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Market Analysis: Tomm Pfitzenmaier

posted on April 25, 2014

Field work is well underway in some parts of the Corn Belt. And we have received reports this week of accidents involving fertilizer application. We urge producers to always follow approved safety guidelines, wear gloves and goggles when working near anhydrous ammonia tanks and always make sure fresh water is readily available just in case. That said, grain markets rallied modestly this week as the trade pondered the impact of April showers. For the week, July wheat gained 9 cents, while the July corn contract moved 12 cents higher. Concerns over Chinese order cancellations pressured soybeans this week as the July contract lost 8 cents. But the July meal contract bucked the bearish trend with an upward move of $3.40 per ton. In the softs, cotton put together back-to-back winning weeks as the July contract gained 91 cents per hundred. In the dairy market, May Class III milk gained 50 cents, while the deferred contract improved by 39 cents per hundred weight. Over in livestock, the record breaking rally continued this week as June cattle contract gained $2.40, August feeders improved by $3.22, but the June lean hog contract lost 30 cents. In the financials, the Euro rose less than one basis point against the dollar, crude oil lost $2.77 per barrel, Comex Gold gained $6.90 per ounce and the Goldman Sachs Commodity Index declined by more than 3 points to settle at 658.30.

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 had a bit of an up week this week in the wheat markets. We saw it move a little higher. What was driving it this week?

Pfitzenmaier: I think a couple of things. One is there's a lot of disappointment over dry weather in the Wheat Belt, some of those areas just are not getting rain although they are forecast to over the next few days so we'll see how that -- and then I think the Russian/Ukraine conflict has really been driving the wheat market, even more so than it has been the corn market.

Pearson: Now, you mentioned we are expecting some rainfall widespread over much of the Corn Belt and the Plains states over this next week. Is that going to continue to push this new crop corn contract higher as we get later and later in the season?

Pfitzenmaier: Well, to some extent it's going to depend on how the planting progress report comes out Monday afternoon. If we come in here, come in Monday morning, Sunday night with forecasts for that wet period to be extended then I think you're right, I think you're going to see some more up in that new crop corn.

Pearson: Now, we keep an eye on the corn market, both new crop and old crop were over $5.00.  Should producers be out there making sales do you think?

Pfitzenmaier: Yeah, because the crop -- we're not sitting with a situation like we saw last year where everybody's just, it's soggy and you can't -- as soon as it warms up a little there will be people planting this weekend in a lot of areas. If you miss a couple of rains you're going to get it planted and that's the way the planting always goes, there's areas that plant and some that have to wait and eventually it all gets done and that is the way this is shaping up. I guess I wouldn't be surprised to see a fairly hefty planting progress number on Monday morning, 18% to maybe 22%. And so it's going to give us some rally. I think it's going to be an opportunity to make some sales up in that maybe $5.09 to that old high at $5.17, somewhere up in there. I guess I'd look at that to get something done.

Pearson: Those would be the targets. Now, as we take a look at the soybean market we saw the old crop bean market come down a little bit this past week.  Strictly concerns over Chinese cancellations, South American imports? Is that what we're looking at there?

Pfitzenmaier: We've got crazy stuff going on. The U.S. is an island of tightness. And so then you have to triangulate, okay, well how is that going to get resolved because the rest of the world there's plenty of beans, we're probably going to have plenty of beans this fall. So how does this little short-term thing get reconciled? Well, the Chinese are probably going to have some cancellations. There was some net cancellations both from unknown and China in this week's export sales report. You're going to see some pretty good imports coming in from Brazil and Argentina and Canada is going to make up for it. And everybody is running around here worried about old crop, the funds are all long all kinds of old crop and I look at it and I go, okay, if that's so critical how come the basis is 75 cents worse than it was a year ago? How come the May/July spread is at almost even money this week when it was $1.10 premium last -- if it's so tight and end users are so out of beans, why is that situation? And the answer in my mind is that we're probably going to have enough beans. Most of those end users have figured out how they're going to make that work. So I'm not saying there's not more upside and the futures won't get carried away but I think that high was probably put in, in that, here a while back and rallies there need to be sold. We ended up only down maybe 12 cents for the week on old crop beans but if we hadn't had a 26 cent rally on Friday because of -- that was because of the Chinese didn't cancel pulling the reserves out, they just postponed it for a couple of weeks. So that really was much ado about nothing that eventually is not going to change much. And the good news is, is that all that old crop falderal has pulled the new crop up and given opportunities to producers to probably sell new crop beans up in that $12.40 to maybe $12.60 range. So let's use this as a chance to get some good things, make some good things happen, which would lock in probably close to $12.00 cash.

