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Market Analysis: Tomm Pfitzenmaier

posted on April 13, 2012

Market Analysis: Tomm Pfitzenmaier

Pearson: Tomm, good to have you back.  

Pfitzenmaier: Thanks, Mark.

Pearson: All right. Let's talk about --we had a USDA Report early in the week, world supply/demand estimates, and not a lot that really rocked the market. The carryout was about the same as what we had earlier on the corn, but the soybean number was pretty friendly. Let's talk first about wheat because that may become a very interesting scenario over there on wheat.

Pfitzenmaier: Maybe. I don't think it's going to. I think wheat is going to --

Pearson: It's all kind of interesting.

Pfitzenmaier -- Continue to be a follower of corn. There is plenty of wheat in the world. We're going to grow a lot of it. Your report just showed that the winter wheat crop is in pretty darn good shape. It sounds like they're going to get a rain to kind of continue that along. We're going to get rain to get the spring planted in fairly good shape. Russia sounds like they are going to have a very good crop. Granted you are going to see some demand, and we saw that in that report, that 32 million. That was used for feed usage to reduce the wheat carryout number. I think it was dropped directly from corn. That's why you didn't see any adjustments in the corn. So, yes, there is the possibility of some excitement. I certainly think you get up in that $6.80-$7 range, and you've got to be a seller of wheat. I think getting above seven is going to be very difficult.

Pearson: All right. But $6.80 you would definitely use as a target to make some sales.

Pfitzenmaier: I would.

Pearson: And again, we're a long ways from bringing that crop in. This crop has been through a lot, and it's held up pretty well. In Europe also, we had the freezing conditions and a lot of concern about that. Now some of that fear has been allayed.

Pfitzenmaier: Yeah, it is. And they started to get rain just like we are expected to here in the next few days. And like I said, they have improved their estimates of the Russian crop. So, yeah, I think there's going to be plenty of wheat around. I think the upside potential is limited unless something crazy happens with corn and it pulls it higher.

Pearson: All right. Corn is not so much the leader of that. Let's talk about the corn market. Like I say, carryout is pretty much unchanged. Global numbers are pretty much unchanged. But we still have this very tight old-crop scenario. There's no question about it, which a lot of people think is going to lead to fireworks as we transition from old crop to new. What's your advice to producers right now?

Pfitzenmaier: Well, we've been yammering around about this old-crop tightness now for a long time. But you have to sit and think, okay, we've probably got --the USDA is sitting at 801 million, so there's probably enough to get us by. We certainly could see some extra downtime on ethanol producers this summer. You can see some substitution of wheat for corn this summer. You're going to see the fact that the new crop is getting planted so quickly, so far advanced. That corn is going to be available sooner. So adjustments are going to be made here. And I know everybody thinks we have to go higher because it's hard to buy corn. That's certainly true. It's not necessarily because we don't have corn. It's also partially because farmers are flush with cash and don't have a lot of reason to sell corn. So I guess I think you do get cash corn up in that 650 area, 655, 660, somewhere up in that range. I think you probably need to be making some fairly aggressive sales, because upside potential beyond that is pretty limited, you know, unless everything goes haywire with the new crop.

Pearson: You mentioned ethanol. They did show a little bit of reduction in ethanol use. Is that a big concern, do you think, going forward?

Pfitzenmaier: You know, the weekly ethanol numbers have been declining ever since really the first of the year. This week we actually had a bump back up in that.  So it looks like maybe the USDA is using 5 billion bushels, maybe that needs to be 5.1, something a little more than that. Feed usage has been --exports have been a little stronger than --

Pearson: Some positive exports news there.

Pfitzenmaier: So the demand for the corn is fairly good. There's no question things are going to be tight. It's just that I guess I'm not sure the whole running out scenario is really going to happen.

Pearson: Well, the last couple of years that's been the scenario. I know a lot of people are counting on that happening again.

