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Market Analysis: Tomm Pfitzenmaier

posted on February 14, 2014

Wheat futures contracts posted solid gains again this week, while corn traded sideways as the trade wrestled with a case of mid-winter doldrums.  For the week, March wheat gained 21 cents, while the nearby corn contract moved a penny higher.  Strong foreign demand supported soybean prices this week as the March contract gained 6 cents.  Nearby meal followed suit with a gain of $3.60 per ton.  In the softs, cotton also rallied this week as the May contract improved by $1.20 per hundred weight.  In the dairy market, March Class III milk gained 33 cents, while the deferred contract advanced by 43 cents per hundred weight.  Over in livestock, the April cattle contract gained 70 cents.  Nearby feeders advanced by $2.67.  And the April lean hog contract gained nearly $1.50.  In the financials, the Euro gained 7 basis points against the dollar.  Crude oil advanced by 42 cents per barrel.  Comex Gold improved by $55 per ounce.  And the Goldman Sachs Commodity Index gained more than 10 points to settle at 641.05.

Market Analysis: Tomm Pfitzenmaier

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

Pfitzenmaier: Thanks, Mike.

Pearson: We're glad to have you with us.  And as we're heading into Valentine's Day weekend, do we have some Valentine's Day love for wheat growers here in this market?

Pfitzenmaier: I think we've had it.  We've rallied March corn, or March wheat, excuse me, up to around $6.00.  We kind of peaked over that at the end of the week but fell back under it by the end of the week.  I guess I think we're kind of up to levels where it's really, really getting toppy.  Momentum indicators are rolling over, maybe even did roll over after Friday's trade.  So I think that going from here it's going to be pretty tough.

Pearson: Pretty good selling opportunity.

Pfitzenmaier: Yeah, that's what I believe.

Pearson: Alright.  Now, as we look a little bit farther into the deferred contract, where do you see the wheat market headed as we roll into spring?

Pfitzenmaier: Well, same thing.  There's always the question of was there winter wheat damage and all that.  But in the end I guess I think that the deferred contracts are probably topping out too so I guess I'd be a seller of wheat across the board up at these levels.

Pearson: And now this recent strength we saw this week and last week, what was prompting that?  Was it winter wheat kill worries?

Pfitzenmaier: Well, I think there's some of that.  There were those that believe that the supply demand report was a little bit friendly, certainly friendly to corn and that sort of pulled wheat, pulled all the grains along.  The strength in the bean market pulled the wheat along.  So there were some other factors there besides the actual fundamentals of the wheat market that I think prompted that.  Plus I think we've got fairly decent fund buying all along in all the grains have been good here and not only that but livestock and crude oil and a lot of different commodities.  So all those are supportive factors I think.

Pearson: Alright.  Well, now let's jump over to the corn market. We saw a little bit of a rise this week in corn, mostly sideways.  Where is this old crop headed?

Pfitzenmaier: Well, there's big resistance on the March corn up at $4.50.  We went up and sort of tested that after that report the other day.  And that has also generated fairly good farmer selling which has kind of tended to cap it.  So I would guess that is probably -- maybe we'll overshoot it by a few cents but I would guess we're probably up in those levels.  Again, corn, much like wheat, is not exactly structured the same technically and maybe has a little more upside potential but it's getting pretty overbought also.

Pearson: And, now these export reports that we've been seeing on the corn side, does the market expect those to continue?  Or are we going to see strong international demand for a while?

Pfitzenmaier: Well, when corn prices were lower than where they are now we were sort of in the driver's seat.  We had the cheapest corn on the market and that was generating some pretty good buying.  Now, there's a couple of things that have happened.  Number one, the Ukrainian corn crop was increased in this last report.  They've got reportedly 8, maybe 9 million metric ton of corn to sell.  They tend to be lower priced and they are now after our rally.  South American crop, which has had a few hiccups here and there but is generally quite good, is going to begin to come onto the market and be exportable coming into the spring.  So we've probably kind of reached up to the higher levels of what we're going to see.  And I guess to me we're going to have a little trouble achieving that extra 150 million metric tons, or 150 million bushel that the USDA was forecasting.

Pearson: Alright.  Well, now let's take a look over at soybeans.  Old crop soybeans just on a tear these last two weeks.  Have we topped out there?  Similar story?

