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Market Analysis: Mar 02, 2007: Tomm Pfitzenmaier, Summit Comodities

posted on March 2, 2007


Declining equity markets around the world stimulated selling in the commodity pits. Traders also were disappointed with reports from USDA economists at their Annual Outlook Conference this week. While USDA predicted that world grain and oilseed inventories will become very tight, the numbers weren't bullish enough to move prices higher.

For the week, March wheat lost nearly 25 cents, while the nearby corn contract lost more than 19 cents.

USDA estimates on soybean acreage this spring also had bearish implications for the market. For the week, nearby beans fell nearly 40 cents. The March meal contract lost $13.30 per ton.

In the fiber market, March cotton had another positive week posting a gain of 52 cents.

In livestock, the April live cattle contract was up $3.48. Nearby feeders gained $4.58. And the April lean hog contract lost 40 cents.

In the financials, Comex gold lost $39.00 per ounce. Nearby crude oil prices gained 31 cents per barrel. The Euro gained 12 basis points against the dollar. And the CRB Index lost 3/4 of a point to close at 313.75

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

Market Analysis: Mar 02, 2007: Tomm Pfitzenmaier, Summit Comodities Pearson: Here now to lend us his insight on these and other trends one of our long-time market analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mark.

Pearson: Well, USDA is having an outlook conference out in Washington, D.C. and that was generating a lot of reports this week. We had the situation in China. We're still a long ways from planting the corn and the soybeans. The wheat people are still talking about some troubled spots with ice damage in particular around part of the wheat belt. Everything was soft this week. Is this anything fundamental? Is this something significant? Is this the start of things heading south down the road?

Pfitzenmaier: No, I don't think it's the beginning of things heading south. Wheat has been heading south for quite a while so it's probably, this is probably the last blow on the down side for it. As far as everything else I don't think -- I mean, we had a market that was very overbought and basically all the commodities you mentioned here in the last couple of minutes and they all needed to correct. Now, the Chinese news may have been the spark that lit the candle but they were all due for a correction and we're having a nice correction here and I think, you know, ultimately the trading funds and everybody that have been buying corn and beans all winter long to watch and see how acreage comes out and watch and see how this summer weather progresses they certainly aren't going to get out of the majority of that position way before the crop ever gets planted. So, there's some very good underlying support, fundamental support under this market and so I think you view this as a correction, use technical indicators to figure out where that could be and proceed accordingly.

Pearson: Well, let's talk specifically about wheat and like you say it's been under some pressure for some time and obviously the market around the world responds to wheat which, of course, with the wheat market you can grow a crop somewhere around the world just about any time.

Pfitzenmaier: Yeah, and that's part of the reason wheat's been under pressure. You mentioned earlier there is some concern about ice and some damage and, you know, that's nice to talk about but we really ultimately don't know until we come out of dormancy. So, I think obviously the market wasn't too concerned about it this week with the weakness we had in wheat so, you know, you're in around $4.60, $4.63 on the May wheat, maybe it pulls back to $4.50. At that point I think you'll find fairly good support on the wheat market.

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

Pfitzenmaier: No, absolutely not. I think you'll see recovery rallies that are going to give you better opportunities than this.

Pearson: Let's talk about the corn market which is what everybody seems to talk about no matter where I go, that's the main topic of conversation and certainly this week with the market pullback, like you say, a lot of people that are optimistic on corn prices they weren't deterred by this move at all.

Pfitzenmaier: No, I mean, it was sparked, like I said, by the Chinese and then you sat down and went wait a minute, the Chinese aren't buying any corn from us, what does that have to do with the corn market? So, you know, you have to look at it and say it was a market that was overbought, the funds have a huge position in corn, gigantic position in corn. Trimming a little of that back you had some end of the month monkey business going on there too so you have a little pullback, maybe you have another ten or fifteen cents down in corn and then I think you'll start to see people positioning themselves for that end of the month acreage number or at least the preliminary guesses that go with it. you've got an export supply-demand report out next week, people will be watching that a little bit to get some hint of how demand is going to be running along here but I think ultimately you need to use this if you're a livestock producer or somebody who is a user, end user of corn, use it as an opportunity to get some bought.

Pearson: Absolutely, Tomm, as you look ahead here in terms of making sales would you be doing that on corn? Obviously we've had the pullback this week on some strength, fifteen, twenty cents. Would you start selling corn again?

Pfitzenmaier: Yeah, well number one, we have to remember there's probably going to be plenty of old crop corn left over so at some point you need to start getting that stuff moved. But I certainly wouldn't want to go in this report at the end of the month without about 40% of my new crop corn covered with some sort of a minimum price contract, put option, whatever strategy you feel comfortable with. But I think there is the potential here for the USDA to come out and the farmers to come out with an 11.5 to 12 million acre increase and if that happens maybe the corn market is done. so, I think you need to find yourself some sort of a minimum price protection against that eventuality.

