Market Analysis with Naomi Blohm

Tuesday's report opened some upside potential for corn, but the lack of bullish news pulled prices lower, while soybean prices lacked a reason to rally. For the week, the nearby wheat contract lost a nickel and the March corn contract added 2 cents. The range in the soy complex remains tight as soy oil continues to be the leader. The January soybean contract fell 6 cents while January meal dropped $1.20 per ton. March cotton contracted 83 cents per hundredweight. Over in the dairy parlor, January Class Three milk futures added 67 cents. The livestock market was mixed. February cattle put on $5.85. January feeders gained $1.82. And the February lean hog contract cut $1.73. In the currency markets, the US dollar index went up 85 ticks. January crude oil improved $4.13 cents per barrel. COMEX gold added $18 per ounce. And the Goldman Sachs Commodity Index moved more than 15 points higher to settle at 546.30.

[Kohlsdorf] Joining us now is regular Market Analyst Naomi Blohm. Hi, Naomi, good to see you.

[Blohm] Hi. Thank you for having me.

[Kohlsdorf] Well, there's been no shortage of stories this week impacting the commodity markets. We've had the WASDE report is out, a lot of geopolitical news and now of course lots of speculation on trade wars. Where is there hope for wheat farmers, wheat producers right now?

[Blohm] Yeah, that's going to have to come from some kind of a production issue somewhere around the world. So, wheat prices actually the story continues to be supportive on the global front because our global ending stocks continue to trend a little bit lower, they're at kind of the lowest levels for a decade. So, there is a friendly story that wants to potentially erupt because the demand has been strong. But there's always just enough wheat right now being grown around the world that it's kind of limiting that marketplace. We've got Chicago, Kansas City and Minneapolis wheat futures that are just stuck in 25 cent trading ranges. But we continue to keep an eye also on the war with Russia and Ukraine. Any flareups there could make that wheat market move higher. But I think it's going to have to come from a production issue in order to really spur prices higher in the short-term.

[Kohlsdorf] So, that was going to be my question about the snow in Russia and some restrictions potentially on their exports. Would that be enough to do anything?

[Blohm] Well, it's enough just to keep the pot percolating, so to speak. But it's not enough yet to get it to really go higher. So, if Russia this winter doesn't get the snow cover or if they just don't get that precipitation, because their crop is not great as they are in dormancy season here, but they are going to really need to see something further to spur that marketplace higher. And the funds have been comfortably kind of just sitting at short levels, about 70,000, 80,000 contracts. And they aren't too excited right now to exit those short positions and buy them back. It really feels like a big wait and see attitude in the complex right now.

[Kohlsdorf] The WASDE report out on Tuesday. So, usually this is a quiet report but there was a lot of selling after that came out. Where are corn prices headed from here?

[Blohm] Yeah, so the corn market after that WASDE report pushed a little higher initially. The report was supportive in the standpoint they cut ending stocks a little bit more than what trade was anticipating because they raised the demand for exports, they raised the demand for corn use for ethanol. But the market went right up to the $4.50 price area on the March contract and hit a brick wall. That is a big technical resistance area, the 200-day moving average and then also just a psychological resistance area as well. So, prices fell down lower from that. Even though the report was supportive, $4.50 corn and 1.73 billion bushel carryout is not really a reason for the marketplace to have to scream higher from here. So, a little bit of a price pullback, might see the market pull back maybe another dime. We're still in a short-term uptrend actually. But we don't have any big new news to get that market to get above $4.50 for the nearby contracts. So, I think maybe for the rest of this year we're going to start to see corn nestle back into a trading range. But because of the fundamentals right now it is well supported. And any time it breaks lower, maybe down to that $4.25 or $4.30 area on the March contract, it's a great place for end users to get more aggressive on what their needs are.

[Kohlsdorf] Our next question comes from social media. So, it's about the USDA and corn. So, Gary in Wisconsin is wondering with corn prices rising, could it be a sign that the USDA yield might be a little too high?

[Blohm] Well, that's a good question. So, yes, corn prices have been rising, the basis levels have been strong. The USDA in November did a pretty aggressive yield cut. So now the question would be will they do any more of a yield cut in January? I'm not sure is the answer. But it does make you wonder as to maybe is demand stronger than the USDA is even saying? Or is that yield number going to come down a little bit more? And that's something that we'll have to wait for, for the January report in about three or four weeks.

[Kohlsdorf] Okay, so CONAB came out with some fresh news today about production of soybeans. They're forecasting a big crop, maybe even a crop that they've never seen before. So, are they -- with that much supply that we know is around the world, what is going to happen? Or what is going to help I should say?

[Blohm] Yeah, so the CONAB numbers, the Brazil government equivalent of the USDA, they still had big numbers out there for production. Their production number is just a little bit smaller than USDA, but that is actually kind of normal. But what that is going to be is a large crop. So, unless the weather in Brazil suddenly turns to hot and dry the marketplace is really viewing it as sufficient amounts of soybeans for the United States and for the world. Global ending stocks still at near record levels. And it's going to be hard for that soybean market to really rally from here unless the weather turns hot and dry in Brazil or maybe we get some good biofuel numbers and information from this administration before the exit and before the new administration comes into place. And I think that is also why soybean prices have been in a very stagnant 25 cent trading range for three weeks now and that's kind of not normal for soybeans. But something really to be mindful of for producers is that if these support levels fail on nearby contracts, so March soybeans have $9.80 price support, the November contract has $10 price support, if those support levels fail from a technical perspective there is a head and shoulders formation forming and it actually points to a dollar downside. So, that's really something to be mindful of. So, we're hoping we see some friendly news to happen for soybeans, but usually as we flip the calendar to January, prices have a tendency to actually fall a little bit lower anyway. And I think also end users and farmers need to be aware of what the new administration might bring in terms of tariffs. There's still questions surrounding that. But I think in general it just looks like it's a market that is ready to tip over. Supplies are sufficient.

