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Market Analysis: Tomm Pfitzenmaier

posted on November 23, 2011

Market Analysis: Tomm Pfitzenmaier

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

Pfitzenmaier: Thanks, Mark.

Pearson: Well, a short week that we are going to be talking about and very down week for the grain markets in particular. A lot of things going on generally related to our business, production of grain and livestock. But obviously, what's happening in Europe is still going to be a factor.

Pfitzenmaier: Absolutely, it is. It affects the dollar, which affects all the commodities. So there is no question about it. Get the super committees lack of failure to accomplish anything. That didn't help matters either this week. So, yeah, there's some fundamentals in the corn market that aren't that great either but, yeah, those outside markets didn't help us. It felt kind of -- I think there's a lot of fund traders and generally traders that are spooked by the whole thing. They are just getting out. They've tended to have everybody pretty much long in the grains and the livestock, and so when they get out, then selling ensues.

Pearson: Absolutely. Well, let's talk about wheat first. The wheat market certainly under some pressure this week. It has been for some time. There's just plenty of worldwide wheat.

Pfitzenmaier: There's a lot of wheat in the world. That Black Sea wheat and feed grains in general are substantially underpriced than ours. There was some concern about winter wheat, and that has kind of gotten finally just enough moisture to finally get started. So that's sort of faded back into the background as a market factor. Yeah, wheat just doesn't have a lot going for it. Like you said earlier, it broke down this week and there's probably even a little more down to it yet.

Pearson: Okay. Making sales in wheat? Sit back and wait for a rally?

Pfitzenmaier: Well, I think you wait for a rally, but I wouldn't wait for much of a rally. twenty, thirty cents may be all you can expect out of that, and I guess I wouldn't horse around too long and wait for huge rallies to get wheat sold or any of the grain sold.

Pearson: All right. Well, then let's move over to corn, then. Obviously the same situation there. We've had a continuous pullback really since August. If we haven't made sales, what is your advice? Sit tight? Lock the crop away? What happens?

Pfitzenmaier: Well, there are a couple of things that have been bothering me. number one is every farmer in the country has pretty much assumed that he can wait to store his crop or wait until after the first of the year and then prices would be higher. And it's really difficult to rally when everybody is holding everything. That's just historically is a problem. The basis has been so tight so there has been an assumption because of the tight basis that would mean that we are going to have higher prices, and that is not necessarily the case. That just means that in the short run, farmers have been tight holders. there is a fear here that if we start breaking this market too hard, a lot of guys in the Central Corn Belt have lost a chance to sell corn at six bucks, which is kind of a benchmark for a lot of people. I'm afraid breaking below that may start to bring some corn, and that is going to put additional pressure on corn. And then you are looking ahead next year to a big crop. You're looking at a great South American corn crop coming. You're looking at cheap Black Sea corn. And all the sudden there some factors here that don't make corn look all that rosy.

Pearson: 2012 sales?

Pfitzenmaier: Absolutely. I mean we really broke it hard. We've broken that market particularly hard. I think if you can get back up in that 580-590 range, you probably need to make some sales. If you can start buying 560 puts or maybe 580 puts at some reasonable cost, maybe in combination with some sales or options somehow, I think we need to look at that pretty hard too.

Pearson: The bean scenario, Tomm, where are we there?

Pfitzenmaier: The bean scenario is not great either. I mean we've had some great exports showing up. The Chinese bought a little bit last week. They sort of are our customer and how the bean prices depend on whether they are there or not. A lot of assumptions are made as we get closer to $11 in futures that they will show up and start buying. The same thing on corn. A lot of assumption that when we got under six, it would enable that maybe they would start buying corn, and that hasn't happened. But South American crops, Brazil is 80 percent planted. Argentina is almost 60 percent planted. In good shape. Seem to get the rain when they need it. Seems to be dry when they need it to be dry. It's a La Niña. It may help their crop and may get a little bit better. So there are some things going on here that are going to keep low pressure on the beans. Now there had been an assumption that we are going to plant a lot of corn next year at the expense of bean acres and that that was going to support beans, but that may not necessarily work out. That may just mean corn goes down more.

Pearson: All right. Let's move over to livestock and talk about fed cattle, what you see happening there. We saw some decent prices out there on fed cattle. Where are we headed?

Pfitzenmaier: We had a pretty good bump this week. Yeah, well, we've talked about it for a year now, the numbers have are great. They probably peaked out in terms of placements. We are going to start to see that fall off. if we ever start to see things stabilize and this weather improvement coming along and start to see the cow/calf man hold some heifers back, then the thing is really going to get wild on the upside. The only apprehension here is when we sell the beef. There's been a real lag on the retail site. It hasn't nearly kept up with the futures market in terms of fat cattle. If we start to catch up in the retail, the customer starts to see that kind of cattle beef prices they are probably going to see, that is the hazard to how high this cattle market can go.

Pearson: And real quick, the pork market, Tomm, what do you see as you look at hogs going forward? We talked earlier about exports, certainly critical in that trade.

Pfitzenmaier: Absolutely that market is going to depend on it. Like I said, I think cattle prices, beef prices are going to go up. That's going to help support the domestic side of pork and poultry too probably. If we can continue to export pork like we think we are going to, I think they are going to be okay. Now, there was a report out early to late on Tuesday night and early Wednesday morning that maybe things are not as rosy and shiny as they thought they were and some apprehension that that could limit. There again, they are the big importer of our pork, so there is some apprehension there. But I think we've got $2 or $3up here on pork and then I think you need to become a seller again.

Pearson: With this break in corn market and this break in bean market, are we recovering any feed needs?

Pfitzenmaier: I don't know that there's a big hurry on that. Certainly we've broken it hard enough that I'd probably buy in some calls and maybe getting some light coverage isn't a bad idea. Like I said, I don't have a sense of urgency about that.

Pearson: Tomm Pfitzenmaier, thank you so much. That wraps up this edition of Market to Market. But if you’d like more information from Tomm on where these volatile markets just may be headed, visit the "Market Plus" page at our web site. You'll find "Expanded Market Analysis," audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page-- all FREE -- at the Market to Market Web site.
And be sure to join us again next week when we'll bid farewell to a rural icon. Until then, thanks for watching. I'm Mark Pearson. Have a good week...

Tags: agriculture cattle commodity prices corn economy feeders hogs markets news soybeans wheat