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Market Analysis: Oct 05, 2007: Tomm Phitzenmaier

posted on October 5, 2007


Most of the commodity markets -- especially coarse grains -- took on a decidedly different tone this week running the bulls out of the pits.

For the week, December wheat lost 49 cents, while the nearby corn contract moved more than 30 cents lower.

Soybean prices followed suit with the November contract giving up more than 50 cents per bushel, while soybean meal was down nearly $17.00 per ton.

In the softs, cotton also trended lower with the December contract posting a loss of $4.63.

In livestock, the October cattle contract lost $3.28. Nearby feeders were down $2.35. And the October lean hog contract declined 68 cents.

In other markets of interest, the Euro lost 135 basis points against the dollar. Nearby crude oil prices lost 44 cents per barrel. Comex gold gained $4.40 per ounce. And the CRB Index lost nearly four points to close at 330.50.

Market Analysis: Oct 05, 2007: Tomm Phitzenmaier Pearson: Here now to lend us his insight on these and other trends, one of our regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mark.

Pearson: Well, let's start off with the wheat market. Of course, that's been such a startling market over the last four weeks, Tomm, it's been unbelievable. Backing off a little bit in Chicago this week, have we seen it all in terms of the bull market for wheat?

Pfitzenmaier: Your intro there sounds like we've seen it all in everything.

Pearson: It looks like everything's sliding backwards here. But what do you think here on the wheat, Tomm?

Pfitzenmaier: Chicago wheat probably a good chance that has topped out. I guess I'm not sure that Minneapolis and Kansas City won't go back and re-test their highs. But it's beginning to look like, like the Chicago wheat contract has and, you know, we've had a pretty good run, obviously an extremely good run in wheat, been able to sustain that kind of strength that's pretty difficult without having constantly fresh news being fed into it. And, you know, the Australian wheat crop has been a big factor, we've been trading that now for a couple of weeks. I don't know if it can get a lot worse. There is a possibility of rain late next week. If that happens then we'll have to see how much can be salvaged. Wheat is one thing where if you get rain on it, it can come back and do fairly well. So, we had good export numbers out on Thursday morning and in spite of all that we still had a fairly weak market this week. So, it's just starting to act kind of tired.

Pearson: Alright, it's been, like you say, quite the bull run here since wheat price exploded higher. For producers at this stage of the game, obviously, any old crop you'd probably recommend that they get cleaned up at these levels. What about new crop sales, Tomm?

Pfitzenmaier: Well, if the market is topped out it's all going to go down together so it would seem to me maybe it can be pulled back up after we get the corn and bean harvest done, you start running into this competition for acres, business that might pull wheat back up some. But you're at good enough prices here where I think you'd be foolish to not at least take a fairly good chunk of that.

Pearson: And you're looking out like July on Chicago?

Pfitzenmaier: Exactly.

Pearson: Alright, and take advantage of that. The cheap dollar obviously is having a big impact on all of our commodities. We mentioned wheat exports are up, the other markets up as well. Just real quick, Tomm, on the dollar what are your thoughts on that?

Pfitzenmaier: Well, the dollar is a market -- our currency markets in general are markets that tend to trend for a very, very long time and I don't see anything happening interest wise, world wise, whatever that's going to change that direction in the dollar. I mean, a lot of people have looked at several times for that to have bottomed out and you heard talk of that again this week. I guess I'd want to see a lot more confirmation of a turn in the dollar than just a few days of an up tick. It looks to me like it's a market that's in a down trend that's going to continue for a while.

Pearson: Okay, of course, in terms of selling and moving our product overseas you can't have a better partner than cheap currency.

Pfitzenmaier: No, it's very supportive on the export demand side of our products, no doubt.

Pearson: We've talked about the demand for ethanol and export demand and we're in the throws of the 2007 corn harvest. Let's move on and talk about corn, Tomm, and what do you see happening at this stage of the game? The floor has come off some of those deferred contracts down the road.

Pfitzenmaier: You know, in the near term we're probably going to see some harvest pressure. We have seen a little bounce in the dollar. That has hurt a little bit. The beginning of the week we had kind of a wash out in the precious metals, they came back and closed well. But, you know, it kind of, everything sort of fell apart there the first part of the week and then we sat and waited for something to happen and nothing did. So, with harvest progressing we're probably going to see another two or three weeks here of some pressure on the corn market. It's gotten very oversold, momentum indicators are getting ready to turn back up, didn't quite do it on Friday but may very well on Monday. So, I don't want to, you know, I wouldn't want to be a huge seller on the bottom end of a 40, 45 cent break in corn but, you know, we close around $3.40, maybe we could go down and re-test the lows down at $3.24 so that's only 16 cents lower than where we've been here recently. So, not a lot of down side I don't believe from here.

Pearson: And we talked about the acreage competition starting to heat up, corn and beans, the two drivers ethanol and exports. What is your take on ethanol at this stage in the game?