[Kohlsdorf] Could some of the friendly news come from China deciding to buy from us? Or are we still too expensive for them?

[Blohm] So, actually we're quite competitive yet from the global scene and China did a great amount of buying from us this fall. That is when they normally buy from us. The question would be -- now that would be the surprising factor if China comes to the table quick in terms of tariff and trade agreements. President Trump extended an invitation to President Xi to come to his inauguration in Washington, D.C., so there's some olive branches being passed around and that would take the market by surprise. What if the U.S. and China suddenly got along and the trade deal really came together quickly and maybe they bought more beans? That would be a bullish surprise. We'll see. But that would be a neat story to have happen.

[Kohlsdorf] All right, so let's talk about dairy. You are our dairy expert. So, prices were going down since October but they have recently had a rally. What is behind that?

[Blohm] Yeah, so when prices started to go lower it was because milk production numbers were increasing and also more cows being milked. So, the milk numbers were increasing as well as far as the herd goes. So, that is what made milk prices plunge lower. But recently we've had some really good demand news come to play with global dairy trade auction really going well, cheese exports are phenomenal and actually cheese inventories are coming down. So that has been enough to give that market about a $2 price spur in the last two weeks. So that has been really exciting. So, things that we're going to be watching into the end of the year, we'll have another milk production report coming up and then we have to just keep an eye on all of that export front and the news there and how tariffs may or may not affect the market as well.

[Kohlsdorf] Okay, the feeder market continues to be red hot right now. So, it has kind of been crazy territory for months now. Have we seen the highs in that market?

[Blohm] Well, that's what we're all wondering. So, cash feeder marketplace is definitely, to your point, red hot. The demand is there. And what really pushed the cattle market higher this week was news from the USDA saying that they thought that the border might be closed for a while to our imports of Mexican feeder cattle. And so that is a market mover to support prices. And we saw a nice price rally earlier in the week because of that because then that would be limiting on production numbers in general. But then on Friday, Reuters News came out and said that they think that the border is going to be opening before Christmas and that the USDA is trying to set up holding pens at the border that those animals can be looked over for that virus and issue before they come back into the country. So, now if that happens then that recent price rally that we've had this week is going to dissipate and prices might ease a little lower. And keep in mind, the funds are near record long in the cattle complex. So, if they have a reason to see prices go lower, they might sell off those long contracts and push prices lower into the end of the year and they could show a really nice profit on the book for the end of the month and the end of the year as well.

[Kohlsdorf] With live cattle, are packers deciding to hold off on buying until after the holidays?

[Blohm] Well, that's kind of something that we're watching as well. We saw cash markets working a little bit higher this week. But the question is, is holiday going to be met or not? And I think there's still a lot of tug of war in terms of prices right now between waiting to see where demand is, waiting to understand what is going to be happening with this border issue. So, that I think is why the market has been a little bit cautious. We still are near the summer high prices. But we're very cautious about having a reason to go blasting through them. And, again, if we can get that border open, that is going to push prices lower. So, I'm kind of still of the mindset to be defensive because there is a point too where the consumer will balk at higher values, especially as credit card bills become due after the holidays.

[Kohlsdorf] That's right. We're right there on the edge, huh?

[Blohm] That's right.

[Kohlsdorf] Okay. So, what about the hog market? It has been moving up. What will make the market go higher?

[Blohm] Yeah, so from here we saw that the USDA is thinking that 2025 production numbers are going to be down a little bit. That has been supportive. But they're also talking about importing potentially more hogs. So, hog prices, like the cattle complex, up near some lofty high prices and the funds are long in that hog complex too. So, for prices to go higher from here you're going to need to see more signs of demand or, we don't wish it, what if that PRRS virus came back in for the hog complex or some kind of thing like that over the winter? That would make the market price go higher. So far, no signs of any of that. But it would have to be a production issue to make prices go higher or signs of new demand. Otherwise, it does look like the hog market might be taking a little bit of a breath. We saw some price consolidation here near these recent highs and a little bit of profit taking starting to happen too. So, the next couple of weeks as we finish out the year might bring some volatility to the hog complex.

[Kohlsdorf] Okay. To be seen. So, we've got about 30 seconds left. Key interest rates could be lowered next week. Has that already been kind of factored into the market, the trade? Have they already --

[Blohm] Yeah, they are expecting a quarter point interest rate cut and I think that definitely has been factored into the marketplace. So, we'll be wanting to see what the Fed has for commentary along with that because then we'll start to be thinking what is going to be happening for 2025 and then of course what is the new administration going to be bringing as well?

[Kohlsdorf] Naomi, it has been great having you on the show today.

[Blohm] Thanks for having me.

[Kohlsdorf] We are going to pause this Analysis and 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 have also a perfect holiday gift for you. It's an email from Market to Market. Each Monday the Market Insider newsletter is sent out with behind the scenes information on this program, how we put stories together and exclusive details about our 50th season celebrations. So, sign up now at markettomarket.org. Next week, we take a look at two people who are saving seeds to help feed the world. Thanks so much for watching and have a great week.

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