Pearson: Let's talk a little bit about -- let's start with the wheat market, interesting, is up this week. Again, we report on it numerous times, a lot of problems down in the hard red winter wheat belt, eastern portion of the Texas panhandle, a good chunk of the state of Oklahoma creeping into Kansas and I'm sure that is weighing on the trade. We quote Chicago wheat which is the soft variety and there is some concerns in some parts about the winter it's had. Nothing new really, I mean, we always are concerned about the wheat market.
Pfitzenmaier: Yeah, there's some extra concern, obviously there is the dry weather, the warm weather there is a fear that it's going to come out of dormancy a little sooner than it normally would. I guess we'll have to see, it's a pretty hearty crop, pretty hard to kill although abandonment rates every year are pretty high. Some of the forecasters are saying 60-65% abandonment in the Texas area, as much as 50% up into Oklahoma. So, that is going to determine how high we go. I think there is upside potential in that. So, it's a very strong market, we had just a little pull back this week and boom we're right back up again. So, it's not a market that seems inclined to want to stop going up here quite yet.
Pearson: Okay, if you're out there and you're not abandoning and you're producing a crop but maybe you've got some old crop still to harvest what is your take on that?
Pfitzenmaier: If you still have product that you want to price I think you just have to be patient and let it go higher. I don't think there is any reason to start getting in a big hurry about standing in front of that market yet.
Pearson: Okay, alright so want to keep an eye on it. Let's talk about the corn market, Tomm. And there is concerns about lack of subsoil moisture in many parts of the Midwest. Of course, we've talked on the show about the biofuels demand, the ethanol demand out there for the corn crop. It seems to be playing into the hands of a fairly friendly market at this stage.
Pfitzenmaier: Well, you touched on it, you've got obviously the funds are doing some huge buying in there, you've got dry weather concerns which, you know, it's hard to get excited about a drought that happens in the winter time. And if you're going to have a drought that's a good time to have it. So, I mean, basically from Central Iowa on north they're in fairly good shape. You hear about tile lines running but you get south of that area on over into Illinois and you don't have the subsoil. So, that doesn't mean you aren't going to get a crop but it does make everybody a little nervous going into it. And then they see what has happened in the wheat country, that spills over and then, like I said, you've got a phenomenal amount of money available through the funds and that is, I guess, a fundamental for lack of a better word, it's a little hard to get a good grasp on.
Pearson: And with that in mind you've always been an advocate of utilizing that new crop, that December contract and you get certain price targets. $2.50 is always a starting place, $2.60 around in there. We're looking at those levels. Are you making sales?
Pfitzenmaier: I think the last time I was on we talked about the $2.50 puts, buying $2.50 puts to get a floor established on corn and the way the market has jumped up since that time I think you have to start looking at $2.60's now and hope at some point you'll get to roll those $2.50's up to $2.60's and just keep pulling the floor up. You know, with the upside potential that exists in the corn market because of the ethanol demand and all the other concerns I think it's a perfect year to use some kind of an option strategy because if you start selling this either on the cash side or the futures you're going to get kind of discouraged if it starts going higher whereas if you have a put on so what if it goes higher, that's all the better. I think just from your own personal comfort level that is going to be a good strategy.
Pfitzenmaier: Now, for people that have already gone ahead and made cash sales or future sales you can go in and buy a call basically establishing yourself a synthetic put and then if the upside, if the market goes higher fine, you know, you're covered. So, there are some really nice option strategies here that will let you nuance the market a little bit without having to be totally committed to short or totally committed to being long.
Pearson: And that seems to be where we need to be at this stage of the game.
Pfitzenmaier: Well, these are good prices. I mean, if it does come along in rain we have hybrids that are very, very good at compensating for a wide variety of growing conditions and so, you know, if you can establish yourself a floor at $2.50, $2.60, $2.70 maybe if we go a little higher that is pretty hard to walk past especially with a 2.2 billion bushel carryout going into the year.
Pearson: And let's talk about that. Everywhere I've been lately, I was down in southern Illinois and southern Indiana, over in Nebraska, there's still a lot of old crop corn out there.
Pfitzenmaier: Yeah, there is and it's, I mean, part of the reason is because of what we talked about all the way last fall. There was just a tremendous carrying charge in the market so everybody wanted to store as much as they possibly could to take advantage of that carry. So, that's part of the reason a lot of that is sitting around. And the other reason is everybody started to get bullish now, they think it's going to go higher, if it's higher tomorrow than it was today I'm going to wait and see if it's higher the day after that and as a result not much is moving. I mean, you had a perfect example of it this week, they tried to press the corn market on Thursday, it went a little lower then all of a sudden it couldn't go lower, a few funds showed up and everybody else scurries for the door. I mean, in that kind of a friendly market it's hard to step in front of it.
Pearson: Alright, let's talk about soybeans. And again, I mean, all the reports we get are, of course, a big carry out from last year increased by the USDA and a big crop coming from South America. What is keeping this bean market going?
