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Market Analysis: Jul 17, 2009: Tomm Pfitzenmaier, Markey Analyst

posted on July 17, 2009

Virtually ideal weather in much of the Grain Belt this week pressured corn prices, while wheat trended higher.

For the week, September wheat gained 13 cents, while the nearby corn contract lost nearly 25 cents.

Rumors that China will dump half-a-million tons of soybeans on the market further hampered prices. For the week, the July contract lost $1.45 and the nearby meal contract was down nearly $65 per ton.

In the softs, cotton moved higher again this week as the December contract posted a gain of $1.61.

In the dairy market – and we'll be keeping an eye on this for you – Class III Milk futures closed Friday on the Chicago Mercantile Exchange at exactly 10.00 per hundredweight.

In livestock, August cattle were up nearly $3.00. Nearby feeders gained $1.68. And the August lean hog contract gained $3.52.

In other markets of interest, the Euro gained 190 basis points against the dollar. Crude oil declined $3.16 per barrel. Comex Gold was up $25 per ounce. And the Goldman Sachs Commodity Index lost 20 points to close at 416-even.

Market Analysis: Jul 17, 2009: Tomm Pfitzenmaier, Markey Analyst 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 back.

Pfitzenmaier: Thanks, Mark.

Pearson: What about this Chinese dumping of soybeans? What's happening there? They were buying up every bean they could get this spring.

Pfitzenmaier: Well, I think psychologically it causes a little dip the middle of this week. I don't think it's that big a deal. They're going to continue to buy, they are buying from us so it obviously kind of made everybody a little nervous but I don't really think it's that big a deal in the long run.

Pearson: Earlier in the show we were talking about crude oil prices and where we were last year, $4.11 the national average price, we're down over 40% from those levels today, a lot of concern in June that that wasn't going to be the case. We saw those prices spike up, the fed's statistics showed us the impact of that. What is ahead for crude oil? Are we just a wash in oil now?

Pfitzenmaier: Yeah, that's why you've seen the big carrying charges in that oil futures market is that there is plenty of oil around, it's all in storage, it's all out floating around with everybody selling that carrying charge so that's why the up side is fairly limited until that gets worked through and it doesn't seem like that's going to happen for a while. So, we're probably in a trading range in the mid 50s to $70 on the top side and we're going to bounce around in there for quite some time it looks like to me. That drop in crude oil obviously impacts us because it has driven ethanol prices a little bit lower so it's kind of a double edged sword from an agricultural standpoint.

Pearson: That's right, now they're kind of trading with the energy sectors so that is a problem. But on the flip side, Tomm, as you look at this market in export potential which is so critical the dollar at this point, are we starting to see some signals which way it's going to start to go?

Pfitzenmaier: Well, I think we're still in a slide here which is good for us. I guess eventually at some point it's going to stabilize but I haven't seen any signs that that's started to happen yet.

Pearson: So, you see it continuing to weaken going forward?

Pfitzenmaier: Yes.

Pearson: Let's talk about this wheat market, a little bit better this week. The last time you were on you were talking about there's plenty of wheat out there. So, if we got some up moves probably a good chance maybe to make some sales but maybe pull your horns in for the time being. Still feel that way?

Pfitzenmaier: We sold off into the harvest. The harvest is about 80% to 85% wrapped up and that generally signals the end of sort of the decline, summer decline in wheat prices so I'd expect things are going to recover from here, not a lot, we're trading in the mid-5's and we could bang on $5.90, $6.10, somewhere up in there and that would be the place I'd look at to make sales. I wouldn't get in a big hurry down in here. I think you'll see some recovery.

Pearson: So, sit tight if you've got wheat sales to make. Let's talk about corn. You mentioned ethanol, obviously softer energy prices, it looks like continually lowered livestock and poultry and dairy numbers as far as that goes for demand for corn and it looks like a fairly decent crop out there.

Pfitzenmaier: Good crop, feed demand is the big problem. We're exporting a fairly good amount. Margins on ethanol have improved obviously with corn going down and ethanol prices dropping but not that much. So, yeah, the problem is we've got a big crop coming out there. The USDA chose not to make any adjustments in yield on their last report which is a bit of a surprise to most people. There's estimates bouncing around here as high as 170 bushel per acre. There's some huge numbers kind of bouncing around here. If we even get 158 to 160 bushel yield it's going to be depressing on December corn futures no question about it.

Pearson: What kind of price can we expect if we do run into this where we come up with a billion and three quarters or 1.9 billion bushel carryout? What kind of a price can we expect in that kind of a scenario?

Pfitzenmaier: I think you're going to have futures sub $3, probably take out those winter lows back at $2.71 temporarily anyway. So, I think there is probably 50 cents down from where we closed on Friday under that particular scenario. I guess I'd lose some of my bearish enthusiasm as you start to get under $3. If you were short and had some hedges on it that's probably the point where I'd start to maybe climb off of those a little bit.

