Federal government data kicked the legs out from under struggling prices as Thursday’s report pressured the grain markets lower. For the week, September wheat fell 16 cents and the nearby corn contract moved 6 cents lower. The report made for a 30 cent drop on Thursday for nearby soybeans but the September contract clawed its way back to suffer only a 14-cent loss by the final session. December meal lost $5.20 per ton. In the softs, December cotton shrank $2.37 per hundred weight. Over in the dairy parlor, September Class III milk futures rose 35 cents. Livestock had a mixed week as the October cattle contract dropped $6.70 and nearby feeders plummeted $8.62. The October lean hog contract bumped up $1.85. In the currency markets, the U.S. Dollar index declined 46 points. Crude oil lost 76 cents per barrel. COMEX Gold poured on $29.40 per ounce. And the Goldman Sachs Commodity Index continued its decline, dropping just over 1 basis point to finish the week at 382.60. 

Pearson: Here now to lend us her insight on these and other trends is one of our regular market analysts, Naomi Blohm. Naomi, welcome back.   

Blohm: Thanks, Mike.

Pearson: In case you want to go over things again, you can listen to our Market Analysis and Market Plus podcasts anytime online at iptv.org/mtom.

Pearson: Naomi, not a great way to finish the week with Thursday's USDA reports coming out. I want to kick it right off here with a question from one of our followers on Facebook. We encourage all of you to send us questions on Facebook and/or Twitter. This comes from Tyler in Forman, North Dakota. He says, between dicamba dinged soybeans, which we touched on earlier, and Thursday's report, where is the bright spot of the week for the American corn, soy and wheat grower?

Blohm: That is a great question because that report sure was something.

Pearson: It was, it was.

Blohm: Here's the bright spot is that demand overall is hanging in there. And so if you look at the soybean market in particular, what you saw there as far as the bright spot, was the USDA cutting old crop ending stocks substantially. The truth finally comes out, it takes months but it comes. And so with that being said, they increased the demand for exports. And so you have a strongly led demand export market, demand is fantastic for corn, soybeans and wheat and that is your bright spot. So in regards to that report and the yield numbers that were produced, be patient, they'll come down.

Pearson: Okay, we'll just need combines to start rolling.

Blohm: Unfortunately, yes.

Pearson: Alright. Well, in this wheat market, Naomi, one of the numbers if I believe it's correct, USDA predicted a spring wheat crop of 400 million bushels. Is that correct?

Blohm: Yeah, right about in that area. They didn't do too much with the wheat numbers at all and so they overall, all wheat numbers for yield and production came down just a little bit and the ending stocks came down just a little bit. Trade was expecting and hoping for more and so that's why the market reacted so negatively. Going forward, of course, with the spring wheat we'll see the amended acres numbers come up but that will be post-harvest rally type of a thing, but that will be the next piece of the puzzle that we need to receive yet.

Pearson: If we do start to get a post-harvest rally as we get to understand the true spring wheat acres, do you anticipate Chicago, Kansas City contracts tagging along if we can get any amount of excitement built in wheat?

Blohm: I think so. It will be how much of a rally depends on the numbers that we receive for the spring wheat. But in general by then we should see a seasonal post-harvest rally bounce from corn and soybeans anyway. So I would say that all three will move, it's just in the short-term now we're stuck with a little bit more of a sideways to lower range. But with these markets it was important that they were able to show resiliency on Friday's trade and finish where they are. That was to me a big yeah we don't buy this type of a thing.

Pearson: Okay. And that is a great way to segway into corn. USDA came out, the trade was anticipating 165, 166 for a national average corn yield, USDA came out I believe with 169.4, which, Naomi, you talk to growers all across the country, that would give us our third highest crop in history, third largest crop in history, excuse me. Is that what you're hearing from growers? Are they growing their third best crop ever?

Blohm: No, they're not. They're not. So, again, we have to be patient and the truth will come. But on this report the USDA in terms of ear weight used the third largest on record and in terms of ears per acre it was the fifth largest on record. So, unfortunately, the reality is going to come because when you talk to the producers out there, even the places where it's good, they're not saying it's as good as last year and they’re really saying it maybe is going to be their particular five-year average but it is not the same conversation as a year ago at all.

