Pearson: This is the Friday, January 31st, 2014 version of the Market Plus segment. Joining us now is Naomi Blohm. Naomi, welcome back.
Blohm: Thank you.
Pearson: We've got a lot of questions this week on dairy prices. You are our resident dairy expert. Peter inAmes,Iowais curious, where do you think milk prices are going to go? And is this a good time to expand the herd?
Blohm: Okay, that's a really good question. For now, milk prices will stay firm. So firm means for front month contracts that maybe we see it touch back down to $20. It's hard to think that they're going to go much higher from here. The market is just overbought and this is one of those prices where you're thinking okay, well, can the consumer demand really keep up with us? And because production is so strong right now, if there's any waiver at all in demand as far as the export goes, we'll see the prices just fall apart. But for now, because the export market is strong and we have no reason to suspect that it would do anything otherwise, the dollar still is low and as far as the global economies growing, of course, they want protein and they like cheese. Who doesn't like cheese? And who doesn't like to have the other proteins that are out there? So we're still looking for firm prices but it doesn't mean be complacent. And I would be hesitant to expand the herd much now just because it's a demand led market and it's not that we have a lack of supply. However, keeping an eye on the drought out west and withCalifornia, it is something to be mindful of. So it would be something where if you were to expand the herd, move so cautiously, really cross your t's and dot your i's and know what you're doing. So the milk market has cycles, of course, and it seems to be every three years or so. So you would think that something would happen and prices fall but for now we're really looking for just firm prices.
Pearson: Now, you mentionedCalifornia, big dairy producer out inCalifornia. Have we heard much if the market reacted much to herd liquidations? Has that been an issue yet?
Blohm: You know, the dairy herd liquidation right now is actually off to the slowest start that it has been off to in years. Of course it is because the price of milk is so bloody high. So why would you change your slaughter if you're going to make so much money? So it might be an issue though, if they don't get rain out there in the spring, in terms of hay prices and things like that. But at least the corn price is cheap enough that it's making it sustainable for them. But it is a very severe drought situation so it's something to be monitoring in the months to come. And that's I guess all we can do is just kind of keep an eye on it.
Pearson: Alright. Now, you touched on -- Chris inWisconsinwas asking about dairy exports remaining strong and it looks like they most likely will.
Blohm: Yeah, absolutely.
Pearson: Now, this week in the broader marketsChina's economy reportedly started to slow down, we saw that affect the Dow and it did affect cotton prices a little bit. Talk to us a little bit about what happened in cotton.
Blohm: Yeah, cotton has just blown off current supply and demand fundamentals. It is more just focused and driven by macroeconomic signals right now and that is kind of how it has been. It's more like being bullied by these outside markets. So the thought is that people, if prices around the world fail in terms of like economies and things falter they're going to choose food over clothing. So that is why cotton just can't continue a rally or anything like that because there's concerns that if the global economy is still a little faltery why would we have demand for cotton in terms of clothing and that type of a thing. So for now maybe cotton this spring if we have sort of like a fight for acres or anything like that we could see something. ButChina, demand right now isn't that strong so it's a market that will probably just stay sideways and mostly still driven for now by the macroeconomic conditions.
Pearson: Okay. Now, we talked during the show about the record high prices we're seeing in meats, we've talked about record high in the dairy and Mark inEnterprise,Kansasis curious, people are starting to get concerned about grocery prices as we look to the future. What is going to happen when the consumer starts to feel these prices? Is that a major headwind?
Blohm: It is going to be something that affects it. You'll hear consumers and they'll complain about it. It will become the news stories on the national news and that type of a thing. But overall if you have a diet that has milk in it and especially one that has cheese in it, you're not going to cut back your milk consumption really. You're drinking your milk. Cheese you might cut back on that a little bit. But overall my concern would be more that the cattle market would be affected versus the dairy market because that is getting higher at the store, it really is. And so that is something where you are going to look for a cheaper substitute. If I'm grocery shopping I am going to look at the price on the package of beef and I'm going to say, I guess we're going to have pork tonight kids instead and do something like that. So that is something to be watching.
Pearson: Okay. Now, we've got a question from Phil inOntario,Canada. He's asking, we're going to see a record Brazilian soybean crop is what it looks like, we're also going to probably then see record port congestion down inBrazil. Is there troubles getting the crop out of country going to have a significant impact on our pricing?
Blohm: You know, that is also one of those things that is the same old song and dance. We hear it every year and we have already heard rumblings of the dock workers there starting to strike. So it is something where the port congestion is an issue because they are going to have this monster crop to get out and it's going to take a while. It's going to be bottlenecked. But right now the world is knowing that the crop is there, you just have to be patient, it's going to come out. So it's not anything that's going to be a market mover for price to go higher. But it is something good for news fodder and to keep talking about and looking at but it's not going to be a market mover.
Pearson: Alright. Before we let you go, Naomi, Sunday is the Superbowl. Do you have a pick?
Blohm: By 3.
Pearson: By 3.
Pearson: Alright, thank you so much, Naomi, appreciate you being with us.
Blohm: You bet.
Pearson: Thanks to all of you for your questions via Facebook and Twitter. Please continue to send them in and we'll get expert analysis right to you. Have a great week.