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Market Analysis: Apr 16, 2010: Market Analyst Tomm Pfitzenmaier

posted on April 16, 2010

Grain prices rallied this week despite the fact that planting conditions in much of the Grain Belt are the best in years.

For the week, May wheat gained nearly 25 cents, and the nearby corn contract moved almost 18 cents higher.

The rally was, underpinned, largely by strong soybean export numbers. For the week, May soybeans gained 33 cents, while the nearby meal contract was up more than $15 per ton.

In the softs, cotton trended higher again this week as the December contract posted a gain of 68 cents.

In the dairy market, April Class III Milk futures rose a nickel, while the deferred contract gave up last week's gains -- and then some -- with a loss of nearly 70 cents.

In livestock, June cattle lost a dime. Nearby feeders were down nearly $2.75. And the June lean hog contract was up $2.70.

In other markets of interest, the Euro gained 42 basis points against the dollar. Crude oil was down $1.68 per barrel. Comex Gold declined $25 per ounce. And the Goldman Sachs Commodity Index moved five points higher to close at 544-even.

Market Analysis: Apr 16, 2010: Market Analyst Tomm Pfitzenmaier Pearson: Here now to lend us his insight on these and other trends, one of our regular market analysts, Tomm Pfitzenmaier. Tomm, good to have you with us.

Pfitzenmaier: Thanks, Mark.

It's been a good week in the corn belt weather wise. In the grain belt, one of the outside markets, both Kansas City and Minneapolis in the wheat market were up sharply this week helping to pull that market higher. We also saw some other trends globally that were impressive. The soybean export number was good. Dollar softened up a little bit. Good for us. Then a little bit on the oil front. Generally general economic conditions, Tomm, as you look at the world marketplace in which we function today, what do you see?

Pfitzenmaier: Well, obviously a lot of this keys off the dollar. The dollar did set back a little bit because supposedly we've got some things worked out in Greece and that whole situation has gotten some duct tape and Band-Aids and whatever put on it. So the dollar settled back a little bit. I think those -- there's some still underlying problems over there that are going to continue to bubble up and resurface. We continue to have problems with the Japanese yen is in kind of a freefall. All of that is ultimately going to be supportive to the dollar. Now, the dollar hasn't made new highs recently. It's been in a trading range now for a couple months. But I guess I'm expecting that eventually we're going to break out of the topside again on the dollar. And again, that's going to make it difficult for grain prices. Crude oil this week, it also acts like it's getting a little toppy. We topped, pulled back a little bit, went up a little bit, and now we're -- it looks like it's rolling over again. So probably going to move that back into a kind of a sideways choppy market too.

Pearson: As you take a look at what's happening production wise also in the world, Brazil -- South America wrapping up the harvest down there, and they seem to be hitting some pretty big numbers down there.

Pfitzenmaier: Yeah, huge numbers. You know, the USDA is using a fairly big number and most of the privates think they're still a million metric ton or so low. Yeah, the only problem they've got is logistics of getting it moved out and getting it to the ports and exported. But, yeah the crop by all reports is fabulous in Brazil and Argentina.

Pearson: All right. Let's talk about U.S. markets and fundamentals here. What you see happening in the wheat market this week? Big moves in Minneapolis and Kansas City pulling up Chicago wheat. Is this a sell opportunity for wheat producers?

Pfitzenmaier: Yeah. There's nothing fundamentally changed that's bullish on the wheat market. The weather is fairly decent for the wheat coming out -- coming through the winter. The demand for wheat is not very good. There's plenty of it. It's a similar situation to what we've got in corn where the market just got too oversold. Needed to correct. Had a little spark and all of a sudden you go up and you run stops and away you go. But, yeah, certainly this -- it has to be viewed as a selling opportunity for wheat producers.

Pearson: Old crop and new crop?

Pfitzenmaier: All of it.

Pearson: Next year, 2011?

Pfitzenmaier: I guess I'm always a little cautious about going out that far, but certainly if you have any carry through this week, it would certainly be a time to start looking at that, yeah.

Pearson: All right. Let's talk about corn. And what we know so far is we've got a 1.9 billion bushel corn carryout and we've got almost ideal conditions throughout the corn belt. Producers I've talked to are saying the ground is working really well. The snow, all that stuff that we had acting as an insulative layer, so we've had tiles running. It looks pretty good. We're off to a good start. Could that be more corn acres?

Pfitzenmaier: I think it will be. I mean the vast majority of acres are decided before planting starts. But everybody has got that field that, you know, if it's dry, I'll plant it to corn. If it's not, I'm going to go to beans. And the way things are shaping up, those acres are probably going to go to corn. Corn generally is a little more profitable than beans for most people in the corn belt. So, yeah, I guess my perception is that is going to be -- entice more acres in the corn, which is certainly not friendly to the corn market.

Pearson: You were pretty aggressive at making sales last year when we were above $4. Basis where we are right now, Tomm, are you making sales?

