Market Plus: Naomi Blohm

Jul 1, 2016  | 10 min  | Ep4145 | Podcast

Podcast

Pearson: This is the Friday, July 1, 2016 version of the Market Plus segment. Joining us now is Naomi Blohm. Naomi, welcome back.

Blohm: Thank you.

Pearson: Happy 29th birthday, by the way! It's very exciting, we get you on your birthday.

Blohm: And it's Canada Day for all of our friends north of here. Two reasons to celebrate. Absolutely.

Pearson: That's right. Two reasons to celebrate. And as we talk this cotton market, a little reason to celebrate, continued that push to the upside. Going to continue?

Blohm: No. I think cotton is going to start to trade sideways for a little while longer. The December contract has been between 64 and 66 for a while. But the USDA just like everything else gave us a nasty bearish report and they increased cotton acres and the perception is that the yield is going to be fine because the weather hasn't been improving down there and the endings stocks will grow which also then we have Chinese marketplace and they're getting rid of all of their nasty cotton that they've had since forever. And so there's just not going to be a lot of room for this cotton to go. So in the short-term looking for it to go maybe from the 64 support area, if that fails all the way down to 60, but that should hold it for a while. Not any sort of an epic failure by any means but we've run out of reasons for it to go higher.

Pearson: Okay. How is China disposing of or utilizing their massive stockpiles that are three, four, five years old in some cases?

Blohm: I know and I don't get it. I wish we could have eyes there. That would help. But yeah I don't know how you can make the cotton work into clothing or what they're using it for, dog chew toys maybe, I don't know. But I just don't have any idea what they would be doing with it because --

Pearson: But they are trying to draw down the massive stockpiles.

Blohm: They are, just like they're doing with the corn, they're trying there too.

Pearson: Having much success on the corn side? I really haven't heard. I know their auctions were pretty poor to begin. Are they picking up?

Blohm: They continue to do the auctions but they continue to just be poor and so that's where we hear them back-dooring imports of corn from Ukraine. And so they're getting around the issue but they are I think doing as much blending as they can.

Pearson: Okay. Makes sense. That's going to take a lot of blending to get rid of all of those stockpiles. Now, we do have a bunch of questions here from fans and followers of Market to Market. We want to continue to get all of you to send in questions. As we go to the future and continue to work on this, if your question gets featured on Market to Market, we are going to ask you to check your mailboxes. We're going to try to find some way to thank folks for asking us good questions. So please keep it up. To start with, Glen in Bryan, Ohio is wondering, besides the weather, from now until harvest, which we talked about on the program, what will be our greatest risk or challenge in marketing this crop?

Blohm: The factors that we need to continue to watch would be South American production, how much are they going to be growing and planting based on all of the drama that continues to happen with the politics down there between both Brazil and Argentina. So that's going to be coming up next. The other things we have to keep an eye on are the value of the U.S. dollar, so ever since Brexit, now the value of the dollar is going to stay probably between 95 and 100, which is high and it's as high as it was this winter which doesn't make our export market red hot. We still export products but it's not going to be helping us by any means. So that's the other thing. And then of course along the way we've got the political excitement here in our country and what that would mean potentially to our trades that we have with other countries. So that's something to be mindful of too. So at any one of those times those issues could trump anything that is happening here, no pun intended, but yeah those are I would say the three things to really be watching right now.

Pearson: Alright. Dollar, South America and North America, the trade agreements that we have existent and --

Blohm: The politics that will ensue, yes.

Pearson: You bet. November is always an exciting time every four years. Alright, next question. Speaking of exciting times, this is from Roger, @RogerCooper62 on Twitter. Roger mentions that we have algorithmic computer programs that can trade 2 million shares, thousands of contracts, in milliseconds. And then he asks, do we have fake markets? Another way to look at that is, what does it mean for the producer, the actual producer or end user, when we see these huge moves milliseconds after a report?

Blohm: Yeah and that happened this Thursday, the soybean market was down and up within a blink of an eye. But what happened as the end result is that the marketplace found its path. So the algorithms and things like that, it's fun for day traders and it's fun for people who are opportunistic on those little moments. And so that is for those type of people. But in the end the market finds itself and so I don't think it's anything that's going to be bad going forward because supply and demand usually wins out in the end.

Pearson: Okay. So fundamentals still happen or technicals, people take a breath before they trade or continue to do that is what we should be saying.

Blohm: Yes.

