Market Analysis: Naomi Blohm, Ted Seifried, Matt Bennett

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Yeager: Coming up on Market to Market. The buildup to major government reports receives a mild response, however, warm and wet weather in South America brought back some volatility. The conversation, Naomi Blohm, Ted Seifried, and Matthew Bennett break down the numbers.

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Yeager: Hello, I'm Paul Yeager. Inflation at the highest rate since the 1980s is still the talk of the economy. A rise of seven per percent in the price of cars, gas, food, and furniture gave the consumer price index a 7% boost year over year, touching levels. Last scene in 1982, the annual core CPI, which removes gas and food moved up five and a half percent. Now part of the equation changed in December when retail sales declined 1.9% as consumers groused about the prices pulling back spending. When the auto sector is removed, the rate fell 2.3%. It is against the backdrop of the overall economy that allows us to put into perspective a trio of USDA reports with a panel of our regular market analyst. Naomi Bloom is senior market advisor for Total Farm Marketing, Ted Seifried, chief market strategist at Zaner Ag Hedge, and Matthew Bennett co-founder of Ag Market.net.

Yeager: We'll get to them in a moment first though, the markets. USDA report reaction in the commodity market was muted in a short, until a short term South American weather forecast came back into play at the end of the week. Now for that week, the nearby wheat contract lost 20 cents. While March corn fell 11 cents. USDA reported a record soybean crop and limited exports. The March soybean contract dropped 41 cents. March meal decreased 19.40 per ton, March cotton expanded by 4.65 per hundred weight. Over in the dairy parlor, February class three, milk futures rose 54 cents, a mixed week in the livestock sector, February cattle put on 65 cents, March feeder shed, 30 cents, and the February lean hog contract added a 1.25. In the currency markets, Us dollar index dropped 55 ticks. February crude oil gained four ninety seven per barrel call gold added 20.70 per ounce. And the Goldman Sachs come out of the index rocket at almost 22 points higher to finish at 599.25. Ladies and gentlemen, welcome back to the table. Good to see you all. Ted will get to you in a moment. Let's start with Naomi. Naomi, this report from the week, uh, you've been talking about it when you were last here, pointing, looking forward to it. I'm not gonna say high expectations, but they were certainly raised and everybody had a lot of interest. Did it live up to the expectations for you?

Blohm: Uh, Usually this January report brings out some volatile price reactions from something unexpected. The only thing unexpected that this report really had was for the cotton market with dramatically lower production and ending stocks. That market responded. But as far as corn and soybeans, and wheat goes, in the big picture, everything came in within expectations overall with the range of expectations and, and the market just had to say, okay, not a lot of fresh news, so didn't have a reason to go dramatically higher, but at the same time, still looking at a situation where we have tight ending stocks for corn soybeans and wheat and other commodities. So at the same time, prices didn't necessarily have a reason to totally fall apart either. So now looking forward, we are about to just trade South American weather for the next few weeks, until we get a better idea of any new demand that's popped up from this and trying to get a handle yet on US acres here,

Yeager: Ted, do you take it as no news is good news when the market was so muted?

Seifried: Yeah, I mean, first of all, we call it the biggest report of the year because there's the most amount of numbers necessarily. I wouldn't say it's always the most important part of the year. Sometimes. I guess it can be if there's a major surprise, but you know, you look at acreage reports or like the August report for yields. Those can be on any given year. Those can be more important. Um, you know, you look at this report, there were a lot of small changes, but nothing really big. Uh, so for the most part, it leaves us in the same situation that we were at before these numbers came out. And that is, we have ending stocks that are on the tighter side, but not as tight as they were last year and not in a situation where we need to price ration. However you have issues going on with South America. So now this really puts the focus back onto South American weather, because if you, if you have production problems in South America. That means more export demand for us. And now all of a sudden we do have tighter balance sheets and we might have an, we might have a reason to price ration in a inflationary environment where price rationing won't happen easily. That's the biggest impact that inflation has on our markets right now,.not saying we have to go higher, but if we were to have to price ration, then we can start talking about prices that are just sort of outrageous. I would, I would think

Yeager: Matt, do you think that with USDA adjusting numbers in previous reports. Maybe lowered some of the changes in this report?

