Pearson: This is the Friday, June 23rd, 2017
version of the Market Plus segment.
Joining us now is Naomi Blohm.
Naomi, welcome back.
Blohm: Thanks for having me.
Pearson: We are excited to have you.
We've got a lot of questions for you and so
we want to kick it off here with one from Tim in
Crookston, Minnesota.
We saw this week be pretty brutal on almost all of
the row crops, pretty well across the board.
Tim wonders, how much new crop wheat, corn and beans
should a producer price on this or the next weather
market?
Blohm: So, new crop, okay.
So, with what we've had I would say for new crop you
should be 20% sold to 25% already.
So, with the recent run up we had last week with $4
futures for that new crop I think a lot of orders
were triggered because guys had said that they
were going to be pulling the trigger at that time.
So I would think we're about 20% sold.
Now, going forward on the next push higher I would
get to 40% but no more than 50% sold just because
of the very variance in the crops that are out
there.
But also I'm thinking down the road further where
with this wheat thing it's a big deal, it's a huge
deal for the Dakotas and I'm very curious thinking
long-term if we see a fight for acres need to be
aggressive in those areas and maybe wheat gets some
acres back.
So wheat always leads the big rallies historically.
You wouldn't think so, but it does.
Pearson: And can Minneapolis lead the big
rally or do we need Chicago to catch on and
get those spec funds interested?
Blohm: That's a great question.
I'm not totally sure but I'm just thinking of when
I started in this 15 years ago and I would call out
to the Dakotas, when I called out there guys were
talking about the canola, they were talking about
sunflower seeds, they were talking about wheat,
nobody talked about corn, nobody talked about beans.
And so now those places are growing corn and
beans.
And so would the price get high enough again where
they would be like, I'll plant some wheat instead?
The acreage switch that has happened in those two
states is substantial.
And we're not through our growing season at all yet.
I left Wisconsin and the corn is ankle high, bad,
not looking good ankle high, like it has been
replanted three times, the crop conditions between
Illinois, Indiana and Ohio are only like 58% good to
excellent and normally they're 75% to 80% good to
excellent.
So even though things in Iowa look pretty good,
they really do, I don't think you're going to
carry the whole country, gang.
Pearson: Iowa, Nebraska, we've had hail, we've had
tornadoes, severe wind.
Blohm: Yes.
Pearson: Do you think, you said it on the program,
trendline is that your top end now for yield
countrywide?
Blohm: That would be the top end and I'm thinking
the funds are kind of back to saying prove me
otherwise.
But yet when I read other analysts' materials out
there most of them are saying probably like 167,
168 and if that is the case, assuming demand can
stay constant, carryout goes down to 1.8 billion
bushels, which is a big drop from where we are
right now and obviously it's a plentiful supply of
corn, but boy does it put the pressure on for next
year already.
So this might turn out to be pretty wild and
exciting.
Pearson: Okay.
Now, would you be willing to be 40% sold, if we get
a weather rally during the month of July, 40% sold in
new crop beans knowing that we still have the
month of August ahead of us, given this challenging
growing season?
Or would you be a little more cautious?
Blohm: That is a good question.
I think I might rethink my statement there.
Okay, so I kill houseplants, let's just
establish that, I am not an agronomist by any
means.
But my clients who are agronomists have told me
that with the plants being so short this year and not
having the great growing conditions, apparently if
the plant doesn't have the ability to get tall less
nodes are on the plant.
So if there's less nodes there's less pods.
So that could in and of itself be a another reason
where all of a sudden you're like, oh maybe we
don't have the crop out there that we thought
because the good to excellent category, like
corn, is 67% good to excellent and a lot of it
isn't great.
Pearson: Okay.
Blohm: Good questions you guys.
Pearson: Interesting.
And actually I'm going to change things up on you a
little bit, Naomi.
So while we're talking about the wheat market,
we've got a question from Marty and he's up in
Buxton, North Dakota.
Marty has seen those acres switch.
He's on Twitter @SatMonstor.
Marty wants to know, what is your take on spring
wheat stocks come September 2017?
And then let's look ahead a year.
What do things look like in September 2018?