Pearson: And really beats the USDA season average price of $9.65 and change.

Pfitzenmaier: Yeah. And we still have acreage issues to reconcile, we still have a lot of uncertainty about what was the crop last year. They're using that residual number as kind of a fudge factor I guess you'd say, maybe that crop last year was a little bigger than we thought it was in beans. So there's a lot going on there that is going to make for an interesting next couple of months here.

Pearson: Alright. Well, let's jump over to the livestock side. In the feeder cattle markets we saw that rally continue, $2.40. Is it just excitement on the cattle feeder side? Is that where we're seeing this rally come from?

Pfitzenmaier: Well, I think that's a big part of it. Right now everybody's trying to buy calves to put on pasture so you've got that going on. We had a cattle on feed report out Friday afternoon that was a little friendly, placements were lower than expected. I guess you might say there's some speculation that pastures have improved some so night quite the cattle going on feed. But total number on feed was down some too so I think that's going to be a little friendly on Monday morning. Now, we rallied at the end of the week so some of that was probably taken into account. But strength in the live market, the fact that the beef is moving fairly well despite the fairly high prices and the perception that we're probably going to eventually have lower feed prices, is all playing into driving those feeder costs up.

Pearson: And you mentioned the fat cattle side, we did see another run-up this week. Is that going to continue? Do we expect tight supplies for the foreseeable future?

Pfitzenmaier: Yeah, I think we're heading into that growing season where demand should help support that. Numbers are still kind of on the decline. So yeah, I think you've probably got a chance for June cattle to put another, I don't know, couple, three bucks on maybe, maybe even possibly test their old highs.

Pearson: And that might get us a little bit closer to where the cash has been trading at recently.

Pfitzenmaier: Right.

Pearson: We've been at that tremendous basis.

Pfitzenmaier: We've got April going off the board this week so it will be interesting to see how that gets reconciled with the cash market. Perception is that it probably will rally up to the cash market much as February did when it went off the board.

Pearson: Okay. So could see a little bit of improvement.

Pfitzenmaier: Yeah.

Pearson: Alright. Now, on the hog side we're seeing some stability, down 30 cents but at $124 who's counting?

Pfitzenmaier: Yeah, you've got this situation where you've got reduced numbers because of PED and then you've got all this extra weight. Weights were up again in cattle and hogs both this past week. So the tonnage hasn't gone off that much and as a result it kind of had kept a lid I guess to say a little bit on hogs. And I think they've probably overdone, especially those fourth quarter hogs are really pretty heavily discounted. I would expect them to start to move up a little bit and catch up with where the nearbys are at.

Pearson: Okay. So we don't see a cure for PED in the offing it will probably have to come up a little bit.

Pfitzenmaier: Yeah, and you’re starting to see some of these guys that thought they had it under control, it's starting to pop back up again and there's a lot of unanswered questions about that going through the summer and into the fall.

Pearson: Alright. Well, thanks for taking the time to be with us, Tomm.

Pfitzenmaier: You bet.

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, Facebook page and the rest of our social media outlets exclusively at the Market to Market website. And be sure to join us next week when we'll examine the outlook for spring planting. 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