Blohm: You know, I think possibly, I mean, whenever you look for instance at the bean yield previously coming down, we kind of felt like it came down a little too much. I mean, based upon the yield reports that we were hearing. So we weren't surprised to see beanie yield come back up to 51.4. I, I mean, a lot of what Ted said, I agree with as far as, uh, the rationing thing, but a lot of people will say, you know, 10% stocks to use on corn. That's like, uh, an area where sometimes you see a, a rationing type rally, but the thing is, is we've already had the rally. So we have to understand that we're already sitting here essentially at twice the price we were at in August of 2020. And so, uh, you know, yes, we have really good prices already. So, but yeah, some of the, some of the moves that the USDA's previously made, uh, certainly have, have had an impact on this January report. It was a blasé report to me, fairly boring. Uh, it really wasn't a whole lot, uh, going on afterwards. I was kind of surprised quite frankly, to see the court market, uh, react the way that it did towards the end of the week. Uh, it really wasn't a, a friendly, uh, corn report. Uh, I would say it was bearish, but it certainly wasn't friendly.

Yeager: All right, well then let's just stick with corn then, Ted, uh, you mentioned inflation, um, which market has the, I mean, I guess I I've already put myself in a corner there by saying, is inflation impacting corn at all?

Seifried: I think inflation is already impacted corn, wheat, soybeans. I mean, that's part of the reason we're at the prices that we're at, but the question is, does inflation, is that a good reason to go higher from where we're at? I don't think so. Like I said, the impact that inflation will have on these markets is that it will be more difficult to price ration if we get into a situation where we need to price ration,. I'm not saying we're there yet. I think there's a possibility that we get there. The concern has been on the soybeans, but I'm really looking at the corn. And I think the market's in a transition from a soybean story to a corn story. Because the USDA, although they've been reluctant to lower corn production in Argentina and Brazil, I mean, they only cut Argentina a half a million, well, Rosario grain exchange cut 'em 3 million. Uh, they cut Brazil 3 million, uh, CONAB cut Brazil, 5 million. So the South Americans are cutting their, their crops more than the U S D a is. But that second season corn crop in Brazil with these high input costs and that's sort of an afterthought for them. That's not their main crop. Are they going to aggressively plant that crop? And are they gonna put inputs down on that crop? If that crop comes in lower than what the USDA is expecting on top of the problems with the first season and the Argentinian drought problems, if we're 10, 12 million metric tons, lower 15 million metric tons lower in South American corn production, all of a sudden more exports come our way. And we could really have a, a corn balance sheet that is in a price rationing mode lower than that 10% stocks use. Yeah. And with

Blohm: Yeah. And with the 1.5 billion bushel carry out something to remember is that last year corn had a 1.5 billion bushel carry out January, February, and March. And so the price of corn stayed back then it was between $5 support and five 50 resistance. Now we're in a situation I think because of inflation we're now $6 is resistance. And five 50 is support for the front month contracts. Wouldn't surprise me if prices stay range bound for a little while longer till we can see if export pace maybe picks up a little bit. What I loved was that the ethanol numbers and our ethanol exports for the month of November, because those were just released, recently were phenomenal and the DDG exports are on fire again. So even though the USDA cut exports on this report, they did increase corn use for ethanol. And we're seeing it in the form of demand for ethanol export and DDG exports. So.

Seifried: Yay ethanol and by the way, those DDG exports that's even without China, right?

Blohm: Oh's that's a good point.

Seifried: Yeah. And so if China were a step back in and come and take our DDGs, which in my opinion, they should, but again, that's more of a political thing than anything else. Wow. All of a sudden you've got, you've got an extra add on to the value of profit margin for ethanol. Wow. The problem with ethanol at the moment is that production is dropping. Stocks are, are higher. This typical for winter season where we're dry driving loss, hopefully in the spring we'll, we'll, we'll take care of that. But as long as profit margins are good, we're still gonna keep grinding corn.

