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Market Analysis: Tomm Pfitzenmaier

posted on July 27, 2012

Grain prices rallied late this week, but not enough to wipe out losses in previous sessions.    

For the week, September wheat lost 45 cents, while the nearby corn contract slipped back below the $8 mark with a loss of 26 cents. 

Soybeans followed the grains lower as the September contract gave back half of last week’s gains, while the nearby meal contract declined by more than $26 per ton.    

In the softs, cotton also trended lower this week as the December contract posted a loss of 28 cents.        

In the dairy market, August Class III Milk futures lost 64 cents, while the deferred contract was off 60 cents. 

In livestock, October cattle gained $2.17.  Nearby feeders advanced by $1.88, and the October lean hog contract moved $1.50 higher.               

In the financials, the Euro gained 149 basis points against the dollar.  Crude oil declined by $1.70 per barrel.  Comex Gold advanced by $35 per ounce, and the Goldman Sachs Commodity Index lost more than 10 points to close at 639.40.  

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, Mike.
Pearson: Let's talk a little bit about the outside markets, specifically the dollar. We've seen a lot of moves in Europe. How is that affecting exports and commodity prices?

Pfitzenmaier: It's been interesting because earlier in the week the dollar actually made new highs Sunday night and into that Monday timeframe. And then all this talk about more money becoming available, it pretty much plummeted the dollar as we went into the end of the week. Now, I don't know that you can directly say that corn and beans were up X number of cents because of that, but it certainly was a factor. Weakness in the dollar is going to help exports, although exports, particularly in corn, have been not good. So if you're not exporting them, a dollar change doesn't mean much, so certainly it is a supportive factor.

Pearson: All right. On the dollar front, do you see any major changes there or do we need to keep waiting for news out of Europe?

Pfitzenmaier: Whether we're going to have any kind of a QE in the United States, that's probably a factor too. Although we talk about that a lot, I don't know that we have liquidity problems necessary in the U.S. So a lot of that is going to go straight to probably stock market, equity market strength. Yeah, it's certainly a factor that's circulating in the commodity markets for sure.

Pearson: Things to keep our eye open for. In the wheat market, where are things and where do you see them headed?

Pfitzenmaier: Wheat is kind of a follower. If corn continues to go higher, wheat probably will too. The drought you talked about in the session here on cotton is certainly affecting the wheat production also. Plus, we've got some production problems over in the Ukraine and in the Black Sea area, so I think that's going to have some effect. There's really more wheat around the world than there is corn, so that's going to be the real issue is whether corn drags wheat along.

Pearson: And do you see wheat hitting a ceiling at some point, or just if corn keeps going, wheat is going to keep going?

Pfitzenmaier: Well, I think as you alluded, wheat sold off some this week. I think some highs that were scored earlier this week, I think they're going to be a ceiling that's going to be difficult to get through in the short run anyway.

Pearson: Let's talk about corn a little bit. Where do you see us going on --
What does the future hold for corn?

Pfitzenmaier: Well, you know, the last month, ever since corn bottomed out a month, month and a half ago, all we've talked about is dry weather. And now Elwynn Taylor talked about maybe this weather is going to change here in the next two or three weeks. We have probably factored in a lot of the bad news from in terms of production, so now we're going to start to gradually focus on demand.
Like I said, our exports have been terrible. We've gradually been seeing -- the ethanol production numbers this week were the worst we've seen in two years.
We're seeing livestock liquidation, so there's no doubt we're starting to hurt demand. Now, that's a little harder to quantify than it is where you can say, okay, yields dropped and abandoned acres and, okay, we've come up with a number.
That's a little harder to do with demand, but you certainly know it's happening.
I think we may stall out here in the corn market here for a little bit. Wait and see until we get out in the fields what actual yields are. I think we tend to forget that we've got a lot of pretty fancy hybrids out in the country that have the ability to yield fairly well if you get any kind of rain. There is some decent yield potential yet in some of these areas. If we wait three weeks, like Mr. Taylor says -- Dr. Taylor says, it's probably not going to recover a lot.

Pearson: Okay, so I'm a producer sitting out there. What should I be doing? Is there a price point you think they ought to be looking at?

Pfitzenmaier: I think initially you have to sell up against that $8 resistance on the new-crop corn. Maybe you do that with a put option. If you think -- The reason you use a put option is if think there's upside potential. You think $8 is about it, then there's not a lot of reason to use an option and spend the money on a premium. Go ahead and make a sale because those are good price levels.
It's going to be difficult to do because people aren't sure do I have a crop or what do I have. I've already sold some, not wanting to overcommit themselves, but these are certainly levels, it looks like to me, that are stalling out. You've seen the September contract lose to the December contract, which is another sign of waning demand. That's what I would do, I guess, makes some sales against eight bucks.