Pfitzenmaier: I think if you can get December corn to run back up in that $3.95 to $4.00, $4.05 range, then I'd be looking at some sort of strategy to, you know, buy puts, sell the boards, sell cash, whatever works for you. But I think you need to get something done. There's a lot of people still sitting on a lot of old-crop corn. The basis has tightened up because they're all planting corn and not selling corn. So, you know, maybe this is a time to, if you can't stop planting yourself, call the guy that drives the trucks and get some grain moved.

Pearson: What about -- same question. What about 2011?

Pfitzenmaier: 2011, if you can get the December contract up in that 417 to 425, maybe 430 area where you're coming close to locking in the $4 price, I guess I'd take a little piece of that. I'm a little uncomfortable selling that far out any lower than that.

Pearson: All right. Let's talk about what you see in the soybean market at this stage of the game. The bean market, again, plenty of stocks out there. You talked earlier about South America. What's your take on soybeans?

Pfitzenmaier: There's plenty of stocks but the perception is that after that stocks report, everybody thought that our carryout was going to jump up. And when they left carryout unchanged in that last supply/demand report, it left everybody a little nervous. By most people's estimates, the USDA is still 10- to 20 million bushel low on their export expectations, which could pull us down to 170-million bushel carryout. Again, not tight. We were at 138 last year and we had all that big Chinese demand. So absent that, 170 is probably plenty. But, number one, farmers aren't selling -- they're very aggressive sellers through the winter. And number two, South American farmers have been reluctant sellers. So at some point, everybody is going to have to make those sales because if you look at the new crop, you don't want to hold past that old crop premium because then everything kind of falls apart on you. So we've got sixty days here for people to make sales. They haven't been and you've seen a nice little updraft in old crop beans. In new crop beans, like we alluded to earlier, there's some fear that the acres are going to go to corn relative to beans and that's going to tend to support the new crop beans a little bit.

Pearson: All right. You are going to make sales with the kind of rallies that we've had for the new crop and then same thing next year, Tomm.

Pfitzenmaier: Absolutely. Old crop we're banging on $10 beans old crop. Got to make sales there. New crop up in the $9.85 area. $9.75 maybe even make sales there. I guess if you want to go out to the deferreds and make some minor sales, it might not be a bad idea. It's hard to get excited about it, like I say, because most people are having trouble selling their '09 and '10 crops yet.

Pearson: Right, to move out that far ahead. Real quick, cotton market. It came up. Had that nice rally. Where's it going?

Pfitzenmaier: Had some pretty decent exports. I think the perception is that the acreage is probably going to get bumped up a little bit here. Planting conditions have been fairly good. Had a little wet weather in Texas this week. But, yeah, I think there's a little more upside in it. It looks fairly positive. You're seeing the same thing there you're seeing in the grain markets where it got a little oversold. You're seeing short covering, profit taking, and that's given the cotton a little bit of an updraft here. If it goes too much farther, I'd make sales there too.

Pearson: Let's talk livestock. Fed cattle market. You were looking for you improvement in fed cattle prices, and we've seen it. They backed off on feeders on the board this week. But that demand has been phenomenal as well. Can we keep this up?

Pfitzenmaier: Well, the feeders backed off mainly because the corn prices went up. And, you know, there's a pretty strong inverse relationship there. The fat market was kind of flat, so not a surprise that feeders sold off. Again, they were a little overbought too. Yeah, the fat market, it looks to me like it's going to be okay for a while. Exports on the cattle side have been really pretty darn good the last month or two. That's helped support prices. We have yet to see if the consumer is going to --

Pearson: Step up and buy it.

Pfitzenmaier: The price we've seen up on cattle at the -- to the producer hasn't really totally been reflected at the retail level. I guess I'd say to your viewers that if you want to go out and get some meat laid in, it's probably not a bad time to get that done before those prices really start getting reflected in the freezer.

Pearson: All right. Can we sustain this fed cattle market through the balance of the year, or do you think we'll see a serious pullback?

Pfitzenmaier: I don't know if we're going to see a serious pullback, but I think you're going to see some pullback. We normally have that big, good burst of demand in the spring, and then after we kind of get past that, we sag a little bit. And I think we have gotten ahead of ourselves a little, so I would expect some kind of a pullback into that May, June, July -- late May, June, July period. But I think overall we're probably going to be in fairly good shape if we can get the consumer to buy the meat. And it looks like with the economy we've got now, we're going to be able to.

Pearson: Another bright spot has been this hog market. Your thoughts on that?

Pfitzenmaier: Again, exports haven't been near as good in pork as they have been in the beef, so that market is struggling a little bit. Numbers are down. You know, you've got high prices so people are kind of reluctant to sell and that's keeping the price up, but I think generally they're going to be good through the summer.

Pearson: All right. Tomm Pfitzenmaier, as usual, we appreciate your insights. 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 may be headed, here's what you do, you go to our Market Plus page at our Web site because you'll find expanded market analysis, you'll find audio podcasts, and streaming video of the program and it's all free at the Market to Market Web site. And, of course, join us next week when we'll examine the merits of production agriculture with Michael Pollan, author of The Omnivore's Dilemma and Missouri farmer Blake Hurst who wrote The Omnivore's Delusion. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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