Yeager: Right. And then there's the virus issue of maybe we're going to drive or not drive and cut it even less seasonal. Uh, Matt, I wanna ask you a question kind of what they both talked about near term, but look long term. We have a question from, uh, Jeremy in, in Lanark, Illinois, and he was asking us on Twitter and it's something that I kind of wanted to bring up, because we've had it recently is he's like which Dec corn contract is most important to make some sales ‘22 or ‘23? So we talked near, but which one long term attracts your attention?

Bennett: Well, lately, if you were paying attention, ‘23 has been exciting to say the least. I mean, every day you look up you're up to 8 cents and you're like, what the heck's going on here. And I've gotta think that maybe there's some investment there kind of an inflationary play. People are looking for something cheap if you will, but what do I want to focus more on right now, probably 22. I mean, 22 is the crop year at hand. I at least want to be able to kind of defend what's going on here with profit margins. The thing is, it gets real, really interesting depending on whether you had prepay for your fertilizer or whether you had spot price for your fertilizer. The difference you're talking 150 bucks an acre, like for a normal, uh, I state farmer. And so you gotta be really cautious is to say, just because you heard some pundit say, you know, you can still make really good money at five 50. Well you can, if your costs are where they should be. So I do wanna focus on ‘22, but at the same time, uh, due to what Ted alluded to earlier on prices could really get outta control if the right things would happen. I don't want to get, uh, too much price without some flexibility. I wanna have flexibility in my marketing plan this year. I think it's absolutely necessary.

Yeager: All right, Naomi, let's move to beans for a minute. Um,

Seifried: Good answer, man.

Yeager: Thank you. Good answer. I like that. Yeah. Playing cordial. Uh, what do you like about beans? I mean, Ted just said something about, uh, maybe things are flipping more in the corn area where it's been beans, beans, beans was the ‘Marsha, Marsha, Marsha’ effect are beans falling out of favor with the American farmer? Are they gonna plant more of it be and chase price?

Blohm: Um, I think it's a story still developing depending on where folks live throughout the Midwest. With the carryout, not growing substantially larger with the South American weather forecast, still not fantastic. I think beans going forward, starting February have a lot of potential. There is that seasonal drop that soybeans have a tendency to have the last week to two weeks of January. But if it does pull back, I think you wanna be a buyer because it'll hit some long term up trend lines that are, important, and the USDA acknowledged the South American weather situation. But remember that data was collected at the end of December. So this new heat that they've had is not reflected yet. So that'll be on the February report. And as Ted was saying earlier in this show, we can't have any further weather issues with South America, cuz that demand does come to United States for our soybean exports and meal and soybean oil.

Seifried: Well, then also what happens with the rain that they're, that's in the forecast for Northern Brazil, where the crops are really very good. But if that rain keeps happening, when they're trying to get into harvest extends our export season, for me, that might be the bullish thing that could happen to, to soybeans in the near term. I think the weather story may have already kind of played itself out. But we push, the, the harvest back a couple weeks, one that's bullish corn but also that's when we could see more exports, that's when we cut into that balance sheet, and that's when beans can have their kind of last little rally unless corns pulling 'em along. That's my thought. But yeah.

Bennett: I think that the excessive heat, uh, is something though that we're gonna find out, as we go just how much damage was done, because I mean, you look at the, at the, at the map this morning and I'm almost almost everywhere in Argentina in a lot of parts of Southern Brazil were a hundred degree temps and, and above. And going into that dry, I mean, what kind of damage are you doing? So I think it's gonna be very interesting, but you know, I think the acreage discussion, you know, whenever you're talking corn versus beans to me, $13 beans here lately, I mean a week ago Friday, we were 1320 on new crop. Yep. Um, I think people are paying close attention to that. And going back to that fertilizer discussion, if you people say, well, you know, UREA's taken a dip here lately. No great explanations for it. Uh, Anhydrous Ammonia is still $1,500. And so if you're a producer that didn't get all this booked, obviously you're done now that the end of the year is come and gone. You're, you're looking at 1500. dollar Anhydrous. Are you gonna get, or, or are they going to lower those prices? I don't think that's gonna happen. I mean, maybe you get a little bit of relief, but at this stage of the game and the only way you get relief in my opinion is with corn prices going lower. And so I do think beans acres could be pretty impressive this year, uh, moving forward.