Pfitzenmaier: I don't know if we have.  I read some place this week that we're an island of tightness in theU.S.which is kind of true.  Worldwide there's plenty of product around. Canadians had a big canola and soybean crop.  That's why you saw imports increased a little bit in that last report.  But we're down to what I think most people view as pipeline.  If we don't have any cancellations from the Chinese and the South Americans are a little slow at getting some product moved we're going to continue to be tight.  We've got a NOPA crush number out Tuesday morning, which is expected to show that domestic demand for soybeans to produce meal has been strong also.  So I guess I wouldn't rule out further upside, breaking out above $13.40 on the March was pretty positive.  We did have a reversal when we went up above $13.50, reversed and closed lower on Friday.  So that may put a little caution into the market early next week.  But overall I think we've got a period here where things are going to stay pretty tight.

Pearson: Good time to make some sales ahead of Chinese cancellations and that South American crops.

Pfitzenmaier: Yeah, I think you want to be ahead of the curve on that rather than behind it.  So I guess I would use this as a selling opportunity.  We have rallied, what, 70, 80 cents on beans over a fairly short period of time here and those are the kind of rallies I think need to be rewarded.  It has also drug the new crop along and created some opportunities to sell that up in that 13, or I mean $11.30 to $11.45 range and I certainly would be a seller of new crop beans at those levels too.

Pearson: Alright.  Well, now let's take a look over at livestock.  On the fat cattle side we saw a bit of a rally this week, 70 cents or so in the nearby.  Where is the fat cattle market headed?

Pfitzenmaier: Well, I guess the question is, is demand strong?  And demand so far, with these higher beef prices, has hung in there really well.  The cash market everybody is expecting some weakness this week and there really wasn't any and I think that popped us up and probably will continue to.  I think there's a chance that April cattle could retest the highs.  I don't, I'm not in the camp that thinks we're going to make new highs but we certainly could retest them. 

Pearson: Good chance to get up there and at least plum those numbers again and see where we're at.

Pfitzenmaier: Yeah.  The cattle market is strong enough and unless there's some catastrophic thing comes along I think you're going to be fairly well supported.  So I don't know that there's a reason to get really aggressively selling the market but certainly having a put under the market wouldn't be a bad idea because when things get really good they can change and not be good for a while.

Pearson: Right. And it's a lot of cash on the table when you're talking $140s fat cattle.

Pfitzenmaier: Absolutely there is.

Pearson: Now, let's take a look over at feeder cattle.  We've seen impressive strength with corn trading sideways and the fats trading relatively sideways.  Feeders are still climbing.

Pfitzenmaier: Yeah, I know, it's an amazing market and I have no idea how high that can go.  The guys out there wanting to buy feeder cattle I guess they're just going to pay until they get tired of paying.  I don't know what else to say.

Pearson: Alright.  Well, we appreciate the honesty.  So it's still climbing today so we'll just keep an eye on the cash trade --

Pfitzenmaier:  And like you said, normally you would think, well that's a sign that corn prices are falling apart.  It may be a sign that there's a perception that corn prices are going to fall because that is kind of an anticipatory move on the cattleman's part.  When you buy calves you're sort of incorporating that into your calculations.  So I guess you'd have to say they're anticipating lower corn prices and relatively strong fat prices.

Pearson: Alright.  Now, we do have the cattle on feed report next week.  Any advice for producers before that comes into play?

Pfitzenmaier: I think that is, those numbers are going to be fairly well anticipated.  I just think if you have a dollar or two rally beyond the levels we closed at Friday you start looking at making sales or buying puts regardless of what you think the cattle -- because I don’t really think that's going to change things very much.

Pearson: Alright.  But just be safe.

Pfitzenmaier: Right.

Pearson: Cover your tail.

Pfitzenmaier: Absolutely.

Pearson: Alright.  Now, let's take a look over at the hog market.  Again, impressive strength throughout this week especially.  Where are the hogs going?

Pfitzenmaier: Strong demand.  It looks, with April hogs, Febs went off the board on Friday so April comes on as the front month at $95, $96.  I think you could retest the $100 level maybe, June hogs $105, $105.50, they could maybe make a run at $110.  I think the hogs are definitely benefiting from the strength in beef, the fact that we're able to sell beef makes the pork more attractive, export demand for that has been good.  So I guess I'm not really concerned about the hog market completely falling apart here.  I think it's going to be, the whole complex is going to be well supported into the spring.

Pearson: Alright.  Well, Tomm, as always we appreciate you being with us on the show tonight.

Pfitzenmaier: No problem.

Pearson: That wraps up this edition of Market to Market.  But Tomm and I will continue our discussion and answer some of your questions in our Market Plus segment online.  You'll also find audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account exclusively at the Market to Market website.  And be sure to join us next week when we'll examine the impact of persistent drought inCalifornia.  Until then, thanks for watching.  I'm Mike Pearson.  Have a great week.

Tags: agriculture analysis cattle commodity prices corn cotton dollar economy feeders gold live cattle markets Mike Pearson soybeans Tomm Pfitzenmaier wheat