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Market Analysis: Jan 01, 2010: Tomm Pfitzenmaier, market analyst

posted on December 30, 2009


Commodity markets were closed on Friday for New Year's Day. Even with the holiday-shortened week bad weather in the plains pushed grain prices higher.

For the week, March wheat gained 20 cents while the nearby corn contract advanced a nickel.

Soybeans followed wheat higher, as the January contract gained more than 36 cents. And the nearby meal contract was up $14.80 per ton.

In the softs, cotton went back over the $75 mark as the March contract posted a gain of nearly $2.00.

In the dairy market, January Class III Milk futures were off 6 cents, and the deferred contract lost a quarter.

Over in livestock, February cattle gained 30 cents. Nearby feeders were up $1.05. And the February lean hog contract moved $1.82 higher.

In other markets of interest, the Euro lost 20 basis points against the dollar. Crude oil gained $1.37 per barrel to close just over $80. Comex Gold declined $12.30 per ounce. And the Goldman Sachs Commodity Index gained more than 11 points to close at 526 even.

Market Analysis: Jan 01, 2010: Tomm Pfitzenmaier, market analyst

Pearson: Here now to lend us his insights on these and other trends, one of our regular market analysts, Tomm Pfitzenmaier. Tomm, good to have you with us.

Pfitzenmaier: Thanks, Mark.

Pearson: Let's talk about some of these global trends that are impacting us and have been. One of those has certainly been the resurgent dollar. The dollar has come back fairly strong. Strong week again. Is this a permanent turn, Tomm? Is this part of something?

Pfitzenmaier: I think there's a good chance it is. I think there's a good chance we put the low in the dollar. It's not going to go – probably not a "V" bottom and go shooting straight up, but I think we've put a low in and you can buy the dollar against now. The impact that's going to have is, you know, fairly far reaching in our commodity markets, certainly compared to the situation we've dealt with over the last year or two.

Pearson: A lot of people credited the rally with this continuously weakening dollar and making our products more competitive.

Pfitzenmaier: Having said that, it doesn't necessarily – it's not necessarily mutually exclusive. You can have a firmer dollar and still sell product, so I'm – you know, you don't want to let that dominate your thinking too much. But I think we probably have seen a low in the dollar.

Pearson: All right. So as we go into 2010, maybe a strengthening dollar. Let's talk about these grain markets. Let's talk first about wheat and what you see happening on there. When you've been on the show in the past, I know you've been talking about a lot of wheat out there worldwide.

Pfitzenmaier: It still is. That situation – wheat is being led around by other markets mainly. You've got fairly big resistance up here in the $5.50, $5.60 range. Maybe if, you know, some unusual circumstance gets going here, maybe it can go up to $6.00. I'd be surprised if we can go that high. I think you're up in the resistance levels where you need to start moving some wheat. There's a lot of it around. The demand for U.S. wheat is not that great. Start moving it.

Pearson: All right. Let's talk about the corn market and what you see happening there. It's been a pretty strong closing quarter for corn. There's still corn out in the field. That's still an issue. I hear a lot from the processing community about quality issues and storage issues for 2009. How is that all going to play out in terms of price as we go forward?

Pfitzenmaier: I don't know that hardly any of that makes a whole lot of difference to prices. Maybe if there's some extreme field losses. Most of the people I talk to that have been harvesting are saying that their field losses up to this point haven't been that great. Now, maybe what you harvest in the spring is going to be, still probably not much more than 20 percent which, you know, that amounts to 50 to 100 million bushel of corn. Not a big deal. We could lose that much in an export number next month. So, I don't think that's a big deal. In terms of quality goes, it's going to be a problem if you've got poor quality corn. Potentially I suppose, export buyers – the buyers of our product may back away from us a little bit if they think we don't have, you know, top quality product or at least try to buy it cheaper because of it. But we're not going to destroy any corn. It's going to get used and shuffled around and blended in all the other things they do. I guess I don't really see it as a huge market factor. It's nice and interesting to talk about and all that, but I don't think it has that much impact on price.

Pearson: All right. 2010 for corn, what are your thoughts on making sales?

Pfitzenmaier: For the 2009 crop or –

Pearson: The '09 crop.

Pfitzenmaier: The '09 crop I think rally – we've rallied some 45 cents here off the lows. Basis has tightened up some because people can't move corn – aren't moving corn because of the weather. So you know, opportunities were created just this last week of tightening basis, so I think if you've got a corn that you think has any chance of going out of condition, it needs to get moved. You've got a fairly decent price and a lot of risk storing that crop.

Pearson: All right. So 2009, you're saying let's make some sales now.

Pfitzenmaier: And if we move up from here, just keep scale up selling from here. I don't think the upside potential is that great. We've been in a trading range here now since basically the end of the summer that we'd bounce back up to the top side, down to the bottom side. It's about a 40 cent range. We're up to the top side of it now. If we break out the top of that then maybe things are going to change. Until we do, it looks to me like we're just in a trading range and that we're probably not going to break out of it very easily. That January 12 report does have the potential for fireworks in there. And there's a lot of uncertainty even in the final number because of this corn remaining to be harvested, but barring that, I don't see a lot of change.