Pearson: Let's talk about soybeans. Obviously the soybean market is being defensive, trying to keep acres and, of course, like you say, we'll find out more about that at the end of the month. A little softer this week but, again, these are some of the best soybean prices we've had in a while. Same thing, clear up some old crop sales?

Pfitzenmaier: Yeah, same thing there. Now, the bean market I have to say is affected by China and if China has some rough times there's some pretty good demand for beans that comes out of there so that effect could actually be much more real than the effect on corn. But I think old crop beans, there's plenty of old crop beans around, none of this issue has anything to do with old crop beans, this is all a new crop bean issue. So, I think yeah, if you can get some nice recovery rallies you use those to make sales. Now, the same issues that are involved with corn are the same issues that are supporting beans so I don't see beans falling out of bed here either, not to say they can't have a little more pullback but they've had a pretty sharp drop this week. Again, another ten, fifteen cents down, $7.75 to $7.90 on November beans probably going to be pretty good support.

Pearson: And probably some pretty good sales maybe?

Pfitzenmaier: Yeah, on rallies from those levels sure.

Pearson: Alright, let's talk about the cotton market, again, some surprising reports about cotton, acres shifting not to beans but to corn.

Pfitzenmaier: You know, I have clients that went to the cattlemen's meeting down in Memphis, rubbed elbows with a lot of southern producers that virtually every one of them told them they were going to be switching a lot of acres to corn. I think the average guess now is probably about 15% of those acres. Again, it could be more. That's one where they're going to be planting fairly soon here so we'll start to get some early indications of how that may be going. That ultimately will be supportive to December cotton contract. If you've noticed exports on cotton have been terrible the last two weeks, that's strictly been related to the Chinese New Year celebrations, they've been out of the market for two weeks, they are the export market for us so we'll have to watch. Now, we are lagging behind the last year on export demand so I think cotton is going to struggle if you get up here in this 54, 54.5, maybe 54.80 then I think the May cotton is going to start to run into trouble. How the December goes is going to depend on how that acreage is and how summer weather is.

Pearson: Speaking of weather it's been wild weather for a good part of the western Corn Belt. Fed cattle market on the board was much stronger, feeder cattle had a positive reaction, of course, to corn prices going down. What's ahead now fed cattle price wise?

Pfitzenmaier: Well, fed cattle have got some bullish things going on because of all the adversity. That weather in late December and early January did a lot of damage to cattle, a lot of damage. And some of those cattle are having trouble recovering from that. So, I think that is an up front problem. You also had that placement number that was solo partially related back to the conditions where cattle weren't put on feed so I think in the up front months you're going to see some pretty good strength here, I wouldn't be surprised to see $100 cattle trade here before too long. Now, the futures have gotten a little ahead of the cash. I expect that to pick up. Demand has been very, very good for beef. I consider that to be a positive that's going to continue. Chicken availability is down about 4% so chicken prices are up allowing beef to compete against that strong, competitive meat. So, I see fairly good things for the cattle market. If you're afraid of it buy yourself a put, get some minimum price contracts, roll them up as the market goes otherwise I think you can be a little optimistic here about cattle. If you continue to have a little setback in corn prices feeders are probably going to work a little higher yet too.

Pearson: Alright, so this feeder cattle market which has had a pretty good recovery so far hasn't it?

Pfitzenmaier: Yeah, you know, feeder cattle prices have rallied strongly even when corn prices were going up. So, there's some underlying strength there. I think the pasture conditions are going to be very -- a lot of areas have had good moisture so there's going to be some pretty good demand for those calves to go out into the pasture in the spring and I think that's going to continue to keep those prices strong as well.

Pearson: Let's talk about hogs. You mentioned chickens. Fewer chickens, you're talking fewer calves now based on that placement number last week in the cattle on feed report. What about hogs?

Pfitzenmaier: Well, hog numbers have been down. Weights were up a little this week but I think that's related to the fact that some hogs didn't get moved, backed them up a little bit, put a pound or two on them, I think you'll get that worked right back out. Producers are inclined to stay pretty current. Feed prices are high. If numbers stay low I think you're going to also see that market be fairly well supported here. I think there's a little more upside in it. I wouldn't get in any big hurry to be hedging any hogs. Again, if you're concerned about that market go in and buy yourself some puts, get some minimum price protection and kind of keep the top end open.

Pearson: Tomm, we've got about 15 seconds. Cover feed needs? Is this your opportunity to do that?

Pfitzenmaier: The break we're having in the next week or so is going to be the opportunity to cover meal and cover corn needs.

Pearson: Absolutely, so take advantage of it would be the advice on that front. Well, as usual, some excellent ideas. Thank you so much, Tomm Pfitzenmaier. And I think that's going to wrap up this edition of Market to Market. But if you'd like more information from our astute analyst on just where these markets might be headed visit the Market Plus page. It's at our Market to Market Website. And, of course, remember you can download audio podcasts of our market analysis and our Market Plus segments absolutely free at our Website. And, of course, be sure to join us again next week when we'll examine a canning program operated by the Mennonite Church that provided more than a million pounds of meat to hungry people in 21 countries. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


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