Pearson: This is the Friday, September 6, 2013 version of the Market Plus segment. Joining us now is Naomi Blohm. Naomi, welcome back.
Blohm: Thank you.
Pearson: We talked a lot of stuff on the show this week, a lot of big news coming out. I'd like you to get into a little bit more detail with some of the events coming up this month. And I think we've got some good questions that can help us shed some light on that from our viewers. Phil in Ontario, to start us off, he's asking a question we've been talking a lot on this show, is investment capital coming back into the ag commodities or to soybeans or none of the above? Where is that fund money moving?
Blohm: And right now the answer is we aren't sure because the investors are getting nervous about Syria and right now we've seen a lot of money starting to come out of the stock market, money going back into gold and I almost wonder if investors are going to wait and see what the Fed announcement is regarding the bond buying program. Right now they have been buying 85 billion in bonds and so people are expecting them to drop it probably down to 75. So that is okay, we've been kind of pricing that in, factoring it in, the investors are okay with that. If the Feds come out and say, oh the economy is better than we thought and we're going to drop it to 55 billion then the investors are going to panic. It's going to affect the dollar, it's going to affect the stock market. We might see more people put their money back into gold, not necessarily yet into commodities unless there becomes a hot commodity story to talk about. And then the other part of it too is that at the end of the month Congress has to hear, decide what they're going to do about the U.S. budget and all of those types of things. So that affects investors' confidence. Add onto it we have this big election in Germany. And the reason that this is important is because Germany is the largest economic powerhouse in Europe right now and so the world is confident with the current chancellor and they feel if for some reason she is voted out then that just puts the whole Europe issue back front and center to where people are now nervous about the European economy and that becomes a new topic again. And so to answer the question, we're not sure yet. It just depends on all of the reports that come out this month to see how investors feel about where they want to put their money.
Pearson: And that German election, that middle week with the Fed decision and the German election there within a 7 to 10 day span, the market is treating that German election as almost a referendum on Germany's ability to bail out Greece and Spain and so forth. So that could be headline news again, if it changes.
Blohm: Yes. If it changes.
Pearson: If Merkel gets re-elected or the German parliamentary system, how that is divided, she's still in power, relatively stable.
Blohm: Yes, that would be a plus for the economy and then that could just let everyone focus back on what's happening in the United States along with, again, the global issues with Syria and how that could affect crude oil. So it is just going to be a bumpy ride all month long.
Pearson: And now you mentioned crude oil, that has been a hot topic all week. And a lot of people are confused. Syria is not a major producer, nor a major consumer of oil yet we continue to see the price climb it seems week over week. What is the interpretation there with crude oil? And is it going to stay this high until a resolution is determined about what to do with Syria?
Blohm: We will absolutely see crude oil stay above $100. Right now we're in a range between $100 and $110 and that is warranted with all of the issues happening there. And you're right, Syria is not a nation that is a producer of the oil. It's just to get to Syria and to battle around Syria you have to go through or have allies within all of the countries that surround it that are oil producers. And, of course, it just sets up a huge issue between the allies that we have there, the allies that we used to have there and all of that. So that is what is making people nervous --
Pearson: Sort of regional instability.
Blohm: Exactly, yes.
Pearson: Okay, so that will definitely be headlines throughout the month as that goes on.
Blohm: Yeah, and the President is going to be talking on Tuesday now. He's going to do an address Tuesday night to the nation with his remedy for what we're going to do. So look for that Tuesday night.
Pearson: Could be a market mover come Wednesday.
Blohm: Could be, absolutely.
Pearson: Alright. Now, the other big topic, of course, in farm country, especially in the middle part of the Corn Belt, is this dryness. We heard Elwynn on the show talking about flash drought, whatever we end up calling this immediate dryness. We've got a couple questions here reflecting different issues. Mark in Kansas is curious about how we've seen this continued slide in the grains, particularly in wheat and he is curious, this dryness, as winter wheat producers get ready to start planting, is the market taking this dryness into consideration for next year's wheat prices?
Blohm: It hasn't yet but it will probably soon and the reason is because I think first they're just trying to figure out what's going to be out there for what's harvesting for the corn and beans. And then once we get that figured out then we can start thinking about what is happening in Kansas and the other winter wheat growing areas. So it will become news and I would think that we maybe, probably need to see that Kansas wheat market have a little bit of a pop just to say hey farmers, you know, we recognize what is happening to you and please still plant your wheat. But at the same time it's not anything that is going to lead the wheat complex higher. But it will be noticed soon. It will be noticed soon.
