Market Analysis with Naomi Blohm

The China economy, improved South American weather and USDA’s WASDE report were the market influencers. For the week, the nearby wheat contract added nine cents and the December corn contract cut nine cents. USDA slightly lowered soybean yield and production in their report which sent the market lower on Friday. The November soybean contract fell 32 cents while December meal dropped $15.40 per ton. December cotton shrank $1.06 per hundredweight. Over in the dairy parlor, November Class Three milk futures decreased 34 cents. The livestock market was higher. December cattle added 58 cents. November feeders put on 52 cents. And the December lean hog contract increased by $1.50. In the currency markets, the US dollar index added 32 ticks. November crude expanded 40 cents per barrel. COMEX gold gained $9.40 per ounce. And the Goldman Sachs Commodity Index fell almost 2 points to settle at 558.30.

[Yeager] Joining us now is one of our regular Market Analysts Naomi Blohm. Welcome back.

[Blohm] Thanks for having me.

[Yeager] Wheat is a commodity that is global and seems to be the biggest impact on the trade right now. Now throw in, in the United States, dry conditions as we get ready to plant the winter crop. Which is the biggest influencer on that market right now?

[Blohm] Everything is the biggest influencer with wheat. There's so much happening right now with the wheat market. I think that is why we saw the funds just have been exiting those short positions because they're very much aware that that negative sentiment is gone. And they're not long yet in the marketplace but they are at the point where they can become long if the news becomes friendly fast. Or just maybe sit on the sidelines. So, we're watching, to your point, we're watching how dry it is in the Southern Plains of the United States. That's a big deal. And we're seeing global production numbers start to drift a little bit lower. We saw in Russia that they've got a little bit lower production. Ukraine came out with slightly lower production. So did Argentina. And even in the United Kingdom. So global production is down just a little bit and that’s starting to keep that market supported. Russia came out this week and said that they were going to be increasing some of the export duties so that way they can try to kind of slow things down there for the exports. So, with all of the global production numbers starting to go a little bit lower, the wheat market is maybe on the verge of really waking up. Global ending stocks for wheat are at nine-year lows. Today's USDA report, not a lot of changes for global ending stocks for wheat. But we are at a point where if the war with Russia, Ukraine, anything flares up there, the wheat market is going to respond. If we have any further global weather issues, the wheat market is ready to respond. So, probably I'm thinking the wheat market maybe stays a little quiet for another week or two. But it's ready to pounce if that news becomes friendly. The funds are going to be ready to take action.

[Yeager] Given what you just said, how does one participate? Pause? Leave that market?

[Blohm] Yeah, I would encourage producers I think right now to be watching it daily because if there is some upside potential, if the news becomes friendly, the technical upside potential on the Kansas wheat and Chicago wheat futures points to about a 50-cent rally. But again, we need to have the fundamental friendly news to justify it. So maybe if you're concerned that prices could fall lower, I'd look at some shorter term puts to protect for the downside. But that is the friendliest grain market right now of the three is the wheat complex.

[Yeager] Given -- take everything else we're going to talk about with corn for a minute -- can wheat lead corn moving forward?

[Blohm] It could if the global weather situation and with more Russia and Ukraine war flares up. It has that potential. But the corn market is also starting to develop its own friendlier story as well. So, everything is seeming like it's kind of waiting in the wings right now, the funds getting out of short wheat positions, short corn positions, short soybean positions. Everybody is on the sidelines. So, today's USDA report didn't give us anything big for fresh news and that's normal for the October report. But it just sets us up that if there's weather issues or if there's any geopolitical issues these commodity markets are ready to just have a big triumphant rally from here or they might just kind of trade sideways in the short-term until we get a little bit more under us between U.S. elections. We're still watching Chinese economic policy issues. And, of course, global weather.

[Yeager] We are almost smack middle to where -- it feels like you've been here several weeks because I've talked about you for several weeks about the research you did about the market low, or the harvest low that comes in. I mention it all the time. And that election. We're kind of right in the middle of that spot. So, are we looking -- do you think harvest low is in our rearview completely and we're focused solely now on that election?

[Blohm] I do. So, the harvest low happened. That average rally was 51 cents. We made it right about to it for the corn market. Funds are about neutral in the marketplace. And now we sit and we wait. So, it probably is a quiet couple of weeks. We're waiting to see if any additional things happen with Israel. We're waiting to see if anything additional with Russia, Ukraine. And Russia this week attacked four different vessels in the Ukraine, in the Black Sea region. So, they're poking at things. Waiting to see how the U.S. elections finish out. And waiting to see global weather. So, I think it's going to be maybe quiet markets. So, when you have quiet markets that usually means prices trade sideways a little bit lower just because there's nothing to talk about. But again, everything I think right now is going to be more focused on outside market influences and it's really going to be focused on U.S. elections.

[Yeager] Let's go local. Everybody's favorite basis. Mike in Iowa has a social media question. Looks like the basis is really starting to fall off the cliff. I'm starting to see some big corn piles already and we are just getting started. What would you recommend that we do now?