Pearson: All right. Now, let's talk about 2010. You're making some sales on 2010 corn at this point.

Pfitzenmaier: Absolutely. Cost of production is going to be down. It depends on who you talk to, 50 to 125 an acre. You've got the chance to lock in a $4.00 plus corn, and you can do that probably using an option. I mean, that's not just selling. That's using an option and leaving yourself some more upside potential. I don't know why you wouldn't do that. You start calculating that on any kind of a yield, and we're probably going to go into next year with good subsoil moisture, which almost always gives us the potential for a pretty decent yield. So, yeah, I think we have to start making sales here. If you're, like I said, there's great option opportunities. If you're one of the camps that thinks that we have to bid up for acre or whatever bullish reason you've got, leave yourself some upside potentially in that circumstance. But these are fairly good prices for next year.

Pearson: Take advantage of it. What about soybeans? Same thing?

Pfitzenmaier: Soybeans same thing. I mean, we're facing a wall of beans coming at us here February, March, April timeframe. They're probably going to make it tough for beans to rally. Now, Chinese demand has kept us well supported here. We've had a nice 62 percent retracement almost exactly off the low. Nice bounce up. The momentum indicators are getting ready to roll over again. I think, you know, rush out there in the next week or so and take advantage of some of this. That's a nice rally. Demand is good but, again, China is not going to probably stay at this pace. As soon as those South American beans come, that's going to fall off. We're going to end up with front-end loaded demand. So, yeah, make some sales.

Pearson: All right. So, get a little aggressive out there. Let's talk about the livestock side of this thing, Tomm. It's been a challenging year, to put it in the best frame possible for the whole livestock industry. Let's talk first about fed cattle. What do you see for 2010?

Pfitzenmaier: I think early in the first quarter we're still going to struggle. You know, I've been harping on this for a year now. Demand is a problem for beef. It's not the numbers. It's the demand. And I don't think that first quarter is going to be all that great yet. People still, you know, trying to pay off all their bills from Christmas. I just don't see us running out, buying the expensive steaks, and the things they have to buy in order to support a strong cattle market. We've already got fairly – we've had a nice rally. This rally gave us a nice little rally. You've got fed cattle up in that 86, 87. If it happens to get to 88, you've got to make some sales. April cattle, if they should stock their nose above 90 cents, I think you need to make some sales for that first quarter. Beyond that, maybe things could start to get better. Like I said, part of the reason that dollar is stabilizing, this economy is turning a little bit. A few people are getting a little more confident. They're still losing their jobs, and until that starts to improve, it's going to be difficult here. But, you know, the futures market is already well ahead of where the cash market is. So take advantage of that too, and that's going to correct one way or the other.

Pearson: All right. Feeder cattle market. You mentioned the low numbers. We've had this for some time now, this small cow herd. IT looks like the calf market improved some this fall. Maybe the wet corn. What do you see there?

Pfitzenmaier: Yeah, I don't see that changing. The market – from what I can tell from people that tell me that they're buying calves and trying to hedge them off and make a little money on them, there is a slight margin there. And they tend to bid them up right to the point where there's no margin anymore. So maybe there's a little more upside potential in that market. Not a lot. It's going to have – you're going to have to raise the cap on that fed market before that feeder market is going to be able to rise much. If corn gets cheaper and falls apart, that may be supportive too. I don't see corn really falling apart here. I just think it's going to have a difficult time rallying.

Pearson: All right. Let's talk about the hog market. We've had a good rally there. You thought we would strengthen up some here. What do you think first quarter 2010? What do you see?

Pfitzenmaier: Again, I'm not so confident in the first quarter. The second quarter, they're already anticipating getting things – things getting better. We had the hog and pigs report out Wednesday afternoon about like everybody was expecting. The one thing that was maybe a little concerning is that the farrowing intentions were up a little higher than the trade was anticipating so that, you know, the producers are starting to chomp at the bit a little bit to gear up on producing hogs. And if they do that and you've got those summer hogs up in that, you know, high 70 area, you better take advantage of that instead – and take the burden of hand and waiting for the two in the bush, I think, in that particular situation. In the spring we're probably all right.

Pearson: All right. Tomm Pfitzenmaier, as usual, appreciate your insights. That's going to wrap up this edition of Market to Market. But if you'd like more information about where these markets may be headed, visit the Market to Market Web site. Now, before we go, we want to let you know about our next rural economic summit. It will be in Madison, Wisconsin, on January 20. It's the second of four special road editions examining the rural economy. We'll assemble a panel of experts, and you're invited to join in the discussion by submitting your questions at the Market to Market Web site. Of course, be sure to join us again next week when we'll take a look back at the first decade of the new millennium. Until then, thanks for watching. I'm Mark Pearson. Happy New Year!

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