Pfitzenmaier: Well, that's one of the things everybody is going to be concerned about. We've got a big updated supply-demand report next Friday morning where we're going to take the stocks numbers that were updated last Friday, we're going to incorporate some different yield numbers, we had some privates out this week that indicated that we're going to be up a bushel or two on yield. We're going to -- some believe we're going to make some adjustments for ethanol demand and maybe some in exports although most people think that's going to be left unchanged. So, that's where all the uncertainty is going to come for next week. And to answer your question about ethanol we seem to be kind of stalling out here. I mean, there was some, there's been some optimism that we're on an upward, unending pattern up and it looks like maybe we've got some bumps in the road. The producers feel it's bumps in the road, others think it may be a stalling out. We're producing a lot of ethanol as we've seen the price of ethanol has dropped quite a bit over the summer here. And the profitability of it isn't as good as it was. We don't have the blending or the transportation capabilities to move what we're producing. If that gets straightened out maybe it's going to be alright but I think we're probably being a little optimistic on some of the estimates we're using for next year.

Pearson: Let's talk about -- over to the soybean market and what you see happening on that front, again, a very volatile market, very strong prices, you know, we've got this situation trying to get Brazil to plant more acres in the U.S. Are we there yet or does this market have to go higher?

Pfitzenmaier: Oh, I think it has to stay high. Part of the problem with South America is that northern Brazil area is so dry they can't plant so we're just sort of sitting here waiting, those beans should have been planted in September and they're just sitting waiting for rain. If that rain comes along then that's going to get planted. I saw some estimates this week we're saying that Brazilian acreage may only be up 1.4 to 4.8 percent was the range I saw. If that's the case that's going to be a little less than traders looking for a 6 to 8 percent increase. So, if those numbers aren't there that's going to be another supportive factor and then you add in the competition for acres between corn, wheat and beans and cotton next year and it's going to make, you know, after this little break here into harvest you get post harvest probably after the December contract those options go off the board around the middle of November, then I think you could see some more up in corn, well all of them, yeah, all of them.

Pearson: Real quick, Tomm, cotton market, as you look at that, a big free fall this week. What's ahead for cotton?

Pfitzenmaier: Well, you know, cotton has had some pretty darn good weather come through, Texas really looks good, it's dry down there, it looks like harvest is going to go very well. The Indian crop is way above what everybody was expecting it to be so cotton has got some problems. I think you're going to find fairly good support on December cotton around 59.80 to 60 cents, you know, right down in there, show some pretty good support and I suspect we'll bounce off that and then we're going to be back into the acreage mix and working that out. There are scenarios by which you could see cotton back up into the upper 60's by mid-winter here.

Pearson: Alright, let's move over to livestock. Fed cattle market I know there is hope that we'd hold a buck or better on this fed cattle market. What is your outlook now as we go forward?

Pfitzenmaier: Well, we had a market that was kind of in a correction mode anyway, cash market was expected to be lower this week as it was and then we kind of hit a road bump with this E-coli that your earlier report on the show talked about and that kind of made things a little bit on the ugly side going home on Friday. That had the look of a bit of a wash out. I don't expect there to be a lot more down side potential. We are running into a ton of competition from pork, there's just a lot of pork around and it's a lot cheaper than the beef is so that's a bit of a problem. We keep running into problems with the shipments of the beef we're sending over to South Korea every time we think we're going to get that Asian thing going it kind of stalls out or there's some problems crops up. If you just look purely at numbers the numbers are fairly good on beef. That side of it is fine. The demand is where we're kind of struggling a bit. You get rallies back up in cattle, back up in that December, back in the 150 to 101.25 area I think you have to become a seller of beef again.

Pearson: Alright, let's talk about this calf market, a little bit longer view of where you see this cattle market going. Feeder prices have been very strong, this pull back in the corn as usual has helped bolster feeder prices and the fact there just doesn't seem to be a lot of them out there.

Pfitzenmaier: Yeah, that market continues to be strong. I think it's overdone, I think it's probably a bit too high but as long, if corn gets cheap, stays cheap that's going to be supportive and then we're going to have to see how, you know, the live market if we stay around a buck for cattle you're going to continue to see very strong calf prices.

Pearson: You mentioned competition from pork for beef and boy that's true. This hog market has really gotten cheap.

Pfitzenmaier: We're slaughtering a lot of hogs and they're heavy and if you're a retailer that is the thing you're going to feature, you're not going to feature the beef, you're going to feature the thing where there's a lot of it and you can really move it and the packers continue to have good margins so they're moving as much through as they possibly can and all that builds on itself. We haven't had a period of unprofitability in hogs in quite some time so you've continue to see expansion. That hog and pig report was kind of not very friendly last week, you've fought this circle virus problem for the last couple of years, now that seems to be getting cleared up as the vaccine from what I hear actually has given some benefits. So, there's a lot of pork on the market and it's going to take a while to get it moved through. I think rallies on December hogs back up above, you know, 61 to 63.5, that's a wide range I understand, but you get back up in that range and you have to be a scale up seller. The deferred months back out into April and June are already pretty high. Any kind of a rally at all there I think you need to be a seller on those markets.

Pearson: Very good, we'll have to leave it there. Tomm Pfitzenmaier, thank you so much. That will wrap up this edition of Market to Market but if you'd like more information from Tomm on where these markets just may be headed visit the market plus page, it's at our Market to Market website where you'll find streaming video of our program and you can also download audio podcasts of our market analysis segments and our bonus market plus segments absolutely free. It's all at our website. And be sure to join us again next week when we'll examine the impact of USDA's much anticipated crop production report. So, until then, thanks for watching. I'm Mark Pearson. Have a great week.

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