Pearson: And, again, when it comes to making sales what are your thoughts on corn?

Pfitzenmaier: A rally back up in that $3.45, $3.50 if some crazy unexpected thing happens maybe $3.75, I doubt we can get to that point but $3.40 to $3.45, just under $3.50 you'd have to be a seller again. That will lock you in $3 plus cash corn.

Pearson: Do you think we're going to have a normal year in terms of the harvest low this year, fairly normal as opposed to some of these contraseasonal moves in the past?

Pfitzenmaier: I wouldn't be a bit surprised to see that August report, we come in with a big yield, that August report we tank the market, that could be it and then we start to pump premium in as everybody gets concerned about early frost and how late the crop is and all that. So, I think that low could come in the next 30 days or so would be my expectation.

Pearson: What about on soybeans? Where are you on the soybean crop?

Pfitzenmaier: Well, the soybean market, as you talked about earlier, we lost quite a bit this week but they had a lot of premium pumped into that soybean complex and I think there's a lot of air to come out of it yet. I think you could see that November bean contract sub $8, we're up well over $9 by the end of the week this week so there's a lot of down side potential there too. Again, the USDA did not adjust the yield there on beans and probably that would be appropriate to bump that a little bit. The crop condition rating on corn and beans have been hanging in there really well so far and I'd expect that Monday they're probably going to be good again. So, at some point you're going to have to make some yield adjustments.

Pearson: Let's talk about the livestock sector. This has all been good news. The National Cattlemen's annual summer meeting out in Denver there were a lot of smiling faces out there, even with the tough pricing we've had on fed cattle now they're starting to see some improvement in margins with these weaker corn and meal prices, fairly upbeat. Price wise though for fed cattle we've had a nice move this week, we've had a nice bump off the low. What do you see ahead?

Pfitzenmaier: Well, you've had a nice bump, we can't hardly get $83 on the cash market and they're trading October cattle up at 91, 92, there's a lot of premium built in this and you have to assume that everybody is going to run out and buy meat the next 60 days to bump that up. You're being presented with an opportunity here. When you get to 92 cents you don't run out and buy cattle and not hedge them. There is an opportunity being presented and you have to take advantage of it. That's a huge premium for a market where the demand has been poor, there's no signs of that demand particularly improving, maybe packer margins are going to improve and they're going to be allowed to make a little more money but to the producer I don't see any big jumps coming here in the future which is another bad sign because producers sit and look and they say, well, the futures are going to get higher, why would I sell my cattle now when there's all this big premium coming and then all of a sudden by the time you get there the premium disappears on you. So, sell that premium when the premium is available to you and don't just sit around waiting for it to hopefully be there.

Pearson: So, you'd sell that October cattle contract.

Pfitzenmaier: At least buy yourself a put. You can buy a put at $88, a 90 cent put that allows you to get some kind of a floor locked in there in case it does fall and corrects back down and follows the cash down instead of the cash following the futures higher.

Pearson: Last time you were on you said we've got our supply, it's all a matter of demand picking up and it looks like that's going to be the case. But, again, the general economy has to strengthen. Do you see that in the fourth quarter?

Pfitzenmaier: No, the general economy isn't going to improve until 2010 sometime. You're not going to see hardly any improvement in 2009. So, you don't have that going for you when you're talking about trying to market livestock. There's problems here, the market is trying to be optimistic, you've had a $6, $7 rally in cattle here, take advantage of it.

Pearson: What do you see in the hog market?

Pfitzenmaier: Hog market same thing we've rallied $6, $6.50 off the lows, a lot of times hogs move $10 so if you get another $2 or $3 on that, again, there's a lot of pork, your reports earlier show we've got cows are going to get dumped on the market, there's a lot of meat still to get moved, maybe some liquidation yet to be done in sows which is going to keep plenty of pork on the market. So, we've had a nice rally here, maybe you'll get a little more but, again, take advantage of it. You're still trading -- the cash index is down at $56, $57, $58 and you're trading futures well above that. Take advantage of it.

Pearson: Real quick, Tomm, cover some feed needs here?

Pfitzenmaier: Not here but in the next 30 days if we break it pretty hard there's going to be a chance.

Pearson: Very good, Tomm Pfitzenmaier, thank you so much. That will wrap up this edition of Market to Market. We want to make sure you get more information from Tomm on where these markets could be headed so visit the Market Plus page at our Web site. You'll find streaming video of our program and you can download audio podcasts of this Market Analysis and Market Plus, our extra segment, absolutely free at our Web site. Be sure to join us again next week when we'll examine efforts to preserve Pennsylvania barns. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture commodity prices corn markets news wheat