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Market Analysis: Jun 05, 2009: Tomm Pfitzenmaier, market analyst

posted on June 5, 2009

Corn futures followed the dollar and equity markets higher this week, while the mass exodus of speculators pressured wheat prices.

For the week, July wheat lost nearly 14 cents, and the nearby corn contract was up about 8 cents.

The real action again this week was in the soybean pits where the July contract gained more than 40 cents and the nearby meal contract was up $14 per ton.

In the softs, cotton fell below the 60-dollar mark as the December contract posted a loss of $1.28

In livestock, June cattle were down $1.17. Nearby feeders lost more than $5.00. And the June lean hog contract posted a hefty loss of $6.75.

In other markets of interest, the Euro lost 170 basis points against the dollar. Crude oil gained more than $2.00 per barrel. Comex Gold was down $17.70 per ounce. And the Goldman Sachs Commodity Index gained more than 10 points to close at 454 even.

Market Analysis: Jun 05, 2009: Tomm Pfitzenmaier, market analyst Pearson: Here now to lend us his insight on these and other trends one of our longtime regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mark.

Pearson: Looks like things are kind of heating up again in the commodities as we go into the summer months being led in part by a cheaper dollar and higher oil prices. What do you see ahead on that front, Tomm?

Pfitzenmaier: Yes, that's the perception anyway by traders is that everything that the government is doing, all the policies that they have adapted are ultimately going to lead to inflation and one of the ways to protect against inflation is to own commodities, to own aluminum or copper or grains or gold or the whole bundle so that's why you've seen a lot of our commodities this week benefit from that. And also all this has made people run as fast as they can run away from the dollar which is also supported. That's why I guess we're having that little island that Neil Harl referred to earlier in the show. That's kind of what's going on here in the short run.

Pearson: So, where is this all going to lead us? Oil is going to keep going up, there's talk out there $75, $85 a barrel, is that going to pull the corn and the bean markets up along with it?

Pfitzenmaier: Well, it's going to pull corn along. This biodiesel thing just doesn't work very well -- crude oil goes up but also the price of bean oil goes up so they just continue to not be competitive. Bean oil usage for biodiesel is down like 60% versus a year ago. So, that has kind of priced itself out of the market for a while here. On the other side, ethanol probably going to continue to benefit. The higher price of corn hurts but the crude oil is going up to offset and you've seen ethanol prices go up also.

Pearson: So, we've seen some strengthening in that part of the world, these stronger energy prices. Talk about this weak dollar, though, Tomm. Obviously there's a lot of fiscal stimulus spending going on for one thing and the outlook is for more. Is that what's driving the dollar? Are there other factors?

Pfitzenmaier: There's a lot of policies that we have implemented that are not friendly to the dollar. The sanctity of contracts and some of the other things that people kind of trusted about the U.S. with all these banks and auto companies everything kind of being quasi-taken over I guess you might say I think is scaring the investors that normally ran to the dollar for comfort and security and now they're looking around and going maybe we can go to the Australian, maybe we can go to the Canadian dollar, there's other places we can go and they're running away from the dollar. I don't see policy changes coming up that are going to sort of blunt that for a while here anyway.

Pearson: Let's get down to these commodities. Let's talk about the wheat market first and what you see happening there. A little bit of pressure there this week, we're moving into harvest, what's happening here?

Pfitzenmaier: Wheat shouldn't have gone up as high as it did in the first place. I don't think it was a huge surprise to anybody. There's a lot of wheat around the world and a lot of it is cheaper than what our wheat is. So, we had this nice little run up because, again, the dollar cheaper, all the other beans going up, corn going up, everybody kind of got euphoric and started thinking about last summer and how great the wheat market was then and they started running in and buying wheat and then all of a sudden by the end of the week they went, wait a minute, maybe that wasn't such a great idea and they started dumping wheat back out particularly Thursday was an ugly day.

Pearson: It was ugly. So, at this stage of the game what are you telling producers?

Pfitzenmaier: We've rallied up to levels that we probably shouldn't have been at. You get up in the mid $6.50s and you need to be selling wheat because there's not really anything going on that's going to sustain wheat up at those prices.

Pearson: You talked earlier about ethanol and the impact on corn for oil prices. Was that part of what happened this week then?

Pfitzenmaier: For the corn market -- yes, partially, you've got the weather going in and then you've got fund buying, the funds are just pouring in buying corn all week this week. We're trying to triangulate here now what is the demand for corn. We've decimated the livestock industry as you saw from the quotes we had just at the beginning of our segment here and that's a big lag of the demand for corn is really getting hurt badly. Ethanol is probably going to hang in there okay, the question is how much benefit are we going to have for exports from the weaker dollar? The weaker dollar should have benefited livestock markets and it hasn't done a thing for them this year. So, it doesn't necessarily translate to excess in commodity buying. We have to figure that out and then we've got this acreage, as of Monday we had about six million acres to get planted and that's the big question, how many of those six million acres are going to get planted and how many are ultimately going to be switched over to beans? Right now everybody is assuming 1.5 to 2 million acres are not going to get planted and are going to go to beans which then you have to say what is yield going to do? Well, the late planted stuff is going to yield a little less, obviously the stuff that doesn't get planted at all gets subtracted off and then you have to ask yourself that stuff that got planted early really looks good, it got planted in good shape, they're calling for normal precip and cool temperatures which is perfect for growing corn this summer so where are we going to be on that. We've got another acreage number, a little more firmer acreage number coming out the end of June, I think people are going to be watching that. We've got an updated supply and demand report coming out next week that's going to kind of give us a hint on where we're at on carryout. But the acreage number is really a big wildcard that people are going to kind of focus on most of this month.