Pfitzenmaier: Well, that's one of the reasons why, again, fed by the fact that everybody has got plenty of cash and haven't had to -- needed to make any sales and watching the last two years the people who didn't make sales benefiting greatly has contributed to the fact that things are tight right now. We'll have to see if that's the case as we move into through the summer.

Pearson: I haven't looked at the numbers lately. How about corn in farmer-held hands at this point? 

Pfitzenmaier: It's pretty substantial. I mean they're sitting on it. There's no question about it. That's one of the reasons I think the USDA has a tough time figuring out what the stocks are. There's a lot of new storage that's been built being held by farmers, and they don't have a great handle on how much of that there is.

Pearson: Okay, talk about new-crop strategy. We're talking, like you say, acreage, the crop is going in quickly. It's been going in early. In many parts of the upper Midwest, it's gone in very quickly across the South. What about making new-crop sales at this point?

Pfitzenmaier: I think that 652 resistance that we saw the last few -- week or two is going to be very difficult to get through, barring some problem with the crop here. So I guess if you want to be a seller, I guess I'd be --I'm sorry, 552 --

Pearson: 552, you're right.

Pfitzenmaier: -- Up against that resistance, I guess that's where I would be a seller. The elevators you talk to around the country have bought practically no new-crop corn. So the farmer again has been very, very reluctant. Because of that discount from old crop to new crop, everybody has trouble buying into that and taking that 90-cent hit. But that doesn't mean that's not a good thing to do. If we go ahead and produce the kind of crop it looks like we're heading toward, that might look like a very good sale. Now, the caveat there is this dry weather up in the northwestern Corn Belt. If they don't get rain and things dry up and stay dry, then there's going to be some fireworks in the market. That could pull it up towards the $6.

Pearson: All right. But-- and again, you'd be a seller there again.

Pfitzenmaier: Again, yes. That's sort of the perfect scenario for using options too where you're probably going down but you've got some upside potential. Buy yourself a put at 570, a 560, a 550, whatever you want to pay. And then if there's an upside, then take advantage of that.

Pearson: All right, we're going over on corn time here, but I want to ask you about this. I've had a lot of people ask me about it. What about 2013? Let's go with your scenario. Now they're talking maybe better weather with the La Nina maybe going to neutral, so maybe more moisture throughout the Corn Belt. Would it not be a bad idea to sell some 2013?

Pfitzenmaier: We've had some people starting to do that, and I don't think it's a terrible idea. I've always been really reluctant to go out there and sell much, but having a little sold-out there probably not a bad idea either.

Pearson: All right. Let's talk about soybeans. A different scenario there. We're up a little bit this week on the board. Again, a lot of volatile trading. It looks like the big money, the funds are coming back into this market, and it looks like they're going into soybeans.

Pfitzenmaier: The funds are not only coming in, they've been in. They've got a huge position and that's probably one of the things that makes me most nervous about the soybeans is that huge fund long position. All you have to do is look over to the cattle market and what's happened there in the last six weeks with a huge fund liquidation. It should make you nervous if you're long beans. We're up against some pretty high levels. We came within a penny and a half, 2 cents Friday of taking out that reversal that took place because of the report on Tuesday. Fourteen fifty is still a pretty darn good price. Granted, we could go to 15. I'm not saying that that's not possible. We're up at high levels. Everybody is long the market. Everybody is sure it has to go up. Everybody wants to buy it has gotten a chance to buy it. That's why I think you started to see it struggle here towards the end of the week.

Pearson: So you're making sales now?

Pfitzenmaier: I think you have to make some sales up here. It's a good price for beans. You've held --you've participated in this $2.50 rally we've had since the first of December. What else are you waiting for? Make some sales up here.

Pearson: All right, new crop?

Pfitzenmaier: The same thing there. I think you sell new crop. We had that high around 1397. You sell at 1385-1395 against that resistance. Be happy that you're getting a heck of a good price for beans.

