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Market Analysis: Jun 11, 2010: Tomm Pfitzenmaier

posted on June 11, 2010

USDA's supply and demand report did little to stimulate wheat prices, but estimates of stronger demand for ethanol were friendly to corn.

For the week, July wheat gained 5 cents and the nearby corn contract was up nearly 10 cents.

Soybeans followed corn higher with the July contract gaining more than 10 cents, while the nearby meal contract advanced $12.50 per ton.

In the softs, cotton erased all of last week's losses as the December contract posted a gain of $3.66.

In the dairy market, July Class III Milk futures lost 37 cents, while the deferred contract eked out a gain of 12 cents.

In livestock, June cattle lost nearly $1.50. Nearby feeders were up $1.20. And the June lean hog contract lost $1.28.

In the financial markets, the Euro gained just over 100 basis points against the dollar. Crude oil advanced nearly 2.50 per barrel. Comex Gold traded in record territory in several sessions and settled Friday with a weekly gain of $13.00 per ounce. And the Goldman Sachs Commodity Index gained nearly 15 points to close at 487.30.

Market Analysis: Jun 11, 2010: 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, good to have you with us.

Pfitzenmaier: Thanks, Mark.

Pearson: Well, a lot of big factors influencing agriculture that are global, certainly the dollar and the situation in Europe has been one. We just mentioned gold hitting some record highs. Where are we going with this global thing, Tomm? Are we going to see the dollar maybe soften up some this summer?

Pfitzenmaier: Absolutely not. The dollar is in a solid up trend, it's been in an up trend for a while, it's going to continue to be in an up trend. We've had a consolidation, a pullback, like you said, we pulled back a little bit this week. We're in a period here of higher highs and higher lows. There has nothing been done really to change that. Investor money continues to flow to the United States away from the yen, away from the euro and I fully expect that to continue right through the foreseeable future.

Pearson: All right. Gold futures, these record highs this week, what do you make of that?

Pfitzenmaier: There's some investors that are scared of the stock market, of everything else and they are pouring money into gold. I don't know, you tell me if that's going to be right. I have no idea. It's in an up trend, it looks like it wants to go higher, there's a lot of fear out there, it is perceived as being safe. I don't know. Maybe it is, maybe it isn't.

Pearson: All right. As we look at how all that comes out and impacts agriculture typically we see the stronger dollar we see the exports start to fall off. So far it hasn't been much of the case.

Pfitzenmaier: I don't know that that's necessarily true. The livestock industry has seen some pretty -- has suffered the last month or so on their exports. Cotton has been good. Wheat has not been so good. Corn has been really good. Beans have been okay. So, I think you have to look at the sector before you can make sort of those broad statements about it.

Pearson: But it hasn't gone broadly lower after this.

Pfitzenmaier: No, that's true.

Pearson: You're feisty tonight. Now what about the wheat market, let's talk about that. Supply and demand report was out. What is your take?

Pfitzenmaier: There's a lot of wheat around. We're producing a fairly good crop. There's tons of wheat all around the world and the wheat market has been under pressure, we had a little pop up this week. I'd guess we're going to still in the long-term probably start back down and test the $4.00 level in the wheat before we're done here. Wheat has been -- is beginning to compete with corn, the feed quality wheat so that's one area of demand that has been fairly decent for wheat.

Pearson: All right. What are you telling producers out there looking at harvest looming and haven't done much?

Pfitzenmaier: Get started doing something. If you're getting a rally here and there will probably be a little more to it because the wheat market got oversold and needs to correct, use this correction to start making some sales. If you haven't started, start cleaning up some sales if you have some more sales to make.

Pearson: All right. Let's talk about corn. We talked about the ethanol impact. Should this happen -- when Secretary Vilsack was here last week he all but assured us that they were going to go to E-15 at least from EPA so we'll see how that all works out. Obviously you've got this oil disaster in the Gulf so that's going to be a lot friendlier for biodiesel I would think.

Pfitzenmaier: Everybody likes to make us think we're going from 10% to 15%. Gee, we must have a third of an increase, 150% increase in ethanol production. The problem is a lot of these plants are already running at close to capacity. Number two, it's going to be a two-tiered deal from everything I read so cars over 2001 have a different usage than under and you've got confusion at the gas pumps, you've got to convince gas stations that they want to go through all that.

Pearson: Convince consumers.

Pfitzenmaier: The consumer, you're going to have mistakes on putting the wrong stuff in your car. There's a lot to this, it's not just a straight forward boom we increase it five percent everybody is happy. And some of this was built into that already in that report that we had this week. So, granted it's going to be an increase but I don't know that it's going to be the great panacean answer for the corn market that everybody expects it to be.

Pearson: All right. What about corn into China?

Pfitzenmaier: Corn into China is completely dependent on what their crop is going to do. If they have a good crop, they have been a little dry and so I wouldn't even be surprised to see corn get a little lift early next week because of that and we're going to be monitoring their weather really closely. If they are dry and they have problems they're probably going to be fairly good buyers of corn. If their crop comes in, in good shape and it's big then maybe not so much.

Pearson: All right. Let's talk to the corn farmers out there now. They're looking at corn that is waist high in some areas this early. The crop looks awfully good. If you haven't done much in terms of making sales what do you tell them?