Pearson: You bet. Now, one of the things that you mentioned was we did, we broke down out of the range on corn yesterday, we were down at $3.71 and change and then today, Friday, the market did rebound. We pushed it back up, we came very close to that $3.75 mark. What do you expect to see come Monday with this bounce back to the upside on Friday?

Blohm: I'm very curious to see what Sunday night's trade is and Monday's trade. If we can keep the market still sitting in that $3.75 area then what will happen is that we continue then to be in our nine months trading range and that's a huge success. That is the market saying, no way USDA, we know the yield is not there. So, if though for some reason the market decides to trade the USDA report instead and then the funds, who had started to build a long position, if they decide let's just take care of the seasonal sell-off and push things lower, unfortunately the technical slide could be as much as 30 cents to the downside. So Sunday night, Monday, Tuesday trade is so important next week and if we can just keep in the range we'll call that a victory.

Pearson: Okay. Soybeans, Naomi, same story, we went from the trade anticipating, well and even USDA in July anticipating 48 bushels per acre to 49.5 bushels per acre national average soybean yield. Of course we're just getting into August but we did see that market respond rather aggressively on Thursday. Was the bounce back on Friday, did it confirm as much for you in beans as it did in corn?

Blohm: The corn was a bigger victory for the soybean number. I think we're all in the same opinion that yield really potentially could come in just at the trendline area at 48. And so we have to get through obviously this month yet to see where the yield could end up and the crop tour is coming up. The 49.5 number is something else. And if we can see the soybean market for the November price, if we can see it, if when you step back and look at the range that it has been in for the year $9 is a support level, $9 is a tremendous support level. I think we'll hold that, we'll stay there. I'm really hopeful that the market can in general stay back more in the $9.40 area, which is where we are right now. But, again, if the funds decide to do any selling off we could see it slide a little bit lower. But in the end, once the combines get going, we will see a post-harvest bounce.

Pearson: Alright. And you talk about that $9 being a support level, we did have a forecast come out and of course these change every six hours, cooler temps, more rain, all of those things could help induce those funds to start, to move back more aggressively into a short position.

Blohm: Right, but at the same time that demand is so strong and the exports are fantastic for soybeans. And who did you see today buy grain? China. So hey, they took advantage of the market being on sale --

Pearson: 60,000 metric tons. So do you think we're just starting to see them come in? China they've got 50% of the world's feed grain stocks, why are they buying 60,000 metric tons of corn, Naomi?

Blohm: Well, they are buying the grain because they need it. They need it for blending, they need it for keeping things fresh and it's on sale, so you bet they're going to step in and buy.

Pearson: So at these price levels we could see induced demand since it's kind of a fire sale going on, especially in beans.

Blohm: Yes.

Pearson: Alright. Naomi, let's talk livestock and since you are our native Wisconsonian, I want to turn to your thoughts on the dairy market. We've seen a lot of volatility, it seems we're down 40 cents, up 35 cents, but that $17 on the front month has been a tough nut to crack. Are we going to get there any time soon?

Blohm: I think we stay in a market that continues to be in a range where we're going to continue to see the price mechanisms that we've been seeing. The demand is good, demand hasn't been the issue at all. We have a lot of milk out there. Production, the most recent production report was again up over one percentage point and exports are okay and the cheese demand, as soon as the cheese gets cheaper then all of a sudden people come in and they do a lot of buying and so the whole system of the dairy market right now seems to be in one big kind of sideways chopping, trading range. I think you see that continue because there is, again, demand is fantastic and it's offsetting the supply so we're going to just be stuck here for a little while.

Pearson: So we either need to see demand become overwhelming to move prices higher or we need to see some herds cull aggressively or production slow down.

Blohm: Yeah, and I don't think you'll see that with cooler temperatures that are out there right now and with feed being cheaper. I think you see production stay strong.

Pearson: Production is going to stay. Now, there was a deal where EU signed a bilateral trade agreement with Japan, locked in some geographic indicators limiting how other parties can sell parmesan cheese or, I don't know my cheeses. Long-term do you see that being a detriment to U.S. dairy producers, those kind of agreements?