Seifried: Yeah. But at the end of the, at the end of November, would you have you, would you have said the same thing? A lot of that move, I mean, beans rally almost $2, right. Is from the end of November to, to the highs that we put in to 10 sessions ago or so.

Bennett: Right. And so I think

Seifried: Beans are buying acres in a, in a, in a scenario where we didn't think beans needed to buy acres. Does corn fight back or

Blohm: What are those other outside markets too? When you think about the spring weed acres that, you know, ending stocks for spring wheat still went down in last year, we had more acres

Bennett: We had more acres Of wheat and cotton got 2 million more acres of wheat than what we had a year ago and then you don't think we're gonna plant more cotton this year? Yeah. I mean, come on. And so I think that the acreage sit gets to where you struggle to get much above 90 on corn. In my opinion, I think maybe you've got 180 combined. Maybe I have 91, 91 and a half. It, I don't think there's any way you plant what you did last year.

Yeager: Well, let's stick with wheat because, uh, you could say it was a, it was a, I couldn't think of a better word to say, but the beatings on the market have been tough. And is your reasoning for that Matt on wheat?

Bennett: I mean, to be honest, I think that we ran too hard, too fast. I mean, I, I don't know. I mean, as far as wheat's concerned, I think that, uh, you know, whenever you look at your carry out situation as compared to historics, you're significantly tighter than what you were. Yes. You've planted more acres, but at the same time, you've got this dynamic where, you know, uh, out west, I mean the wheat crop could be in huge trouble if you don't start seeing some moisture whenever we come out of the winter timeframe. So in all honesty, I don't have a good explanation as to why we got beat up as bad as what we did. But at the same time, I didn't think wheat should have been that high to begin with.

Blohm: That's little bit of seasonal selling and fund selling that happened too, along the way. But I think you're statement of yeah, no exports, but the statement of too high too fast is probably an accurate description.

Yeager: Well, Naomi, I think you wrote this morning, uh, you were talking about seasonality, but you were also talking about the, maybe it's just sold different opposite of corn and soybeans.

Blohm: Yeah. There is that seasonal tendency. So the last two weeks of January corn and soybeans only have a slight correction lower, but during those two weeks, wheat has a two week rally higher. So we could maybe start to see the wheat market move a little higher next week. We're keeping an eye of course, on weather conditions around the world for wheat, uh, demand though, I think overall continues to be there for wheat in general. And as you're saying about that winter wheat crop, that that's, when you saw those images from social media from that dust storm, that I've never seen wheat that looked like that ever those, you know, weeks back. So I'm very curious to see how it comes outta dormancy.

Yeager: I've asked that several times takes

Seifried: That's a good point.

Blohm: Just a little, that's a good point

Yeager: A little bit. Yeah. And I guess I've asked this each time since that storm has anybody have a handle yet on how serious that storm was in December a than the pictures we saw? So we haven't heard anything yet. So we just don't know yet. So I'm gonna turn to Ted now at the weather desk, uh, for that winter wheat crop, are they doing okay, enough moisture in it?

Seifried: How many times have we talked about killing wheat only to see yields actually end up pretty darn good. I mean, I feel like last year was one of those years too. Um, the dust storm, I don't know. Right. I don't think anybody really has a, a really strong handle on that. But like I was saying with the additional acres more than what was expected and a fairly sizable growth from year over to year, that does allow for a little bit of a, a lower, uh, conditions. Right? I mean, we, we don't need to really, and again, an increasing balance sheet, right? I mean our carryovers coming up too, so we don't need this to be a stellar wheat crop. We don't have the exports right now. We are not competitive on the global scale for our wheat exports. So yeah, I just, I feel like if wheat is going to rally, I think there's a possibility that wheat rallies, but it has to come leadership from the, the row crops. Wheat can be a follower. If the row crops go sideways to lower wheat, looks like he wants to break that 200 day moving average and have a pretty decent breakout to the downside.