Pfitzenmaier: Well, see that's the thing. We've got a great crop growing and everybody is all excited about this report last week, an increase in demand totally forgetting that they're using a yield number less than last year, probably using an acreage number that is too low. So, we're going to get some bounce here. Like I said, we had the perfect storm this week where we had a good supply demand report, we had a market that is oversold, we're getting ready to go into pollination so they're going to build some premium into the market for that. The dollar corrected, we had all that good stuff going on, it gave us a little pop Thursday and Friday, probably going to carry through into next week and then you're going to get some opportunities to get caught up on your old crop sales and there's a lot of those to be made because the basis hasn't really fallen apart yet but probably will. So, you get another ten, fifteen cent pop December corn up in the $3.75, $3.85, up in there, July corn in that $3.55 to $3.62 area then you've got to start making some sales again in the corn market.

Pearson: How anxious are you to go out further and make sales at this point?

Pfitzenmaier: You're talking about 2011 -- I'd guess if you can get in that $4.15 to $4.25 area I'd feel pretty good about selling it. Under $4.00 I don't have any interest in that. A lot of people think we're due for a cycle low here, five and a half year low this year so I don't want to get really carried away with that although selling some up in those levels is probably a good idea.

Pearson: All right. Soybean market, Tomm, what are your thoughts there?

Pfitzenmaier: Soybean market had a really nice pop on Friday. If we can carry through on that then I'd make some sales. Again, you get the new crop beans up in that $9.25, $9.30 range I'd look at making some sales. The old crop situation is going to be really interesting. We've got a fairly tight carryout, practically no farmer selling, the farmer was an aggressive seller through the winter, we had good prices, they were a little afraid of the South American crop so a lot of people sold 70%, 80% of their crop and now they are content to sit on that remaining 10% to 30% and see how August weather shows up. So, we're having a hard time getting our hands on old crop beans and that could create some really interesting situations as the July contract goes into delivery. November completely different situation, there's a lot of beans, good crop coming on, again, the USDA is using what I think is a fairly low yield number although you never know because of question marks about August weather but you're going to have to use rallies but $9.00 plus is still a fairly good price for beans.

Pearson: Still is. Cotton market, you talked about a huge rally this week. What's going on with cotton?

Pfitzenmaier: Huge rally -- overseas demand. Domestic demand for cotton not so good, overseas, particularly China, really good. There's been a few hiccups in the crop but mainly this is just demand. Now, you get cotton up toward 80 cents, 80 cents plus and the going gets a little rough in the cotton market. So, if you can get up to those levels I'd probably start making some sales. But with good demand there's a little upside potential yet in cotton here.

Pearson: Let's talk about the fed cattle market and what you see happening there. We've had some higher cattle prices. They are working their way through the consumer. A lot of reports out this week were not all that positive on the general economy. What is your take now on beef prices going forward?

Pfitzenmaier: Well, after Memorial Day demand really fell off. I guess we're waiting to see here if demand is going to show up as everybody kind of gears up for the Fourth of July holiday. This select and choice prices really dropped this week, that is kind of a problem. The good news I guess for livestock, cattle producers is that the cash market is still substantially under the futures so there's really no hedging opportunity, you're better off to stay in the market. As far as the feeder market now maybe there we've had a fairly good pullback, if we have a rally in corn that may cause a decline in the feeder market in the next week so for those that need to maybe get some cattle laid in there might be some hedging opportunities in buying feeder cattle for the fall period.

Pearson: All right. So, some opportunities perhaps there. Let's talk about hogs, Tomm. You mentioned this overseas hiccup for livestock producers. They are facing some competitive pressures overseas and the strong dollar is impacting that. We've got a lot of pork to sell still. So, what is your feeling now for pork prices for the balance of the year?

Pfitzenmaier: Japan demand, very good. Russian, Chinese demand, very poor the last month. Those are two big ones. Mexico has been good. So, we've got quite a few hogs coming to market, we really need to watch whether we're going to be able to sell that pork. Again, there's a couple of big areas where we're not selling pork so good, we're not selling the fresh pork, almost all the demand increase is coming from pre-prepared products which is good, it's like a value added product that we're selling but it's a little tougher to sell, more expensive to sell. On rallies on hogs of two to three, four dollars you need to be an aggressive seller on the hogs.

Pearson: All right. What is your feeling on numbers on hogs as we're going forward? We had a little pullback in the sow numbers, that's starting to show up. Are we still going to have to be in kind of a declining market to see this market continue to improve?

Pfitzenmaier: I think we are. Everybody, as soon as things got a little better we started to see sows getting bred again and all the bad things that happened so that's going to keep the numbers up fairly good through the summer and we're going to be fighting that kind of big numbers with is demand going to hold up. So, whether the general economy can support these higher meat prices is going to be the question of the summer.

Pearson: They're talking about -- speaking of the general economy they're talking about obviously the stimulus plan is starting to take effect, very low interest rates. When is this going to start to see some stimulation do you think?

Pfitzenmaier: That's a good question. Everybody is all excited about inflation, that is one of the reasons people are buying gold. The classic definition of inflation is too many dollars chasing too few goods. The problem is we don't have any dollars chasing any goods right now. People just aren't confident enough to run out and buy anything. Now, inventories are continuing to decline and I think that ultimately is going to start to make things go. But in the short run I think we're going to struggle here for a while.

Pearson: All right. As usual, Tomm Pfitzenmaier, some great insights, thank you so much. That's going to wrap up this edition of Market to Market. Now, if you'd like more information from Tomm on where these markets just might be headed you need to visit the Market Plus page at our Web site. You'll find expanded market analysis, you'll find audio podcasts, streaming video of the program and it's all free at the Market to Market Web site. Of course, be sure to join us again next week when we'll examine efforts to reduce nitrate runoff and increase yields through innovative drainage management. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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