Pfitzenmaier: That's a good question. Again, it's good strong buying. The other thing you've got going in the bean market is you've got a really strong seasonal for beans to work higher from now into that April, May time period. The dilemma you have is that you're normally starting from pretty low levels because you've broken into the end of February whereas this year we haven't. We've basically, we've broken a little bit off of the highs but we're within 20 cents of the highs still. And so that is leaving people scratching their heads, they look at what is happening in wheat, they look at the corn market, the funds look around and say gosh, maybe the whole complex is worth buying. I don't think it is, I think it's an absolute sale up in here for all the reasons you outlined but, you know, it's a hard market to stand in front of too.
Pearson: Alright, what about a put strategy for new crop bean sales?
Pfitzenmaier: I think you can buy $5.80 puts for around 30 cents, maybe if it rallies enough you'll get a chance to buy $6 puts for 30 cents and I think the upside potential is pretty limited. The down side potential is huge. I mean, it's certainly possible. We could go down and test $5 in beans by the time they get planted, you know, if the spring weather goes right over the next few months.
Pearson: Let's talk about the cotton market, it had a big sell off this week. And China is such a big player there and such a dominant player you look at what's out there and what the Chinese need and there's your market.
Pfitzenmaier: They've been good buyers. You know, the cotton market was a perfect example of a market where we've had very good exports every week and this week we had a little bit of a hiccup and boom, like you reported earlier, you're down $2.30 for the week on cotton. So, that cotton market really, you need to keep that demand going along here or it's going to suffer. I guess I still think you're going to go down and test that 52, 52 1/4 area and then bounce around and we've talked before on 52 to 58 is kind of the training range of cotton and I guess I think we're going to test the bottom end of that.
Pearson: And on the upper end you make some sales.
Pfitzenmaier: Yeah, absolutely.
Pearson: Alright, let's talk livestock. Fed cattle market has made a pretty dramatic turn, you talked about it last fall, you turned negative on cattle about last November or December, you didn't like what you were seeing. We are creeping up inventory a little bit. And we have just been slugged here lately on fed cattle.
Pfitzenmaier: Well, the whole meat complex has got problems and you don't have to be too much of a historian on cattle markets looking back and see the last half of every ten year period you have cattle break, I mean, you put your cattle highs in, in the middle and break toward the end and that is kind of the way the cattle cycle goes. And then you get this compounded with the Japanese problem and all the meat that is coming from pork, poultry back up, the bird flu issue and all of a sudden you've got problems in the cattle market. I think, you know, that June contract is trading around 71, probably could pull back into, or 81, excuse me, could pull back into the mid 70's. There's five or six dollars left down in this cattle market I think until it gets cleaned up very well.
Pearson: Alright, do you think we'll hold the mid 70's then?
Pfitzenmaier: Well, I guess we'll have to see into the mid-summer. It may not. You know, we're going to have to see how this bird flu thing shapes up. It's probably just a matter of time, I think everybody kind of been whistling past the graveyard thinking that we weren't going to have too much problem with that here, well all of a sudden there's flamingos in the Caribbean and it's not that far away from being on the mainland. Now, one of the differences we've got that some of the other countries don't have is we don't tend to associate with our chickens all that much. I mean, I haven't seen a chicken for ten years and a lot of that comes from contact so I think we're going to have a little different reaction than some of the other parts of the world have. But, you know, any scare isn't good for the whole industry really.
Pearson: Alright, you talk about mid-70's fat cattle. What about this calk market that has been so strong for so long now?
Pfitzenmaier: Well, that's just what I was going to lead up to. That feeder market I think has got some pretty good down side potential. There's still an opportunity to hedge those August feeder cattle up in that 109 to 108 range, you can buy a 106 put and sell the 112 call against it to pay for it, lock yourself in a really nice floor on some feeders and sleep comfortably. There's probably ten to twelve dollars down in feeders if you break the fat market into the summer.
Pearson: You know, the other thing you start going in the cattle and you start breaking and then the producer starts digging his heels in and putting more weight on and you look at the deferred's have a little higher price there, you go well, maybe I'll wait, I'll put a little weight on, things look like they're getting better and next thing you know you're your own worst enemy. So, that is one of the things we need to guard against too in that cattle industry.
Pearson: Absolutely, I want to talk about the hog market. We have seen some expansion, we have seen the sow numbers have crept up a little bit and that sow kill has crept up a little bit and we've seen the pressure. We've come back a little bit but you talked about a lot of poultry, a lot of other competing product out there.
Pfitzenmaier: Yeah, the hog market has really been trying hard to put a base in here. You saw the cut out up three dollars and forty-four cents on Tuesday, broke back a little bit Wednesday but, I mean, that was kind of encouraging that the product is moving fairly well. You ran there five or six weeks with a slaughter of over 2 million head a week and now we've backed that off a little bit. So, you know, hogs probably have a little bit of upside potential but not a lot.
Pearson: Alright, thanks Tomm. But before we go we want to let you know that Market to Market may be airing in different time slots on some stations in the weeks ahead due to PBS fundraising efforts. Now, if you value programs like Market to Market please consider phoning in a pledge and investing in a service that provides you with accurate, unbiased information and analysis. Thanks so much, that will wrap up this week's show. I'm Mark Pearson, have a great week.