Market Analysis:Naomi Blohm

Market Analysis: Naomi Blohm

Aug 16, 2019  | Ep4452 | Podcast

Podcast

The August WASDE set fire to the trade as the funds liquidated positions crushing commodity prices. All three major commodities managed to rebound from weekly lows. For the week, September wheat nosedived 29 cents while the nearby corn contract plunged 39 cents. The WASDE combined with good weather across the Upper Midwest sent the soy complex plummeting. The September soybean contract was able to claw its way back for a 12 cent loss.       September meal lost $3.60 per ton. December cotton expanded $1.23 per hundredweight. Over in the dairy parlor, September Class III milk futures lost 3 cents. A fire at a Tyson plant in Kansas cut prices in the livestock sector as October cattle lost $8.70. September feeders shed $6.07. And the October lean hog contract tumbled $4.98. In the currency markets, the U.S. Dollar index added 69 ticks. September crude oil gained 40 cents per barrel. COMEX Gold put on $15.90 per ounce. And the Goldman Sachs Commodity Index fell more than 4 points to finish at 396.10. 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: Naomi, we obviously had a big report this week that a lot of the trade was waiting around to see what happened. Was there anything notable that happened in the wheat market?

Blohm: The biggest thing from the wheat standpoint was that actually demand was increased and that was nice to see. Export demand improved and then also wheat going to be used for feed improved as well. So those were supportive factors. However, the all wheat production number increased because yield was increased on this report. Therefore ending stocks in the United States back over a billion bushels and now globally we're back to seeing the largest carryout number for wheat around the world as well. So the wheat market is going to be under a little bit of pressure for the moment, again, primarily just because of the surplus of supply.

Howell: And of course wheat has been moving very closely here in tandem with the corn market. Tell us about the WASDE report there for the corn market. That was shocking I think for the trade.

Blohm: That was beyond shocking for the trade. First I'll start on the demand side and we actually lost 125 million bushels of demand for the new crop. We lost it in ethanol. We lost it in the food, seed and industrial category. And we lost it in the exports. So that was an unfortunate event. But the bigger surprise of course was the acre number and the yield number. Acres for planted corn came in at 90 million and trade was expecting it to be substantially less. That was on the higher end of estimates and compared to the July and June number it was up at 91.7 so a cut but not at all what trade was anticipating. And the bigger shocker came from that higher yield number, especially with as late of a crop as this is. The yield number came in at 169.5 and we were at a number before of 166. So the important part to remember on how that yield was determined because that was new this year, that was a new way that they were conducting the August numbers. And the USDA did four things, they actually called a farmer and asked the farmer, what do you think your yield is going to be, they used satellite imagery, they looked at crop conditions as of August 1st and the last one and most important is that they are assuming normal weather from now until harvest. You're going to see that yield number change a lot going forward. My thought is that it is tremendously yet too high and we're going to have a crop tour next week, hopefully we'll see some truth out of the reports from that because we actually have humans walking into the field and usually that Pro Farmer Tour does a nice job of just cutting to the facts and giving us the information that we need so we can get a better grasp of what really is out there.

Howell: Absolutely. We've got a great question here from Phil in Dresden, Ontario addressing the acreage number and also the prevent plant numbers that we've seen. He said, please explain the 90 million corn acres number from USDA and the 11 million prevent plant corn acres. How did they find that many acres and not lower their acreage number on Monday's report I think is his question here.

Blohm: Yeah, that was the shocker because it was 11 million prevent plant acres on corn. And so the thought is that during the month of June when the corn price started to work higher that perhaps more and more farmers were going to take advantage of the higher prices of markets and so therefore try to plant more corn. That is what the market industry is thinking. So that is what we're working with for the moment. It is important to know that the prevent plant numbers are going to continue to be updated and changed in the USDA reports going forward.

Howell: Naomi, when you look at the corn and soybean markets they had probably the most banking on Monday's report. They were trading in a range before Monday. We saw limit down in the corn markets, soybeans also pulled back quite heavily. Where do they trade from here? Are they going to continue in that range pattern?

Blohm: For corn with the market getting that negative news on the report the marketplace price was able to finish a head and shoulders formation on that daily chart and so we reached the downside objective. We also filled a gap that was really important to reach and fill on the charts. And so now we are within pennies of the low from May, the $3.70 area is tremendous price support. In my opinion we are going to be finding our low within the next two weeks. We could potentially find the low next week if the Pro Farmer Tour finds out a lower yield number for us. And so probably for the next two weeks more of a sideways trading range just until we can get some better confirmation on yield numbers. So I do think that the worst is behind us is my full belief on that.

Howell: For the corn markets. And for soybeans?