Yeager: Hold on, I have this on a note. Matt lives in an area near the wheat, corn, soybean, cotton border. What are they gonna plant in that area?

Blohm: I think when you get into Southern Illinois, uh, everyone that could plant, uh, soft red winter wheat planted it. Okay. And here's the big reason why. The last several years wheat followed by beans has been the most profitable rotation around, I mean, I'm talking by lots of money. So, uh, yes, I think a lot of those folks planted a lot of wheat, but I think when you get into cotton country, you've seen a lot of triple digit cotton over the last several months. And, and that's something that sticks in a producer's head regardless of what next December's price is. And it's still good. I mean, I do think that you're gonna still plan a lot of cotton. I'm gonna say you're gonna be up, you know, anywhere from a million acres to a million and a half acres. And so, uh, with that being said again, it, it just continues to, uh, kind of put this, uh, uh, this band around acreage where everyone's gonna be kind of for the acres. Now that doesn't mean that we all have to rally, uh, because whenever I look at corn versus beans, you know, if beans would continue on trajectory, we saw towards the end of this week, mm-hmm, , that's just a natural win for corn. So beans could go down and that would thus give corn, uh, maybe the upper hand.

Yeager: Right? Naomi, I want to not neglect the, the dairy market because there were a couple of days this week that were pretty eye catching why?

Blohm: Uh, we have had continued strong export demand and strong domestic demand. Our dairy exports overall are up 17 percent. Our butter exports and butter demand up 200 percent. So there is just flying out of this country. Uh, the, the spot cheese prices have been higher and overall milk production continues to trend lower. So we don't have the next USDA report for milk production until the 24th. But what we did see recently was milk price up near $23. And the, you know, historical highs are near $25. So again, we have smaller production. We have less head that are actually milking right now, less cows that are milking and demand is there. So we could see a little bit of a pullback here on the market, cuz it is up so high. Um, we could see the nearby contract kind of come back down to the $21 area, but still be in a long term up trend. Uh, so right now the market is following the, the spot cheese price, the closest keeping an eye on the export market. And then that report on the 24th will give us new insight. As far as where the milk production is, it's continuing to shrink or is it gonna start to increase

Yeager: Ted? Are we in seasonality in cattle right now? Uh, affecting the price? I mean, retail was really good this week on beef?

Seifried: Yeah. Uh, I mean we always have seasonality seasonal tendencies, but you know, you look at the last couple of years, I, I don't know if seasonality really makes a whole lot of sense for many things, you know, uh. Demand is pretty good, right? But the question in the last week has been okay, we're seeing another resurgence Omicron and COVID and whatever, and having the labor, uh to, to at the packing plants has been a problem. That's been kind of showing itself a little bit more in, in the hogs than it has with the beef, but that is something that's kind of lingering over our heads. Cash softened, somewhat because of it, even though Fox beef prices are going higher. That packers margins should be enough to afford to pay these workers a little, little bit more to get them in. That would be my thought, I think there's room for cash to trade higher. And I think cattle can go higher as well. You like the fact that feeders were able to hold onto some strength there at the end of the week, even though, uh, corn tried to bounce back their, uh, Friday. So yeah, I think there's room for cattle go higher. Again. And I'll go back to the overall inflationary idea. Demand. People are not really balking at higher prices. You talked at the beginning of the show, how, uh, retail sales had come down. I don't think that's necessarily because of price. That's more of a supply chain issue and not being able to find the things that you want to buy. Trust me, that's a real thing. Um, but yeah, no, I, I think there's room for higher price cattle yet,

Yeager: Matt. Uh, are you expanding a herd right now if you can find feeders?