Pearson: All right. Now in beans, what is your advice to the producers out there on beans?

Pfitzenmaier: A little bit different situation. That's why you're seeing beans drop so much more than corn has, because the perception has been all along here that if it started to rain in August, beans have great recovery capabilities, and I guess we're going to find out. We have a little rain go through this week. There's more forecast in through the weekend. On a normal year, when beans are mature and you walk out through the end of the row, you don't have a clue what the yield is going to be. So this time -- under these circumstances it's going to be difficult.
I think the trade generally thinks that the yield is probably in a 40-bushel per acre range, maybe a little bit less than that. And then we're going to have to figure out that there is an expectation of a lot of double crop acres that may not have happened.

Pearson: All right. We're going to cover cotton in the Market Plus segment.
Let's talk livestock a little bit. Where do you see feeder cattle headed?

Pfitzenmaier: Well, that depends a little bit on corn. If corn stays up here at these kind of price levels, it's hard for me to believe feeder cattle have a great amount of upside potential. You talk to producers who are working the numbers on them and they say it just doesn't work. If you're going to have a shortage of feed, not only a shortage of corn, but if ethanol shuts down, you're not going to have the DDG's, which is going to make the demand for meal go up, which makes that much more expensive. So I think you're going to see downward pressure. If the fat market starts to catch some steam -- and it caught a little steam here at the end of the week -- everybody assumes we have high prices and we're going to see herd liquidation and that's going to throw more meat on the market. That's true up to a point, but also cattle are getting marketed at a lighter weights, so we don't have the tonnage. You saw the cash market in cattle trade a little better this week, and I think that's part of the reason why.

Pearson: And do you think on the beef side that demand is going to continue to be there?

Pfitzenmaier: Well, that's the question. Gas has started -- has dropped some but it's still relatively high. The consumer is a little uneasy. I think ultimately you're going to see beef go -- I don't see any way around beef not working higher. And if it works higher, it's probably going to be a little more expensive.

Pearson: Let's talk hogs and the hog market. What do you see in there? 

Pfitzenmaier: Hogs are going to be going drug higher too with this. There's a lot of speculation that if China doesn't want to buy our beans or buy our meal, maybe they'll buy some hogs if hogs are relatively cheap, so I think you have to look at the export side of the pork market. We've seen the pork price stay fairly strong.
I think there's probably another couple bucks up in it before it starts to run into resistance. I think if you got up into those areas, I'd probably want to start making sales on the pork side. 

Pearson: And now for exports --  pork exports, especially with China, is the weakness of the dollar going to be a factor there, do you think, or is it just demand on the Chinese side?

Pfitzenmaier: It can't hurt. But let me qualify my comments on the dollar. Just because it pulled back doesn't mean I think it's necessarily going to stay low.
The dollar is on an upward trending channel here. It looks to me like the drop we had is just a drop to the bottom end of that channel and is still probably in an upward -- So I expect to see the dollar make new highs and, ultimately, that's not likely going to be a good thing for commodities. My comments earlier were short term. Longer term, I think the dollar is going to work higher here.

Pearson: Okay. All right. So things to keep an eye on there going forward. We've got a little bit of time left. Can you speak to cotton just briefly.

Pfitzenmaier: The cotton market, as you saw, the production side of cotton is probably a little bit supportive. The dollar this week was a little bit supportive. Longer term the demand for cotton is not so good. The high price we had a couple
years ago really killed the demand for cotton. This is always what happens. You get cotton prices high and all of a sudden the designers and all the people that are involved in the clothing industry all of a sudden start designing stuff for synthetics, and the synthetics come in, cotton gets hurt. And that's what happened here. The demand for cotton has been reduced, and I think you're going to see it just chop around here in the low 70s for a while before that demand -- it gets cheap enough that demand shifts back towards cotton again.
Pearson: All right, well, thank you so much for being with us here today, Tomm.
We really appreciate talking to and appreciate all your insights. That wraps up this edition of “Market to Market.” But if you’d like more information from Tomm on where these high flying markets may be headed, visit the Market Plus page at our web site. You'll find expanded market analysis, audio podcasts, and streaming video of our program, as well as links to our Twitter Feed and Facebook account, all free at the “Market to Market” web site. And remember, I'm still the new kid on the block here at "Market to Market," and I'm really excited to get to know our viewers better. So visit any of our sites and share your comments on “Market to Market.” Be sure to join us again next week when we’ll continue to examine the drought’s impact on commodity prices. Until then, thanks for watching. I'm Mike Pearson. Have a great week.


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