Blohm: I'm not sure is the answer. And there's a lot of trade agreements that are going to be thrown around in the next coming months. So I don't know that one in particular is going to stand out one way or the other.

Pearson: Gotcha. Now let's take a look at the livestock market. We saw a big pullback on live and feeder cattle this week, saw a big break yesterday while corn was completely falling apart. Naomi, when you look at the live cattle market, what is your general tone here looking forward? Are we putting in a low or do we still have more downside ahead of us?

Blohm: With the fat cattle market I really think that it probably can go just a touch lower yet with the October technically going for a target of $104 on the charts, so we're almost there. The long-term uptrend had been broken last week or the week before and the issue is that we've got placements coming, huge numbers coming, production is so strong right now and, again, cooler temperatures, cheap feed, you're going to see that continue. But demand is fantastic, our cumulative exports for beef right now are up six percent from a year ago levels, so demand is fantastic, it's just that we've got a lot of supply coming. And so with the setback that is coming and with the potentially just a little bit lower we can go then I think you see the brakes go on pretty strong and then we go into a new sideways range, it's going to be lower than where we were, but then we have to get back to a point of deciding if demand can keep up with the current extra production ad we have to actually make sure that the production is as large as what they're thinking it's going to be.

Pearson: You bet. And I would imagine we could be entering a situation like 2015 where cheap corn, lower priced live cattle and cooler temperatures all might induce additional feeding and we don't want to go back to seeing a situation with heavy carcass weights.

Blohm: Right.

Pearson: Okay. Feeder cattle, big break on Thursday as corn was dropping by 15 cents, feeder cattle also fell apart. What is the thought behind that, Naomi?

Blohm: I think it was more technical selling and chart-based selling than anything. I really think that's the only thing that was going along with it. The downside target on the October feeder market, so the $140 area is about where we are, we could go down to $135 and then just like the fats, then we'll start to trade sideways. We've got to see really what's out there and demand will keep up, I really think it will so it's a friendly story.

Pearson: That is exciting to hear about export demand being so strong for beef and of course now we've got China at least opened up a crack maybe to grow into the future, Japan has been a very, very strong buyer and U.S. consumers have been stepping up, willing to put beef on the grill.

Blohm: Very much.

Pearson: Now, we also are in a situation this fall, well fourth quarter 2017, we're starting to see the door swing open to a lot of these new pork processing facilities. So those hogs are coming online. It looks like that's fairly well priced into the market. But Naomi, what are your concerns with this hog market? Do we have some more downside risk to prices here?

Blohm: Maybe is the answer. We're all trying to get a grasp on the potential production that is coming and so maybe is the answer, but right now we're not sure. And you hit the nail on the head, we've priced in the extra production that is coming, that's why the deferred contracts are so much lower than the front month contract, a huge 20 point difference and that's substantial. But you know what the front month is telling us is that the demand is fantastic right now, people are eating pork and our exports they go back and forth between we're exporting 1 out of 4 hogs or we're exporting 1 out of 5 hogs. Right now we're back on the we're exporting 1 out of 5. So our demand has set back a little bit in terms of exports but it's good overall. And I don't see any tremendous selloff for the hog market any time soon. But I don't see a reason for those deferreds to rally either.

Pearson: Okay, that was my next question. For producers who are wanting to do some risk management, at these price levels in the fourth quarter, first quarter of 2018 do you want to go ahead and get some locked in?

            Blohm: If you can find a way that it's profitable I think I would be doing something because we all know the production is coming, the larger numbers are coming. So as long as demand stays good you're probably not going to see a tremendous selloff but at the same time risk management is important.

Pearson: Yes it is because something could always come out of the blue. Naomi Blohm, thank you so much for taking the time to join us.

Blohm: Thank you.

Pearson: That wraps up the broadcast portion of Market to Market. However, Naomi and I will keep the conversation going including answering more of your questions during Market Plus, available in podcast and video form on our website. Now, Market to Market may be airing in different timeslots due to fundraising on PBS. So if you find value in our program please consider making an investment in a service that provides you with the news and market analysis you have come to know and trust. Join us again next week as we look at how young veterinarians are stepping up in remote regions of rural America. So until then, thanks for watching. I'm Mike Pearson. Have a great week.

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