Bennett: Well, see, that's the thing it's been hard to find feeders at at what you would call the price that you wanna look for them at. You know, I mean, uh, feeders have been hard to come by and I think especially in, uh, you know, uh, cattle country, a lot of folks have, uh, uh, they look at well $160, $165 feeders and they think, man, I wish I could buying for that. Right. And so, uh, uh, yes, I would be expanding if I could and if I could do it at a, at a reasonable price, but, uh, and I'm I'm, as far as fats are concerned, I guess, uh, I'm a little more friendly, you know, I mean, I, I'm not saying Ted's not friendly. I'm just saying I'm, I'm friendly, uh, to the point where I, I think you get, like, for instance, uh, back into the mid $140's I don't know that we get to $150, like I thought we would get previously. It seems to me like this Omicron, thing's kind of been a little bit of a, uh, you know, hiccup for us, but at the same time, I think that demand's strong enough. I mean, box beef up double digits this week. I would've liked to seen the cash market a little bit stronger. Uh, but at the same time, whenever you close cattle up on Friday and you see corn, uh, double digits towards the, you know, I mean, I don't know, it's a pretty good day for the cattle market.

Yeager: Somebody liked it.

Blohm: Yeah,

Bennett: absolutely.

Blohm: I'm a bullish with cattle. Okay. And, and because first quarter production this year is gonna be down slightly from year ago levels. We've got less animals available, but the second quarter production is also supposed to be down about one and a half percent from a year ago. And it is not normal for second quarter production to also be down after first quarter production is down. So, uh, there's, there's long term. We don't have the livestock. And so we have a production issue coming because we don't have the animals. I think the demand is gonna stay strong. And I, I think that we are gonna see the cattle markets work higher into the, into the summer months, um, exports best ever for beef right now. And the dollar keeps inching lower, so,

Yeager: Okay. And I have to interrupt cause I have to finish up something because this also was a story this week and that we discussed before the show. So I'm, unfortunately, Naomi's gonna have to answer this question, uh, about, I gotta find it, it w Kurt Stephenville, Wisconsin, how much pork will India potentially buy from the United States?

Blohm: Yeah, the short term answer is we don't know for sure, but the big picture it's good news because they have such a large population. So that is something that we will try to see on weekly export sales. Are they showing up there? Um, the hog herd is not expanding and the prss virus is already here. So the hog market, in my opinion, is a, is a market that has the ability to work higher in the winter months as Well.

Yeager: All right. Last word, Matt. Uh, what market am I looking for the most excitement in the next three months?

Bennett: I think the corn market. I just wanna see what the corn market does to ensure the kind of acreage that I, that we need to have, uh, to where if we don't have, uh, if we have some sort of a weather issue this summer, we don't just explode higher. I definitely wanna see what this corn market's gonna do. All right. Teddy, get

Yeager: All right. Teddy you get one word.

Seifried: Yeah. Corn, uh, yeah, inflation, acreage, South American problems. But this look at the price right now and the that's, it they're really high. Make some sales historically we're at high prices, re-own on the board.

Yeager: All right. Thank you, Ted. Thank you, Matt. Thank you, Naomi. Appreciate that'll do it for this installment Market to Market. We'll talk more in Market Plus to join us, find that on our website of market to market.org, and we do appreciate those of you that have clicked the follow button on our Instagram account. We have behind the scenes, pictures and stories on our feed of Market to Market show. Next week, we'll look at the state of the economy, me in rural America. Thank you so much for watching. Have a great week.

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Market to Market is a production of Iowa, PBS, which is solely responsible for its content.

Announcer: What's the most complex industry on earth. It's not genetics or meteorology or logistics. It's a business that involves them all. It's farming. Thank you, farmers from pioneer

Announcer: Sukup, manufacturing company, providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Lookup manufacturing for now profit later

Announcer: Tomorrow for over 100 years, we've worked to help our customers be ready for tomorrow trust. And tomorrow information is available from a Grinnell mutual agent today.