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Market Analysis: Apr 20, 2007: Tomm Pfitzenmaier

posted on April 20, 2007

Spring brings with it weather-influenced markets and for the next several weeks, the trade will focus on planting progress. But this week, storm damage in wheat country moved prices higher.

For the week, May wheat gained more than 23 cents, and the nearby corn contract lost 8 1/2 cents.

Soybeans prices continued their decline, giving up nearly 15 cents from a week ago and more than 37 cents from earlier this month. The may meal contract was down nearly 14 cents from last week.

In the fiber market, the nearby cotton contract gained back much of last week's losses posting a gain of $5.58.

In livestock, the April Cattle on Feed report came out Friday after the markets closed but was mostly neutral to bearish. For the week, the April live cattle contract was down $1.43, nearby feeders lost 20 cents. The May lean hog contract posted a gain of 62 cents.

In the financials, Comex gold gained $6.60 per ounce. Nearby crude oil prices were up a quarter per barrel. The Euro advanced basis points against the dollar. And the CRB Index lost nearly 7 points to close at 317.75.

Here now to lend us her insight on these and other trends is one of our regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Market Analysis: Apr 20, 2007: Tomm Pfitzenmaier Pearson: Here now to lend us his insight on these and other trends one of our regular market analysts, Tomm Pfitzenmaier. And Tomm, welcome back.

Pfitzenmaier: Thanks, Mark.

Pearson: Well, we're into the planting season, we've got to plant a huge amount of corn. We have to have a decent wheat crop too. And certainly wheat country got clubbed pretty hard by the weather here the last 10 days.

Pfitzenmaier: Yeah, that obviously has put some pretty good premium back into the wheat market although as your report earlier said it's still 55% of the crop good to excellent so there's still a lot of good wheat down there. But it has generated a really nice rally last week or so, week or ten days. There's probably a little more in that, maybe 20 cents, 15, 20 cents I guess kind of to challenge those winter highs and then I think you're probably going to start to see that kind of run out of steam here.

Pearson: Well, it's going to be interesting to find out what also happens on the spring wheat front too in terms of what we do get planted.

Pfitzenmaier: Right, and how many acres are going to get torn up, there's a lot of questions there. Australian wheat crop is kind of sketchy at this point. They really need some rain over there or they're going to have some problems so that's another one that's kind of sitting out there waiting to develop as a potential friendly factor in the wheat market also.

Pearson: So, right now -- and speaking of which -- the soft red market, the Chicago market some of that could get torn up and get planted to corn if the frost problems are as bad -- there's so many variables out there still at this point when we should be in the field planting corn, there's so many other variables going on it's hard to piece it all together. Let's talk about pricing wheat. With the premium in this market should we be making sales?

Pfitzenmaier: That's what I'm saying, you get up another, you know, 15, 20 cents from here really challenging the winter highs and yeah, I think you should be not just kind of thinking about it, I think you should flat out be selling some wheat up in those areas. Those are very good prices and I don't think you should feel bad about pulling the trigger on some of it.

Pearson: Alright, let's talk about what's driving everything it seems and that's the corn market. And, of course, we're behind as we just mentioned on the show earlier in terms of planting for this year. And, again, strange conditions, snow fall in April in a big part of the Corn Belt, middle of April, strange enough, cool soil temperatures warming up some this week. We've proven we can get an awful lot of corn planted in a short period of time, Tomm.

Pfitzenmaier: Well, an average planting progress for this coming Monday would be about 22% and most of the trade seems to feel we'll be in that 15-18% so, you know, maybe we're five or six percent behind but like you say, if we miss a couple of rains here and things dry out there is going to be a lot of corn get planted over the next week or so.

Pearson: The corn market seems to defy the weather that has been happening out here in the countryside, lower again this week on the corn market. What are we watching in Chicago?

Pfitzenmaier: Well, I don't know that they're necessarily defying it, I think if you watch how we traded this week you saw a lot of strength in the old crop corn as the farmers head out into the field, start thinking about field work, farmer selling dries up, the cash basis firmed up and that in turn tends to pull up the front end of the corn market. Conversely you saw planting progress develop and so that comes in and pressures the December. So, you know, a lot of times you see people quote the corn price, they're only quoting the front end. The back end wasn't that strong in the corn market this week and that was pressured because of planting progress developing. So, you know, spreading was really the feature this week. If you look at the corn chart corn prices didn't really change all that much, we were just kind of bouncing around in a range most of this past week.

