like mad cow or anything like that, you know so they're still strong overall but just not quite as strong as they were because kind of like corn people are only buying the bits that they need.

Pearson: Sure.  Sure.  All right.  So we've seen the bottom, now we just need that demand to pick up in order to climb this market.

Blohm: Yes.  Yes.

Pearson: Well, thank you so much Naomi, really appreciate you being here with us today.  And thanks to all of you for sending in your questions via Facebook and Twitter.  Please continue to do so.  We'll continue to have experts answer your questions.  So with that, thanks for watching the Market Plus segment.  I'm Mike Pearson.  Have a great week.


Tags: agriculture analysis cattle commodity prices corn economy hogs markets Mike Pearson Naomi Blohm news soybeans wheat