[Blohm] So, I think a lot of people were able to do some basis contracts. But without any rain to slow harvest down, this harvest is going to be fast and furious. So, you are going to see piles coming into the elevator just because our pace is so fast. I know in portions of the Midwest the yields have been phenomenal, but there's other portions of the Midwest where it's hit or miss. So, if you're in a location where your basis is widening out, give it a month and then the basis will start to improve again after they just get through this initial harvest glut. So, it might be a standpoint of maybe do nothing in your cash market now, but look at some short-term puts under the marketplace in case we get some kind of a black swan and prices go lower. Again, I think we're going to see kind of a quiet trading range here for the short-term. There is potential for upside for prices heading into Christmas and New Years, as we keep an eye on South American weather, as we keep an eye on all of these geopolitical issues. But in the short-term there's just nothing to grab onto. So, if you're storing your grain at home, I would really consider just having some puts under the market to protect, just in case, because you just never know if the market is going to fall apart. But I do think just give it a few more weeks and the basis will start to improve once we get this glut of early harvest out of the way.

[Yeager] You mentioned South America. We're dealing with actual rain in the forecast and rain falling and that seems to be dampening soybeans. How long does that last?

[Blohm] Soybeans are the follower in this complex because we have a good enough USDA report today. They did lower the yield just a little bit, but it still is a record crop. We have 550 million bushels for carryout, which is pretty darn sufficient for the Midwest here. And the global carryout numbers are still strong too. So, the beans are going to be the follower. If November beans break $10 support on charts, I think you're going to see a technical washout of about 25 cents lower just because there's not any immediate friendly news to turn it around and take it higher. If we see that price set back lower it's probably a reownership opportunity or some kind of a buying opportunity for an end user and I don't think it would stay down there for too long because there is still so much South American weather to play out. They are dealing with parched soils in South America. They have the lowest river levels. And so, while this rain is coming through, it has been a little bit spotty. It has been sporadic. It's not totally, totally widespread, so we still are going to have some weather issues to play out in the bean market going forward. But in the short-term we're going to be lacking on some news.

[Yeager] Any news in the dairy market this week?

[Blohm] There has been some news in the dairy market. So, in California they're dealing with bird flu. So, we're going to ultimately see lower production in California. And that is not going to come into the market probably for another few weeks until we can see some concrete numbers behind it. But the other thing that has been bothering the dairy market is lower cash cheese trade. We've lost 54 cents in cheese, which is a big drop, and it was 14 out of 15 days that cheese market saw losses. So that has been weighing on the Class III milk futures. But the bright note for the cheese complex and the dairy complex is that our exports have been good. They were up 2% from a year ago with cheese actually and butter leading the way. So, we're kind of balanced I think here in the shorter term with front month contracts holding onto the $21 support area. But there's going to be some things going forward. We should see a pick-up in holiday demand for cheese, so that's encouraging and maybe this setback on prices will encourage some buying coming in. And then we have to keep an eye on what's happening in California with production.

[Yeager] Seasonality in the cattle market, summer never seems to end. I mean, it continues. I think you said this week we did have a bearish reversal getting close there on the summer high test. Is that still holding up with what you said?

[Blohm] Right, so markets are at back up to the summer price highs. So, it makes sense, cash markets had improved, boxed beef values have been stronger because the consumer is buying cheaper cuts of beef and buying ground beef. And so, the retailers have been stocking up for that. But now we're back up to those summer high prices and there is a stare down going down between the feedlots and the packers. And the feedlots are wanting more cash, of course, and the packers are saying we are only going to buy what we need just to get by until we know for sure what is happening in terms of demand, domestic demand and export demand. And exports this past week weren't that great. So, we're at resistance. Do we have enough news to go through resistance is what we're going to be finding out in the coming weeks? But right now, I would still be a little bit cautious and do some hedging.

[Yeager] I want to make sure I get this right. Stare down is you and me looking at each other, not stair step down, which has been a tendency to happen sometimes. We don't usually get that slow decline. Do you see a slow decline yet coming in the feeder market given what you just said about the packers and the feeders?

[Blohm] Yeah, so the feeder market has been still pretty good in the cash markets. There's been some strength there. But the feeder market also getting near its summer highs as well. So, that stare down is going to start to continue there. It's a matter of the funds who had been buyers. Are they going to continue being buyers in those marketplaces? Is there enough fundamental reason to justify going through those major overhead resistance levels on the charts or not? Otherwise, we might see profit taking kick in. So, lots to balance there and the coming weeks are going to be I think very exciting for the cattle industry and most commodities as we deal with weather, geopolitics and of course our elections.

[Yeager] Hog market, we really kind of -- we haven't mentioned China but the U.S. was expecting to see some stimulus out of China. That really impacted grains. Did it impact the hog market at all?

[Blohm] So, not quite as much. We had really good export news for hogs this week. Hogs up near their summer highs as well. And we are going to be wanting to see how North Carolina fares because that is the third largest hog producing state for the United States. So, as they come out of the hurricane issues there and keeping an eye on that global demand in general. So, we do need to keep an eye on China. They're supposed to be having another meeting soon to talk about potential further stimulus issues that could help with their economy. If we see good things come out of that, that should be beneficial for commodities. So, lots to keep watching over the next couple of weeks.

[Yeager] I have like six things that we need to follow up on Market Plus that you have dropped and I appreciate it because that's going to make it kind of fun here in just a few minutes. Naomi, thank you so much.

[Blohm] Thank you.

[Yeager] All right, that's going to do it here for our Analysis. We're going to pause for a moment. We'll continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. We know that harvest is at a high point and we've made it easier to keep up on what's happening in the markets each week. Take us along via YouTube for the full program, the Market Plus and the MtoM podcast. Subscribe now and be sure to click on that bell -- you know, the one in the upper right-hand corner -- for push notifications so that you will know when we post our content. Next week, we put recent weather systems into perspective. Thank you so much for watching. Have a great week.

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