Market Plus: Naomi Blohm

Apr 19, 2019  | 11 min  | Ep4435 | Podcast

Podcast

Howell: This is the Friday, April 19, 2019 version of the Market Plus segment. Joining us again Naomi Blohm. Naomi, welcome back.

Blohm: Thanks, Delaney.

Howell: Naomi, we've got to talk cotton here because we didn't get to that in the main program and they had a pretty good week up until maybe the end here and closed down on the week but you thought maybe there was some positive news that could help the cotton market.

Blohm: Yeah, cotton has been on a nice rally higher for a good month on export demand and that theme I think has the ability to continue as we go throughout 2019. This week the USDA attaché within China said that they feel that China is going to be importing even more cotton from the United States to the tune of an additional 900,000 bales, which is substantial, it's wonderful news. It gives our market support without a doubt. If you step back though and look at the big picture there's sufficient cotton in the world between some of our competitors with India or Pakistan. So there's cotton out there. But hey, that is really supportive for our marketplace and at least gives us a good support underneath us and going forward it will have us keep an eye on weather and crop conditions for the United States because they have been importing cotton even though there are some tariffs, so the demand is there, so that is I think it's a great thing.

Howell: And there could be weather issues in some of those other competitors for the U.S. too, so definitely something to watch. China is obviously a theme for discussion lately, especially when it comes to African swine fever. We've got a question here from Jeremy in Barnard, Kansas. He said, how will the African swine fever and U.S. hog prices increase factor into the cattle markets locally?

Blohm: Yes. I think it's supportive to cattle. Locally I think that you're going to see it play out as we go into third quarter and fourth quarter, play into that as well that we don't know the death loss from the flooding in Nebraska. One thing that comes to mind is that this week Rabobank said that they thought as many as 200 million, 200 million hogs could be lost. That's a substantial number. That is three times the herd that we have here in the United States. So now I'm thinking the United States we have 327 million people, China has 1.3 billion. You take that much protein away from their diet and we're in a situation where we can't fix it and Europe can't fix it and Brazil we're going to be sending them pork, we'll be sending poultry, you bet we're going to be sending some beef because that is a lot of protein lost. And when half of China's people live in the countryside and that is where a lot of the pork I think is really affected, you've got people who are going to get hungry. Rice and chicken only go so far and so long and they're going to be hungry for some serious protein. So we need to somehow get all of that protein into the countryside or what happens if those people in the country come to the city and now there's fear that even though China came out with that lovely number of 6.4% today there's people saying it's not quite true because it's not expanding the GDP in the places that it needs to expand it, it was more like smoke and mirrors kind of expanding. So if these people coming from the countryside are coming to the city and there's not necessarily jobs, well now you have people who can't afford higher priced food. And China, the reason that their system of things works is because they can keep the people fed, they can keep the people at peace because they're fed. And now that you have social media and you have people maybe getting hungry tummies I'm actually a little bit concerned from a humanitarian aspect of what it could mean going forward because some people are saying that the hog won't be rebuilt for three to five years for the whole herd over there. In the meantime, like I said, that is a lot of pounds of protein that we can't make up for.

Howell: And obviously they're not going to get it solely from the U.S., we're seeing them import pork from other countries. But do you see us getting to a point where we're sending so much pork over to China that it really maybe increases pork prices here to the point where people are just going to turn to beef?

Blohm: I've thought of that and I don't know. I don't know where that balance is because then we have our United States people who are down in Brazil trying to make sure that we could keep our beef infrastructure with them so if we needed to import beef I think that they're making all those doors open in case it comes to that. And then it will be really interesting to see how much poultry demand and the hog demand and the beef demand because I remember the last time that hog prices went insanely high and cattle prices went high, beef prices, all they did at the grocery store was make the cuts thinner. And that is how everyone could afford to still eat meat.

Howell: And consumers maybe wouldn't notice that as much.

Blohm: No, no and I was so floored because I remember back then I'm like, oh we're going to lose beef demand because the price is too high, and it never, because there isn't a substitute for steak, there isn't a substitute for beef period. We found that out. So they just make the packaging more creative. So you're eating a little bit less but you can still afford to eat it. And I think that maybe the poultry market would be the biggest beneficiary of this along with the beef complex. It just keeps supportive prices. And so then you have maybe our poultry, hog, beef prices and eating more quantities of grain because we need to now feed other places. So it will be interesting to see if the futures market gets excited about the increased feed or if that is just a basis thing. I think there's a lot of surprises that can come yet going into third and fourth quarter.