Blohm: I don't know is the answer.
And like we kind of talked about on the show, the
situation up there is actually dire.
It is not good.
As you and I were just talking before, some of
the guys are cutting it, baling it, right?
So that's not going to be wheat.
That's a bigger deal.
So I don't know.
We don't know what we're up against here.
And I think the market is saying that by
skyrocketing as high as it has.
But even reading some other analysts out there,
some big ones, they're saying they don't even
want to put a high price point on this market yet.
And these are guys who are normally bearish, put a
price on anything and they're saying, no we
respect that this is an issue.
Pearson: It's a huge issue.
And if let's say this crop is, we know it is
terrible, let's say it's truly terrible, we're in a
situation where we could run out for all intents
and purposes of high protein spring wheat, is
that correct?
That's my understanding given the demand for it
and given the potential of this crop in the Dakotas
to really be bad.
What happens at that point?
Blohm: I don't know, Mike.
Pearson: $22 in the cost?
$20?
Blohm: Well, the last time Minneapolis wheat it went
to $20.
Pearson: Back in '08.
Blohm: Wheat leads the big rallies.
Pearson: But we had a story then of commodities
being something that people wanted to put their
money in.
Crude went nuts in '08, corn went nuts, wheat went
nuts.
Is the story, the narrative different in
2017?
I was still living in the past, I was going to say
2014.
Can we change the whole commodity story with a
Minneapolis spring wheat rally?
Blohm: That's a huge point.
The answer would probably be no because back in
those years all the commodities were on fire,
everybody wanted a piece of the commodity pie and
now if you look at what used to be the CRB Index,
is now the Goldman Sachs Commodity Fund Index, it
stinks.
Commodity prices are horrible.
They have been in this kind of a sell signal.
So we had a bit where everything rallied but
that index is measured with crude oil leading the
way and crude oil prices are back down in the low
40s, probably going to stay there for a little
bit until we see some production cuts somewhere.
But we're going like crazy in the United States and
OPEC has said they're going to cut back but
everybody else around OPEC is now like, awesome,
let's take advantage of the situation.
So, it's going to be interesting to see.
I don't know if the spring wheat can be its own lone
wolf and just do its own thing in the cash market.
This is going to be interesting to watch.
Pearson: Alright.
We'll learn something this year regardless.
Blohm: We always do.
Pearson: Yes, we do.
So, now, final question for you, Naomi.
Last time you were on you did a little bit of math
and you do quite a bit of math every day.
You like math.
We know this.
So last time you were on you mentioned the fact
that, well and I'll let Andy in Iowa ask it.
He's on Twitter @akleinschmidt.
Thanks, Andy, for the question.
He wants to know, or he says, I wouldn't mind
seeing the math or logic behind the prediction or
the probability you made last week, or last time
you were on, we had a 70% probability of hitting
$4.40.
And was that in December corn?
Blohm: It was front month futures.
So, it's an awesome question.
It's a four minute answer everybody, so hunker down.
We're going to do it.
We're going to do it.
Pearson: Show us how you do it.
Blohm: Okay.
So, how it came about, last fall our company, we
have an awesome research team in our market 360
department.
These people, way smart.
So they were thinking, we have this huge crop, will
the price ever come back ever again?
Doom and gloom.
So the brainstorm happened of looking back at
history, when we have record crops and cruddy
prices at harvest, looking at the following, the next
entire calendar year, how high does the price of
corn get in that following calendar year to try to
dispel the theory of the price would never come
back.
So you go back to 1971, there were 14 years, I
love that you're writing this down.
Pearson: I'm taking notes.
I've got a lot to learn as well.
Blohm: You are making my heart so happy.
So, okay, so 14 years that there were record yields.
Low and behold, in each of those 14 years, the
following year, the market rallied and it went higher
than you would have thought it ever could.
Pearson: In every one of those years?
Blohm: Yeah, 14 years.
Okay, so then what we did, using front month
contracts, you then see where was that harvest low
price and then front month contracts is the key.
And I didn't get to get that out of my mouth the
last time I was here and I would have thought the
rally would have happened by now anyway.