Pearson: All right. Real quick, cotton headed up market this week. Kind of encouraging there after some selloff. A lot of concern about global supply and, of course, demand.

Pfitzenmaier: You know, the Chinese have been fairly aggressive getting some coverage made. They sort of backed away from our market because they've gotten the coverage that they need. The crop is getting planted. Acreage is going to be down a little bit. Texas is getting rain and everybody is in quite a bit better shape than they were a year ago. I would guess that this rain is going to be better than it was last year. I think there's maybe limited upside potential here on cotton. If you've got --we had a nice up week this week. A little more carry on that, and you'll probably want to be a seller there too.

Pearson: All right, let's go livestock. You mentioned fed cattle earlier and this selloff that we've had. It's been brutal on the board. I hear from sale barn, cash markets are holding up fairly well. A couple of things -- you mentioned the fund liquidation, but also, of course, that lean, finely textured beef didn't help us either.

Pfitzenmaier: That sort of exacerbated the problem, and that's what it did. I think there were problems before that came along. The retailer --we rallied beef up to prices where the retailer was really backing away -- I mean just standing back. Now, that's changed. They've finally started creeping back into the market this week. So I think that's going to put some pretty good floor under the market. I think you can see both the June and the august cattle work back up into that at least 120, maybe up to 125 on the august contract, and I would turn it into a seller again there. But those things have kind of gotten cleaned up. Exports were off last month. That didn't help any either. The dollar has been firming up. That's not helping. Cattle did great this winter. Their rate of gains were awesome, so there is more tonnage available than we'd really expected. So there's a lot of things that came together to sort of magnify that fund liquidation when it came along.

Pearson: What's your take going forward, fed cattle?

Pfitzenmaier: Again, I think we've bottomed out. I think we've formed a base, and I think you use rallies now to be a seller. And again, June is up in that 119, 120. August is up in the 123-125 range.

Pearson: Hogs, real quick, you mentioned the stronger dollar. That's been a very export sensitive business now. A fourth of our hogs are going overseas. That's a head wind.

Pfitzenmaier: That is a head wind. We saw hogs down limit on Friday. This hog market is just struggling to get anything going. Again, I thought maybe this week we'd start to see that bottom out. I looked like it was trying to midweek, and then it just failed again. I don't really -- still don't think there's a lot of downside potential here. Maybe we're going to have another little washout, and then I think you just need to look for decent rallies to make sales again. We talk about the stronger dollar. Your thoughts on the dollar, Tomm? Are we going to see that continue to strengthen this year?

Pfitzenmaier: The dollar has one problem and that's this is an election year. And in an election year, you look at any currency in any country, you don't tend to see their currency rally on election years because you've got all the candidates running around talking about all the terrible things that are going on, and it tends to make traders nervous. I think Europe is going to be a struggle, being in a recession. That's going to tend to be dollar supported. So I guess in the short run, maybe the dollar is going to struggle. Longer term I see some strength there.

Pearson: Real quick. Obviously everybody is talking about these high gas prices. Your thoughts on crude oil?

Pfitzenmaier: I think crude oil has probably topped out. The Saudis have that they're going to increase production -- -- are increasing production to offset whatever is lost because of the Iranian embargo. So I think you're going to continue to see crude oil work its way down maybe back into that 96-97 range.

Pearson: Well done. Tomm Pfitzenmaier, thank you so much. Appreciate your insights. That's going to wrap up this addition of "Market to Market." If you'd like more information from Tomm on where these volatile markets just may be headed, here's the smart thing to do. Go do the Market Plus page at our website. You find expanded market analysis, audio podcasts, streaming video of our program and, of course, links to our Twitter Feed and Facebook page, exclusively at the "Market to Market" website. And it's all free. And be sure to join us next week when we'll explain how one college team revisited a play from the 1980s and used football to help farmers. Until then, thanks for watching. I'm Mark Pearson. Have a great week.  

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