Market analysis with Sue Martin

Market Analysis: Naomi Blohm

Jun 29, 2018  | Ep4345 | Podcast

Podcast

Pre-USDA report positioning, trade non-negotiation and weather all factored in the commodity markets, which mostly rallied Friday. For the week, September wheat fell 3 cents, while the nearby corn contract declined 7 cents. USDA reported more soybean acres than corn for the first time since 1983. The market initially rallied Friday, but reversed course to end another brutal week, as the August soybean contract lost 37 cents. August meal tumbled $9 per ton. In the softs, December cotton continued to fall, losing $1.38 per hundred weight. Over in the dairy parlor, July Class III milk futures lost 9 cents. Much of the livestock sector rallied late week as the August cattle contract added 83 cents. August feeders put on $2.13. And the August lean hog contract improved $1.07. In the currency markets, the U.S. Dollar index gained 17 ticks. Crude oil rocketed higher by $5.57 per barrel. COMEX Gold weakened $16.20 per ounce. And the Goldman Sachs Commodity Index added 16 points to settle at 487.10. Joining us now to offer insight on these and other trends is one of our regular market analysts, Naomi Blohm. Naomi, welcome back.

Blohm: Hi, thanks Delaney.

Howell: We had a big report day today. We had the acreage report as well as the quarterly grain stocks report. So let's just take it overall here. What were your thoughts about the report?

Blohm: At least the report wasn't bearish, so that was the biggest takeaway from the whole thing. Looking at the big picture, the quarterly stocks numbers all came in truly as anticipated, nearly right on the average estimates for all categories, corn, beans and wheat. As far as the acres go, wheat acres were up about a half million acres from the March estimate, soybeans also up just over a half million acres from the March estimates and corn acres up a million from the March estimates. But all of these things were expected, the corn number a little bit larger than what people were looking for but within the range of expectations. So because there was not any big surprise the market was able to find some short-term footing and at least not plunge any lower for the rest of the trading day for the day.

Howell: Absolutely. And going forward we've got some big dates coming up here with tariff deadlines. You said earlier you were a little nervous to be on the show tonight because a lot of producers are watching July 5th, July 6th we have tariffs going into effect with Canada. I want to take a social media question here when we look at exports and tariff news that's coming here in the near future. Paul in Columbus, Wisconsin said, with the recent price drop happening will exports increase before those tariffs go into effect?

Blohm: That's a question that I was wondering today and for the past few sessions as well. We did see some export sales this morning before the USDA report came out but it was nothing that would just make the market rally in and of itself. We're hopeful maybe early next week we'll see something come to life, but at this point it doesn't feel like that's going to be the case. It continues to be a showdown between countries of the world and it's going to create more market volatility all next week and potentially the week after that as well. So we have to watch every day for the freshest piece of news that can come from it.

Howell: Let's talk about news that's going on in the wheat markets. Egypt announced that they were having lower harvested acres than they expected. Will that give the U.S. some opportunity to export more wheat or will they be looking more to the Black Sea region and Russia for their needed wheat supplies?

Blohm: I would say logistically they'll probably continue to stick with Russia just because it's closer. But what it does do is emphasize the point that little pieces around the world are showing some issues with production. Russia's production is down a little bit and then today the reason the market rallied before the USDA report for wheat was because we found out French production is now lower as well. So we have all of these little pieces of production falling a little bit globally and so the market is trying to find some support. And then we'll see that as we go forward with finding out for sure what our winter wheat harvest is and how the spring wheat can develop as summer continues.

Howell: Absolutely. Let's jump over here into the corn markets. With the acreage report, was that any surprise to you? I know we talked a little bit about it at the beginning of the program but I want to really dive into the report with you.

Blohm: Yeah, as far as how the acres came out it wasn't a surprise to me. I was thinking definitely like a half million more acres, the million mark surprises me a little bit. I think the biggest thing right now though to focus on besides trade is what is happening with the crop with all of the excessive rain. It's not just too much rain from the standpoint of it's too much rain for our crop to grow but think about the nitrogen that is getting washed away, think about how the roots are shallow and not able to penetrate deep into that soil with this excessive heat coming. On my drive here yesterday the corn is tassling across I-80 and while it looks fantastic there are some shallow roots out there and we'll see how production ends up being with the loss of nitrogen as we go forward.

Howell: What does your balance sheet look like for corn moving forward?

Blohm: Looking forward we still have smaller U.S. supplies, smaller global supplies. That keeps the market supported but we need to have additional demand news and now we have to essentially wait until harvest to know truly what is out there or not. The market has been trading in 180 bushel yield on corn.

Howell: That was my next question.

Blohm: Yeah. And I think that's a bit premature. I would say trendline is appropriate at this time. But with the photos that we're seeing across social media it'll be interesting and of course we have to just wait until harvest. But I think 180 is a little high.

Howell: Okay. What about when you look at a price point here? Where do we sit price wise? We put in a low of about $3.60. Is that our low for the summer or are we going to have to wait and see with weather and tariffs and all those other factors going forward?

Blohm: We do have to wait and see. I would say for the next two weeks it probably is a low and we hopefully can see a recovery bounce or a weather scare bounce or that type of a thing. But we need some positive trade news in order to really see this market come back to where it had been.

Howell: I think the big trade news question sits in soybeans. So let's take it there next. With the tariffs going into effect on July 6th, without any last minute changes or negotiations, has this already been fully factored into the market? Or should producers expect to see some price volatility on July 6th?