But in those years the rally happened sometimes
in the spring, sometimes in the summer and
sometimes in the fall.
So this potentially, this math probability isn't
over yet.
Okay, so each of those 14 years we measured where
the low price was to the high price the following
year and then gauged the percent value that that
moved.
So it was anywhere from 17% rally into the next
year, some years being like 150% rally.
Who would have thought?
So obviously there's very different fundamentals
happening in all of those years.
So then you look at all those 14 years of prices
and things and then you plug in today's value into
all of that and then you're seeing, okay, there
is mathematical probabilities for the
market price to go higher.
There was, and this is data that we published at
the Commodity Classic.
So this wasn't like pulling it out of the air,
we published this data.
So there was 88% probability that at some
time in 2017 the price of corn futures would get to
$4.
So, hey, it happened.
Now, using the additional math logic there, there
is, because 2017 isn't done, 70% probability that
we could see the corn futures get up to the
$4.40 to the $4.50 level.
But, at this stage it's going to take a weather
issue and things like that.
Pearson: Right, and that's a 30% probability that it
won't.
Blohm: Right, so that's why I called my clients
and said, we've got $4 corn, make sure you sell
some.
Pearson: Otherwise, keep an eye on the weather.
Blohm: So it's a math probability and it is
based off of when you have a record crop what can
happen the following year.
And Mark Gold all winter long was saying the same
thing.
Pearson: You will get a chance to market
profitably at some point.
Blohm: Yes, because he said, when you come off
record crops the next year, he said the same
thing.
Pearson: Okay, well now Naomi, before we let you
go, and hopefully all of you are taking notes.
Can they still find your research, your
Stewart-Peterson research?
Blohm: Yeah, go on our website, you can have
access to it.
You can email me.
We can email you the white paper that we handed out
at the Commodity Classic.
Absolutely.
We love math because it takes the emotion out of
marketing and that is how you make better marketing
decisions.
Pearson: Perfect, because I know we had several
folks ask that question, so now you know.
Reach out and you can get that math in your hands.
Now, Naomi, before we let you go, we have been
taking questions from students at Iowa State
University ag students.
We encourage all of you to send in questions whether
you're a student or not and you can learn more
about this project by going to the Market to
Market, the MtoM podcast #143.
So anyway, this is the latest installment of our
ag student questions from Iowa State University.
This one is from Craig so he'll be right on the
screen.
Craig: What should I be doing in my last year of
college preparing myself for the first few years
out of college?
Pearson: Big question.
Blohm: Well, let me tell you what I did from my
mistakes.
And it was come off thinking that I'm going to
get a job where I'm going to make great money.
When I started out at a commodity brokerage firm I
made $16,000 a year and that was my salary.
I had to work a job part-time waitressing for
two years.
And I said, you know what, it is what it is, I
understand this, but I'm going to work hard and
someday everything is going to be just fine.
And so obviously you have to work hard every day.
But one, don't go out thinking that the world
owes you anything.
Two, take advantage of those internships.
Do everything, even though you're a senior you can
still find an internship.
It is invaluable to have that on your resume.
And if you really think that you're going to be
focused in on a certain aspect of agriculture, go
into a store like a parts store and introduce
yourself to people and get your name out there and
make sure that you can communicate, shake a hand,
talk to people on the phone, use your words.
Pearson: Beyond emojis and texting.
Blohm: Exactly, exactly because the communication
aspect, especially I think in our facets of
agriculture, are so customer service oriented
and in our society where customer service stinks
half the time it is so refreshing to have a human
who can do a good job and actually provide value.
And also make sure you still make time for having
a little fun too because that's important.
Pearson: Yeah, which I think if you're a senior
in college you can probably manage that.
You've had three years to practice.
Or in some cases six years to practice before you got
to that senior year.
Naomi, thank you so much for taking the time to
join us this week, always appreciate your insights.
Blohm: Thank you for having me.
Pearson: Join us again next week when Sue Martin
will sit across from me at the Market to Market table
and we explore the recovery from a double
whammy of weather on the palmetto state.
So until then, thanks for watching or listening, I'm
Mike Pearson.
Have a great week.
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