Pearson: And, again, sales standpoint, following this sell off what are your feelings? Are we going to get a change to sell in the weather market a little bit later on if we haven't made sales?

Pfitzenmaier: I believe so. That could even happen next week. If you do walk in Monday morning and you've got a pretty good shot of rain throughout the Corn Belt Tuesday and Wednesday and that halts planting progress then I think you're going to see December corn especially come bounding right back up there. So, you know, in this kind of a break I don't really have any interest in making, doing a lot of selling. Having said that I'm talking about new crop pricing. If you've got old crop corn and you see that basis over the next month or so firm up because of the farmers being out in the field the users want to get their hands on corn, bid up, firm that basis up, there's going to be some selling opportunities for people that have some cash sales that they want to get made.

Pearson: Okay, so if you want to do some cash merchandising there may be some great opportunities before we head, if we get those bins cleared out as we head for '07.

Pfitzenmaier: Exactly.

Pearson: Alright, also Tomm, as we look at this corn market I can't help but look at some of those deferred contracts, there's a lot of carry in this market.

Pfitzenmaier: There's a lot of carry but if we have a good crop there will probably be more. So, you know, I'm not that excited about that even as of yet. I guess I'd like to wait and see how the summer goes before I get too excited about locking in a carry, I guess I'd like to see how it goes here. For livestock producers maybe this is a good break on the new crop to start locking in some corn, your corn needs for, you know, out through the summer and into the fall. You know, we had an old low after that report of $3.63 1/2 on December corn, we closed tonight or Friday at about $3.73 1/2 so you've maybe got another dime down and then you should be finding fairly solid support on the December corn contract.

Pearson: Some good points there. Now let's flip over to soybeans now, the soybean market again defensive here. As you pointed out on the show many times there are plenty of beans out there. Obviously with the planting delay isn't there some concern we might see some acres switch to beans? I know we're still early.

Pfitzenmaier: Well, that's what was happening earlier in the week, you saw that and you saw it even at the end of the week where the December, or the November beans, excuse me, were propped up by that weakness in the December corn. That was the other spread thing that was going on this week where you had December corn being sold off supporting the November bean contract. So, yeah, you know, as they got more confidence the crop planting was going to progress then the Novembers tended to weaken up. So, that's going to be a big play like you said, you've got a big carry out, almost record carry out, huge South American crop. We have had pretty good strength in the bean oil, higher crude prices and petroleum prices have really propped up that bean oil and that has helped hold the soybean price up some too.

Pearson: Right, and of course, the soy oil trading with what's happening in the energy trade.

Pfitzenmaier: Right, exactly.

Pearson: And with that kind of potential out there for those byproducts there's nothing really to be afraid of in soybeans despite those big numbers, is that right?

Pfitzenmaier: Um, the problem is that's kind of the tail wagging the dog because, you know, any time you crush beans you generate a lot of meal and somehow that has to get used up. That meal is going out in the market competing against DDG's so that is where the rub comes in is what do you do with the meal. As you crush beans for oil it generates, meal becomes almost a byproduct now and what do you do with it. So, that makes it a little tougher for the soybean market.

Pearson: Alright, you don't want to make sales here?

Pfitzenmaier: I definitely want to make sales on old crop beans. I'd want to be up over eight bucks before I got excited about selling new crop beans. But I think any rallies here can be sold on old crop. I don't know if I stated that -- November beans up around eight bucks, old crop beans I think you want to sell on a rally.

Pearson: Okay, so we get some rallies in here make some -- are we seeing any cash correspondence in soybeans too? Are we seeing demand?

Pfitzenmaier: Yeah, same thing, you know, the farmer's out in the field, he's not selling beans either. I think there's more beans sitting out there and I think people are a little uneasy about that market. So, they're going to be more likely to move. But everybody's busy, they want to get their corn planted, they're not going to sell hardly anything.