Pearson: Do you think we're just going to see more sympathy buying of corn with the crude oil complex and everything else and the concern about acreage? Should we hold off on making sales? This looks like a pretty fat price in here.

Pfitzenmaier: It is -- I think anywhere here upwards of $4.70 to $5.00 range it's a heck of a good price for corn. If you have a good yield which kind of is shaping up we're going to have for most people I think you'd be hard pressed to find a reason not to be starting to get some sales made. Historically this is the time of year when it happens. Last summer taught us a lot about not ignoring these good prices when they come along because they can slip away from you and we do have demand issues here, like I said, on the livestock side. So, don't let yourself get too bulled up here on this.

Pearson: Talk about the soybean market and what you see happening there. Obviously more acres it looks like, more production, more numbers going into next year and more carry out.

Pfitzenmaier: It's a tale of two markets, you've got the old crop situation that is really going to be tight -- again, that's the number they're going to be looking at next Wednesday morning on that supply and demand report is how tight will the USDA make that old crop carryout number and where is pipeline? They're probably going to have to put it at pipeline and ingest everything backwards just to make it work. So, then you have the other thing is what is demand going to do? This week we saw cancellations from the Chinese, they actually had a negative export number. If that starts to continue and people start backing away then the old crop has accomplished what it needed to accomplish, people begin to look at new crop and go, wait, we might pick up some acres from cotton, some acres from wheat, some acres from corn, some of those fallowed acres might start getting pulled back in since we've rallied beans $3 since that sort of survey was done. So, you get up in this $10.50 to $11.00 range, again, you need to be a seller or find some way to get minimum prices or something on new crop beans.

Pearson: You talked about the livestock markets a minute ago, the fed cattle market a disastrous week on the board, same thing on hogs. Talk about where you see the fed cattle market going forward.

Pfitzenmaier: I've been hammering on this all winter, we keep talking about numbers, concerned about numbers and the numbers aren't the issue, the numbers are down, it's the demand for the product. You've got hamburger this week is almost a dollar higher than Iowa chops are. How are you going to move the beef? You've had periods where you had choice higher than select, that's not a good setup for having good beef prices. Now, maybe you can get rallies back up in the mid 80s, 84, 85 and those probably should be sold because I don't see anything that's all that positive for that market demand wise over the next two, three, four months.

Pearson: This calf market, again, we talked about these small calf crops and everything else that we're dealing with, feeders took it this week too, they took it hard.

Pfitzenmaier: Yes, and we've got good grass. Probably a lot of that buying has been done and you just start to see high corn prices and people will back away. I had a producer say to me this week, he said, I've been feeding cattle and I've been watching my neighbors hauling corn to town for $4 a bushel and I'm sitting here losing money on the cattle I'm feeding my corn through, why do I want to continue to do that? I think that's the attitude of a lot of producers, why do it and lose money doing it?

Pearson: It's even worse if you look at the hog sector, that's eighteen months, some extremely lousy returns. Things started rolling, you had the H1N1 hit which bears no resemblance on the realities of the marketplace but there it is, it does because of the media hysteria over it and now we're looking ahead in this hog market and now they're talking about a sow buyout program similar to what we have in the dairy sector and that's another issue we could go on about. As you look ahead in the hog market, Tomm, you can buy pork awfully cheap right now at the grocery store.

Pfitzenmaier: Well, yes, you can and the domestic demand is probably going to be shored up by that. There's like sixteen different countries that have backed off on their purchases of U.S. pork using the H1N1 as an excuse or a reason or whatever word you want to use and until that gets shored up and we start moving that product out -- we should be moving it. The weaker dollar, the good supplies, there's a lot of supply, we should be down two and a half, three percent on numbers but the weights are up near record levels for this time of the year so we're pushing a lot of pork out and it's just not moving very well. You've got the summer months higher than the cash market is, not as high as they were so I guess you keep selling that carrying charge figuring ultimately those deferreds are going to come down to where the cash market is trading.

Pearson: That's what we'll have to leave it at, Tomm, thanks so much. Tomm Pfitzenmaier with us this week, we appreciate his insights. That's going to wrap up our edition of Market to Market for this week. If you'd like more information from Tomm on where these markets just may be headed visit the Market Plus page at our Web site, you'll find streaming video of our program and you can download audio podcasts of our Market Analysis and Market Plus segments free at our Market to Market Web site. And be sure to join us again next week when we'll examine efforts to preserve historic barns in the Midwest. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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