Blohm: You're going to see price volatility all next week. And what makes me the most nervous is that today the close beans finished about 4 cents lower, which you wouldn't think is much, but they posted a bearish outside reversal and technically speaking now it poses the possibility for prices to go and retest the low from the catastrophic fall that we had recently. So that could be another 20 to 30 cents just to even retest those levels before it can find some sure footing. It's like we've gone bungee jumping and we are still waiting for our cord to tighten and we haven't even had that happen yet. The tariff issues are what is threatening this market and until we can get it figured out unfortunately the market doesn't like uncertainty and the funds are going to stay short. So the tariff thing needs to happen sooner than later.

Howell: So with that being said, what should producers be doing over the next week here to prepare for that news and prepare for that to go into effect?

Blohm: Continue to keep an eye on your local cash markets in case basis levels maybe can improve in some capacity. It may be worthwhile with how the market finished today to buy some August short-term puts just in case this continues to fall apart because if the market can bounce, I think a lot of people have beans that have been sold, if the market can bounce we can do more with new crop sales but the risk still is the downside until this gets figured out.

Howell: Okay. Let's take it over here and talk about the cattle markets because they actually had some optimism today here at the end of the week. We finally got some good news. We were limit up in both live cattle and feeder cattle. What's going on there?

Blohm: We had some great cash news that happened today. So cattle in Texas was trading at $107 and so that was able to lift the cattle market limit up today for those front month contracts, which was great because we had a cattle on feed report this week, which was showing large supplies, the largest June 1 number since 1996. So we have the supply of cattle, which we have known and it has been priced in, but thankfully domestic demand has been fantastic and our exports are up 13% year over year. And so we have a perfect demand situation, which is offsetting the increase in production and we're going to see going forward the cattle market continue to trade in more of a, kind of like a little bit of a sideways back and forth type of pattern.

Howell: Okay, what are you looking for that range for the sideways?

Blohm: I'm bottom side a buck even, on the upside maybe like $113, $114 and it's going to be up and down, back and forth in there until we find out who is going to blink first in terms of the larger production winning out or can demand stay as strong as it is now heading into the third quarter.

Howell: Right, and heading into the third quarter that's when we usually back off the grilling season. The 4th is kind of that price or that time of year when we back off. Do you think that's going to hold true for this year too? We've had wet weather, not necessarily warm weather. What are your thoughts?

Blohm: Yeah, I think demand is going to actually hang in there and be okay in terms of hamburger and ground meat and things like that and steak. As a mom who does the shopping for back to school that's where the extra slush money is going to be going sooner than later. But in the short-term the demand is there and it's strong as long as the economy keeps progressing like it has been.

Howell: Absolutely. And you had an interesting thing, I noticed the slush comment was from your newsletter this week, you had another interesting comment that I wanted to make sure and ask you about as we transition to talking pork here. You said, the pork complex is seeing a potential reduction in exports. We've got the Mexican tariffs, the Chinese tariffs coming forward and we're going to potentially see some of that meat flooding the U.S. domestic market. With that being said, will consumers opt then to buy pork or will they continue buying beef?

Blohm: My response is there's not a substitute for beef. There's not. So as long as there's enough economy being strong I think that beef in and of itself is going to just have its own demand. Now there does come a point if the gasoline prices continue to rally with crude oil breaking out to the upside this week and depending on your back to school situation there might be a chance where if it's on sale at the grocery store I would maybe buy a little bit more pork just because then I can give more money to my kids' school needs. But overall demand for pork domestically has been all right and our exports have been good driving front months and that's why that front month is higher. But the all hogs report that came out this week showed that all hog production is up 3% and, again, another large June number, the most historically large June number of hogs in history going back to the 1960s. So that's why those deferred contracts plunged off the cliff and had a breakaway gap lower this week on the markets.

Howell: You mentioned exports, I want to talk about that really quick in the pork markets. We've seen really strong exports, we had really strong export numbers this week. We've got the looming tariff deadlines in the future. Will we continue to see strong exports? Or do you think we're going to see them fall off the cliff immediately?

Blohm: That's what we're watching. One out of four hogs is exported in this country. Of what is exported, half of that goes to China, Mexico and Canada. So it is a big deal. Half. It's important to watch it and monitor it because that is what is going to affect the hog market more than anything.

Howell: We haven't really seen the hog markets react yet to the tariff and trade war threats. Is this the week that we will probably see some reaction, this coming week?

Blohm: Yeah, the next two weeks for trading and for world negotiations are historic. It is a historic time to be in agriculture and just being mindful of politics and all of those things. So it's going to be volatile and be ready for it.

Howell: Really quick I want to get your quick 30 second thoughts here on the dairy industry.

Blohm: The dairy industry had gotten prices up to $17 because export demand had been so good, milk production numbers a .8 increase, which was actually the least amount we've seen, but production is still up. Demand had been so strong but the tariffs is what made that market fall apart and crumble. But since the fall back has happened cheese prices have started to pick up and cheese buying has picked up, which lifted that milk market in the short-term. But here again, it comes down to the tariffs.

Howell: All right. Naomi Blohm, thank you so much for your insight today.

Blohm: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep the conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at iptv.org/mtom. Do you need a break from social media? Resort to the traditional email to send us your comments on the program. Address your message to markettomarket@iptv.org. Join us again next week when we explore new shipping concepts with an aging infrastructure system. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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