Pearson: Alright. Next question, we didn't get to spend a lot of time on livestock in the program. Doyle in Alma, Arkansas is asking, will livestock prices be high or low by the end of summer? Let's use today as a benchmark. Are we going to be higher or lower come end of summer?

Blohm: Well, I would say for the next month sideways. My fear is that we'll actually be a little bit lower come the end of August, not drastically lower, but lower because we have cattle, we have hogs, we have poultry, we have a lot of protein available, there's not a supply issue there. And demand domestically is current and it seems to be as current as it's going to be. So the fear is if our export market dwindles because that is what is keeping the hog market alive. And, as I said on the show, our cattle exports are actually up 2% from year ago levels. So if the dollar goes higher, which it probably will, it's going to affect our exports a little bit, which then could attract some technical selling and if that $110 area fails on the charts for cattle it's going to be a quick fall technically speaking and then same with hogs. If it ever breaks kind of that $82 to $80 area it could make for a quick run lower but nothing that's going to make it fall out of bed. But I do have a little bit more of a negative bias by the end of August.

Pearson: Okay. And that $110 level on live cattle, we were right there at the close of last week, $110.78 and a half so it's --

Blohm: It's a big line. It's a big line.

Pearson: Once we break through and race down towards $1 is that pretty strong support? Would we expect that to hold for a little while?

Blohm: Yeah, then we see it trade between $1 and $1.10 and then do some sideways trading from there until it sees if demand picks up because of the cheaper levels and then just to take a look at what the dollar is doing after that time. But yeah I would say a little bit negative.

Pearson: Okay. Now a question we didn't get, it didn't get sent in, it was just talking to a neighbor of mine. Friday we saw the corn market drop, I forget where we closed, down 6 cents, 4 cents down, feeder cattle were off $2.50. Why would that happen? What would cause that separation?

Blohm: They were behaving properly earlier in the day with the cattle and feeders being higher and I saw that also and I'm not sure is the answer. I didn't know if it is was just maybe position squaring ahead of the holiday weekend was my best guess. I didn't hear anything bad that happened for cattle today by any means, I didn't hear anything that was bad for cash or anything like that.

Pearson: I'll tell you what it was, Naomi, I had a calf. I had another calf this morning so the market is looking at all that --

Blohm: Flooded with supply.

Pearson: All of this supply. Okay, so probably some kind of technical getting ready for the weekend.

Blohm: That would be my best guess.

Pearson: Get out there and grill those steaks, grill those burgers, top them with cheese.

Blohm: Yes.

Pearson: Now we have a final question for you, Naomi. We're asking each of our analysts to break down and define or explain concepts that get discussed quite frequently in the ag media. And given that this was report week, we're asking you, why do we monitor stocks reports? And how do stockpiles rise after a harvest is long completed?

Blohm: Stocks and ending stocks are the most important factor in USDA reports period in my opinion. And the reason it's so important is because obviously it assesses where the demand is versus the supply. But it's not so much the ending number that you get on any report or what the ending number is at the end of the crop calendar year, it's the perception of where it's going along the way because, again, this is the futures market. So we're trying to trade that perception of what's going to happen in the next month for the future. So, like right now when we're talking about the grains, we said on the show if the weather turns hot and horrible now the perception is that yield is down. If the yield is down and then you plug in all the other math about acres and demand, makes the perception that the ending stocks get tighter. So the fear of not having food to feed the world makes the price work a little higher and keeps everybody on their toes, it makes South America think about how much they're going to be planting going forward. So that's the one part of the question. Can you ask me the second part of the question?

Pearson: How do stockpiles rise after a harvest is long completed? How can we see quarterly stocks increase quarter on quarter if we've been consuming?

Blohm: Ask Darin Newsom. I would say it's the same answer that what he says all the time, I think it's tweaking of balance sheets to keep food cheap for the world.

Pearson: And we will have Darin Newsom on next week, so tune in and we will ask Darin that exact question.

Blohm: I defer to him.

Pearson: Alright. Naomi, thank you so much for joining us.

Blohm: Thank you.

Pearson: Thanks to all of you for sending in questions. Please continue to do so. Keep watching. As we move on remember if you get featured on the program we will be sending you something. And if you believe in this service, if you believe in Market Plus and Market to Market, it has been provided every week for the past 41 years, go to iptv.org/markettomarket, click on the donate button there on the top of the page and help support future editions of the program. Thanks for watching and have a great week. 

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