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Market Plus: Naomi Blohm

posted on December 13, 2013


Pearson: This is the Friday, December 13, 2013 version of the Market Plus segment.  Joining us now is Naomi Blohm. Naomi, welcome back.

Blohm: Hi, thank you.

Pearson: One of the topics we didn't get a chance to discuss on the show was cotton.  Can you tell us a little bit about where the cotton market is headed?

Blohm: Yes, cotton had a tremendous rally this week and part of it was due to technical buying, the other part of it due to concerns that they're not going to be able to find high quality cotton and then harvest is still kind of not wrapped up in some parts of the country.  So the market looks, where it rallied up to  today and earlier this week is about right around 100 day moving average on the charts.  And so this is nothing that probably is going to be long lived and if you have cotton that you need to sell it should be sold because fundamentally there is still a lot of cotton in the world that is just hanging over the market and will keep the market on the defensive.  So that was just the gist of it this week primarily mostly technical buying.

Pearson: Now, when you say having a hard time sourcing high quality cotton, is it weather related troubles or what are the problems we're encountering in the cotton crop?

Blohm: Part of that is weather related and interesting is that in China they have actually amassed this huge cotton pile, right, and it's about 40% of the world's production just sitting there.  And it is from 2011 and it is really not good quality by any means so even though they have it nobody wants to use it.  And then the millers there are not buying it.  They're just disgusted by it.  So the world needs some better cotton right now.

Pearson: Interesting.  So China's global stockpile is perhaps less valuable than we had all been anticipating?

Blohm: Well, and then that might be the one thing that could potentially be supportive in the coming months, maybe people would say forget it and so all that stockpiling they did was maybe for nothing.

Pearson: Right, maybe 40% we effectively wipe of the world books.

Blohm: Wouldn't that be just a big difference in the fundamental situation.

Pearson: Cotton might buy some acres back from soybeans.

Blohm: You never know.

Pearson: Alright.  Now, speaking of soybeans, Doug in North Central, Iowa is curious and we touched on this a little bit on the show, but he is saying what to expect from old beans?  And then will we see better new corn prices next year?  How do the charts look?

Blohm: Okay.  So for the old beans we have support at $13.00 again and that is something to watch and so you need to watch that on the January futures primarily right now and that is until the first couple parts of the New Year.  And the important part of the New Year is the big USDA report that we're going to be seeing because that is the summary of the whole year.  And there's some people who feel that the ending stocks are even tighter than what the USDA just said.  But the issue is that it's not going to matter too much because it may keep our domestic prices firm into the New Year, it could keep us firm through February but it doesn't by any means mean that we have to see the market go higher than $14 and, again, the issue is because of this huge South American crop that is going to be harvested at the end of March that can make its way out into the world.

Pearson: If prices get too high end users will just hold off, shut down for maintenance, the typical things.

Blohm: Yes, that’s what we'll see.

Pearson: And then on new corn prices?

Blohm: I have a little bit of optimism there that we could maybe see even the December contract because of course with the carry that it has naturally that might be also a market that gets up near $5.00 futures.  I really am of the opinion that 2014 is a year where we start off and we just trade both sides of cost of production probably for three or four months until we have a better idea of what actually is going to be planted because then when we have an idea of those planted acres we can then do the math from there to pinpoint where the ending stocks will be.  But the moral of the story is that when you see any kind of a rally this winter you need to price it.

Pearson: Right.  Get some sold, get prepared.  Alright.  Now, we've got -- on the show you talked about how China's rejection of GMO corn has sort of spooked the market a couple of times in the past few weeks we've had that news.  One of the topics that a lot of producers, especially in the Corn Belt have been talking about, has been China's incredible buying of ethanol coproducts, DDGs, gluten, these sorts of things.  What does the future of that look like?  Is that tied at all to the GMO issue?