Pearson: Good point, let's talk about cotton. Tomm, we've been watching this cotton market and of course these huge acres out of cotton and into corn this year. Is that going to tighten things up some? Is this cotton market, it's been under some pressure.

Pfitzenmaier: Well, the report a week or so ago showed carry out being huge in cotton. Exports this week were finally a week where exports were above the range of expectations. But they need to be. I mean, somebody's got to step in here and start buying cotton. The Texas crop granted acres are down, it started off in pretty good shape here. It looks to me like this week, the bounce we had this week was just a kind of a corrective rally. It's in a very negative structure right now. I think you're going to see old crop cotton, July contract move down toward $50, $49.50, there's some pretty good support in there, December cotton down in that $54.50, $55 probably is going to find some support. But I think there's, at this point from what we know there's probably a little more down that up side in cotton.

Pearson: Okay, let's talk about livestock. And fed cattle market, it's been an interesting spring in this fed cattle market. We've had some phenomenal strength and then followed by some weakness. What's ahead now in fed cattle?

Pfitzenmaier: Well, I think, you know, we had pretty good rains this winter, grasslands are in pretty good shape so I think you're going to tend to see cattle go out on feed now, I guess I felt more strongly about that when corn was at $4 than I do with corn in the lower $3 range, that might help it out. We had a pretty good placement number on that cattle on feed Friday night of 107%, they're looking for 106.9% so no big surprise there. But I think you're going to continue to see cattle numbers be supportive to prices, June cattle should find support down here around $91, down another dollar, dollar and a quarter, something like that and then I think it's going to be hard to break them. We had a lot of weakness in the cash market this week. Everybody is expecting that to hold up and it really didn't, box beef prices were down quite a bit. That was a little bit negative. But that market got kind of overdone too and needed to correct. Demand continues to be good. We finally have that first load of beef moving into North Korea, or into South Korea. If nothing happens there, no bone chips or anything found in it that's going to be a positive demand force for cattle. So, I guess I'm not that negative on the cattle market except to say maybe a little downward movement. The cattle on feed report did show marketings maybe not quite up to snuff so that may pressure the nearby cattle market early in the week but I don't think that's going to be any big deal.

Pearson: Talk about the feeder, this calf market, Tomm, as we go forward. Obviously the higher priced corn has had an impact but feeders have bounced back fairly strongly.

Pfitzenmaier: Well, like I said, you've got declining corn prices and then you've got good grassland with plenty of moisture and so it's not like there's no grass to put them out on because there's plenty. So, both of those are pretty supportive factors, I think, for the feeder market. So, having that market bounce back is not a surprise. I don't see it, as long as those other two conditions continue with a halfway decent fat market I don't see the feeder market breaking much.

Pearson: Let's talk about the hog market which, again, we're moving pork overseas. I think the last time you were on we had a hogs and pigs report, we had like a 1% maybe expansion, really a weak expansion for the kind of markets we've had. What is your take on hog price now as we go forward?

Pfitzenmaier: Oh, I think they're going to be good. I think, you know, December hogs are $67, I think you're going to not have too much trouble, see them at $70, $70+. The nearby's are in the mid 70's, I think you could see them go up and challenge $80. The thing that's being held back a little bit is you have that May contract at $76 approximately, it's about $7 above the cash index but I think over the next three or four weeks you're going to see that cash market firm up and get that cash index back in line with where the futures are. So, I guess I'm fairly optimistic. We do have the competition of the pork with poultry and that's been a pretty healthy competition. The poultry prices have firmed up a little bit and that's helped pork too. Those two seem to compete against each other and maybe a little bit against hamburger and then beef kind of sits off by itself as a premium meat. I guess I'm optimistic, to make a short story long I'm optimistic on pork prices.

Pearson: Alright, this stage of the game, we've got about 10 seconds, you wouldn't make sales?

Pfitzenmaier: If you got up about $80, toward $80 I would but I wouldn't right in here, no.

Pearson: Alright, 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 at our Market to Market Website. And remember you can download audio podcasts of our market analysis and our market plus segments free at our Website. So, be sure to join us again next week when we'll examine a program that provides high school students internships in third world countries working in science and agriculture. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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