Blohm: And for soybeans a lot of uncertainty yet there too and more of a sideways trading pattern because the bean yields you really won't know until we get those combines rolling. But as late as this crop is there's so much weather uncertainty that can affect things. And in Wisconsin we have corn that just finally pollinated this week and so that's not going to be even mature until the second week of October which is past our normal frost date. So God forbid we see an early frost with this crop. And this is not over yet in terms of prices and in terms of yield. So there's so much to be aware of going forward. But I would say our harvest lows traditionally come at the end of August or into early September so we're going to be forming the lows quite soon.

Howell: It sounds like you're implying that perhaps the soybean yield yet has to come down as well when we get into the harvest season here. Am I understanding that correctly?

Blohm: I think it has the potential to come down because you're really, really needing absolutely perfect, perfect weather for the rest of August and all of September. And so the USDA kept the yield at 48.5 but if that yield comes down to 45 with the demand situation that we have right now then you're looking at ending stocks that are back to under a half, 500 million bushel carryout and that actually is really supportive for prices. And then if we could actually see China doing some importing of our product we have a supportive story to tell going forward. But I really do think the yield numbers are likely to come down before they have a chance to even hypothetically go up.

Howell: Okay, Naomi, we'll save the rest of this discussion for Market Plus. We've got a great question, a dairy question here, because you're our dairy expert on Market to Market from Lynn on Twitter. They said, will milk prices ever get and then stay above $18 for Class III milk futures in the near future?

Blohm: So milk prices had in the past few weeks been pushing higher, up towards $18. $18 for the moment is going to cap us for the short-term. The reality is that we actually have had cheese demand that is really strong, the cheese prices are improving, in fact we had the block barrel price this week the highest it has ever been in 2019. So there's some supportive demand from the cheese side of it. And milk production is down a little bit in part because of lower numbers of dairy cattle. But I'm thinking and what I think some of the trade is maybe interested and nervous about going forward is the feed situation for the dairy cattle just because we don't necessarily have the feed quality that we're used to having with this late planted crop and that could affect production going forward. So to see prices go above $18 and to stay above $18 I think is going to be dependent of course on continued demand, we need our export markets to pick up again because they're behind, and then we have to keep an eye on this feed situation because they're not going to necessarily receive the nutrition that they're used to receiving and therefore production might be a little bit lower.

Howell: Okay. And their counterparts, the feeder markets had an exciting week this week to say the least with the Tyson fire plants. Is that effect now factored into the markets?

Blohm: Yeah, between the feeder cattle and the fat cattle having their just demise in pricing this week because of that plant fire I think that the worst is behind us. The market was assuming that because of the fire that there would be cattle that would not be able to get slaughtered in time therefore we'll see cattle needing to be slaughtered that can't get slaughtered and it's a back log. So that was why the market sent prices lower, limit down and then expanded limits down. But that I think is really behind us because as of so Monday, Tuesday, Wednesday, Thursday of this week slaughter was actually only down 13,000 head from a week ago which is about a 2% drop and I have a feeling that production overall this week is not going to be cut as much as they're thinking because there are other plants who are happy to work a little harder and fill their shifts and by golly maybe even work Saturday and do some overtime on Saturday. And I think by the time everything is said and done we're not going to lose as much production as what the market is anticipating because we have Labor Day orders that have to be met and beef demand overall is still strong.

Howell: What about when you look at the hog markets? We had a limit down day to finish the week up here. What happened?

Blohm: Market just continues to not be sure what it can grasp onto for reality at the moment. It is concerned about the true thought that production is ample right now. We're concerned about loss demand for the export market to China yet we found out this week that our exports were fantastic for this week, up 48% from the week prior and half of our purchases were from China. So they are still buying from us but it's not of course as much as they were buying in March. So prices now are back to the levels that we were at before the whole African swine fever erupted. So now we're going to be at a point where we're going to decide okay, how much is our production actually going to be? Where is our demand at? And we're going to most likely, in my opinion, trade sideways for a little while, maybe a little lower because production is, it is big. But ultimately I don't think it's going to get too much lower just because I think that China is going to end up buying more than what people are thinking.

Howell: Well, and that's the question as we kept hearing oh China is going to make all these massive purchases. We saw a good sized purchase happen last week. Is there ever going to be a point in time where they're making these huge purchases in the market?

Blohm: I wonder if it will coincide with early October, late September or early October when they have their big festival to celebrate the country because that is going to be primarily I'm thinking they're going to use a lot of pork during that celebration and they have their lunar new year's celebration coming up in January and with their prices up over 60% now with demand for pork within China still strong I think you're going to see them buying from us not as much as we want until we get the trade deal nailed down but still buying.

Howell: All right. Naomi Blohm, thank you so much.

Blohm: Thanks, Delaney.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Using Twitter allows you to stay in the loop with just a few characters. We share news, pictures and behind-the-scenes information on our feed of @MarkettoMarket. Join us again next week when we explore why land rights activists view a new policy as more of the same. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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