Howell: Absolutely. Okay, I've got one more question because I'm kind of nerding out about this. Related to African swine fever, do you see us getting to levels like back in 2013 when we had PED virus, 115 to 130? Do you expect us to get to those levels in the lean hog prices?

Blohm: I don't know. That would be the next technical target. I think a lot of it depends on what they get done with trade deals. China doesn't want to show their cards. I don't blame them because of, like I said, you've got hungry people, that's a problem. And that would be the next technical upside target though.

Howell: 115?

Blohm: I think it was 130 because we're at a buck right now so I think the next, on a long-term continuous chart 130 is the retest of those old highs, that is my recollection. I could be wrong, but that is my recollection.

Howell: Okay. We've got one more question here not related to African swine fever, but the Chinese trade situation. It's from Tim in Crookston, Minnesota. He said, South American soybean harvest is almost complete and new crop beans are in the pipeline. If the trade war with China ended tomorrow outside of soybean purchases, conciliatory soybean purchases, would China really make any worthwhile purchases of U.S. soybeans?

Blohm: I think prior to the African swine fever they absolutely would have, I think they would have come in there and the other thing about China is that they’ve got Brazil where they need them to be as far as a provider of soybeans but then they need to be able to say to Brazil at any time down the road, we don't need your beans. So they have to keep us in their back pocket too. I think that you're going to see China do some token imports of soybeans. But again, that focus is going to be on the edible oils, like I had said earlier in the show.

Howell: Which if they focus on those edible oils and they're importing that stuff from the U.S., aren't those value-added products?

Blohm: I would think so, right. So then the question is what do you do with the meal? And I don't know is the answer, I don't know how long you can store it or how you can store it. I'm sure someone is going to tweet me the answer very soon. But I'm very curious how it's going to end up.

Howell: Okay. We've got one more question I'm going to take here talking about some of the flooding and what not that happened. So we're going to move on from the China story and talk about the flooding story because that's the other big one I think still playing into the markets right now, weather and what not. We've got, oh this is a fun name, @grainsmanesfarm in Wisconsin has a question here for you. Why haven't we seen the Nebraska flood and planting weather delays impact the corn and bean market? And how is it that the market has turned even more bearish?

Blohm: That won't come into play until mid-May, late May and June but it's going to come into play substantially because you can't plant grain in silt and sand. And the devastation that is still in those areas is not going to be fixed by planting time. So the question will be, do we see it come into prevent plant acres or how does that play out? My very simple calculations that I was doing would be that potentially it's a million acres lost that we just aren't going to get planted between corn or beans, some combination thereof.

Howell: Will they take prevent plant on those?

Blohm: Well, that's what I don't know. So do they take prevent plant? But it will be a million acres that just wouldn't get planted. And so then the prevent plant numbers, like we said on the roundtable last time, that comes out in I think Don said July or August. So things that we don't know yet. And I'm wondering too if the market kicks the can down the road and then we don't find out for sure until harvest when we realize oh, we didn't get all the anhydrous on so we don't have as big a yield as we wanted. Or if there is a weather issue at all this summer there's still so much that can unfold to write this crop off that it's never going to come back. Everybody is so doom and gloom out there and I almost caught myself when I'm like okay I'm the last to get bullish, I'm the last to get bearish, so I almost got bearish and so I'm like okay, the low has got to be in. So that's just what I was thinking this week. I was about ready to turn the cliff over and I'm like no, the funds were short.

Howell: We've got to kind of hold on here because we're not going to know how much we lost. It's really unfortunately a long-term thing. We've got to just keep maybe our optimism hats on for a while.

Blohm: Absolutely. And the thing that has been the hardest in the past two weeks when I'm talking to farmers, why am I farming? And the conversations are brutal, brutal. So it's not over yet, guys, it's not. We've got more to come.

Howell: Naomi, thanks so much.

Blohm: You bet.

Howell: Join us, again, next week when we look at how the fishing industry is trying to balance economic and environmental concerns and Shawn Hackett will join me at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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