Blohm: It is tied and so far China has only rejected the corn cargos but there is absolutely concern with the DDGs because they buy so much of ours.  And there's even talk that I read earlier this week that said that there's some that are going to be arriving into their ports like next week or the week after so we're all just waiting with bated breath to see are they going to reject it or not because if they do reject it that might be one of those things that people in the marketplace say alright, forget it, corn is going lower and then they just sell it down.  But at the same time if they don't reject the DDGs then that really to me confirms that they're playing games and that they need the product but they're just trying to do what they can do to keep the prices as low as they can for right now.

Pearson: Okay.  So that is -- we're just going to have to watch that play out throughout the rest of this spring. Okay.  And in the meantime it looks like they're projected to continue buying coproducts.

Blohm: Yes, for now.

Pearson: Now, as a Wisconsinite you are our native dairy expert.  We saw the December dairy has been in the $19 range, December Class III milk for a while.  Is that going to hold longer term?

Blohm: This price area will hold for now and the reason is because of the demand fundamentals.  So our export market still is on fire and that is what is carrying this market.  It's not a supply issue, it is demand driven.  So our exports overall from a year ago levels are up 17%.  The whey market exports are up 6%.  Cheddar is up 16%.  The powder market is up 54%.  So the demand is all going to China primarily and also to Mexico.  So we're going to probably continue to see that.  On a side note, with China easing up on their one child policy we'll probably see more powder demand heading that way.  And so if you are more into the dairy market there's Class III milk which is what we talk about and then there's Class IV milk.  Class IV milk is what the powder market is based off of and that actually has a $3.00 premium to the Class III market and that's not normal.  So that just really shows the demand that the powder market has right now.  There is a milk production report next week.  They are expecting to show larger supplies of milk because production has been so good right now.

Pearson: Domestically?

Blohm: Domestically, yes.  And so but because the demand, it's going to trump the production report.  So we're going to continue to see milk stay between $18 and $19 for now.

Pearson: Now, one of the concerns is that Australia and New Zealand I believe we're seeing growing dairy herds there.  Is that going to eat into us in terms of filling our export demand any time in the next year?

Blohm: It is one of those things to watch.  So far it actually hasn't though and part of it I think is that they just were, the drought had hit them so bad that they just needed to replenish everything at home first.  But we will definitely see them start crawling into the marketplace.  So if they do take some of our market share that is something that will affect us.  Also we have to keep an eye on the dollar with all of this fiscal stuff because that of course affects our exports as well.

Pearson: Certainly, so keep an eye on the $19 through the first quarter perhaps of next year?

Blohm: Yes.

Pearson: Alright.  Now, one final question before you go, Mike in Oskaloosa has a little more detailed question on 2013 corn.  If you haven't already sold, keep an eye out for the $4.96 level.

Blohm: That would be like best case scenario, yes.

Pearson: Okay.  Are there any other tiers between the $4.25 we're at now and the $4.96 to start shooting for?

Blohm: Mm-hmm, I would do some scale selling upward.  The next target was $4.50.  And even though the corn price this week had a nice little move higher and then we set back, we kind of finished unchanged on the week but last week the weekly charts for corn posted a bullish key reversal which is the first big bottoming signal we've seen in a long time and the market is oversold. So this may be a short-term technical bottom.  We'll see if we have any follow through momentum now into the next week.  But where you want to do your targets, first one is $4.50 futures price.  So wherever your basis is, $4.50 is the futures price.  If we can get through $4.50 that $4.96 number I think is absolutely an attainable target.  At this time I'll be honest, I would give it only 10% odds so don’t just sit around waiting for it.

Pearson: So plan on 90% sales at $4.50.

Blohm: I would say get aggressive, yes.

Pearson: Because that is another question is at what percent should I be selling?

Blohm: Get aggressive.

Pearson: Alright.  Well thank you so much, Naomi, appreciate you taking the time to be with us.  And thanks to all of you for sending us your questions via Facebook and Twitter. Please continue to send them in, please continue to tell your friends to follow us on Facebook and on Twitter and on the web and we will continue to bring expert analysis straight to you.  Have a great week and Happy Holidays.


Tags: acreage agriculture analysis basis commodity markets commodity prices corn economy markets midwest Naomi Blohm new crop grain soybeans USDA weather wheat