Pearson: And the reason it won't lead the wheat complex higher, as you mentioned on the show, just the large global supply. That's going to continue to put a hamper on this market probably through the next year do you think?
Blohm: Absolutely, yes.
Pearson: And then we'll just have to see where it goes after the year. The next question, Cheryll from Wisconsin, in fact, she is in the drought stricken part of the state and she is talking about how just 15 miles away they've got great looking corn, it's in wonderful shape and we're hearing similar stories in Iowa and in other places. How is the market interpreting these very substantial isolated weather differences throughout the Corn Belt and bean country?
Blohm: Yeah, it's a tricky situation because I do have some clients in that area and I've seen pictures of how bad that drought is and when they're chopping corn and they're only getting 40 bushel yield with the silage it's really telling a story. And when it is just an isolated pocket like it is in that part of Wisconsin, it's something that your local cash marketplace may help you with, basis might become a little stronger for you because they have to then draw out further to bring the crop in. But at the same time unless the drought is worse in Iowa that is what is going to be what makes the market move higher because, of course, all the corn grown in Iowa. So unless the Iowa drought is worse than people are thinking then unfortunately the other little isolated pockets are old news and hope you have good insurance.
Pearson: Right, it will be a small crop, small price situation for some people potentially.
Pearson: Now, that leads kind of to the next question. Has Dec '13 corn made its low? What are your thoughts?
Blohm: This $4.50 area is very important. I've talked about it a couple of times now and if it can continue to hold then absolutely it is the low. But right now the corn crop, if the yield overall stays above 150 and trade is now thinking it's probably around 152 or 153, if it stays above 150 we easily have corn prices to stay above $4.50 futures without a doubt, no question. If the yield at all is starting to feel like it is nationwide coming in below 150 well that's when the market will panic and we'll easily head right up to $5.00, potentially even to $5.50. At that time maybe we would see some sort of an acreage battle post-harvest when everybody has to buy their seed, that could push prices even a little bit higher yet. But the thing is with the corn and the soybeans the soybean ending stocks in the United States are so small, so small and now they're expected to be smaller yet for the next year. So the beans have to buy acres already for next year so corn has to keep in check with it. So I would give it 80% odds that yes, this is the low. But depending on the yields it will tell us how much higher we can go from here.
Pearson: Okay. And you mentioned beans. We've got a couple of questions. Shay in Ames and Martin in Carroll, Iowa are asking, we've got a lot of volatility lately in the bean prices. Have we put in the low looking at the very bullish underlying fundamentals of the soybean market?
Blohm: The low has happened, yes, but I don't know how much higher it can go because $13.50, $14.00 beans is very appropriately priced for right now, absolutely. And like I had said earlier, if the yield looks like it's going to be lower than 40 then we can have $15.00 beans. But 40 bushel beans keeps the balance sheet in check for just right now and that is what the market is watching. And so that's why I'm thinking if you have beans that you're comfortable to sell right now, do make some cash sales because it is the highest that this November contract has been in two years and the market is overbought and it will take confirmation of really bad yields to make the market go higher and you can reown quickly if that's the case. But at the same time don't pass up the gift that is in front of you now if you're comfortable with what you think you have in your back yard.
Pearson: Certainly. Certainly. Lock in some profit when it's available.
Pearson: Now, before we let you go, one of the topics we didn't get a chance to discuss on the show was cotton after that big week, big move down two or three weeks ago, cotton has been relatively stable, a little bit lower. What are your thoughts? Where do you see us headed?
Blohm: Probably see it sideways for a little bit here. We have our U.S. harvest coming up so that may pressure things a little bit lower. What is in question now is the Chinese demand because part of the rally that we had a month ago was that everyone was thinking, oh, China is going to buy, buy, buy and they had been but now they have just cut off and they've stopped. And the India exports that they had been doing to China are dropped substantially also so it's not just the United States, it's other countries around the world and so when that demand just stops, of course, the price stops too. So we'll see probably prices stay sideways because in South America they're going to be planting 5% more acres of beans next year so that means they're not planting cotton and with the acreage fight that we need to have here cotton probably is going to need to fight for acres as well. So I'm not looking for a disaster in cotton prices by any means but sideways seems the likeliest scenario for now.
Pearson: And that will allow it to buy the acres needed looking at this lower demand.
Pearson: Alright. Thank you so much, Naomi, for taking the time to be with us this week.
Blohm: You're welcome.
Pearson: And thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we will continue to get expert answers. Have a great week. Thanks for watching.