Pearson: This is the Friday, April 26th, 2013 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.
Pfitzenmaier: Thanks, Mike.
Pearson: We've got a lot of great questions here sent in from our folks on Twitter and Facebook. So I was thinking we just kind of get right into them.
Pearson: Tim in Crookston, Minnesota is asking a question that I've heard a lot of producers asking. How much talk have you heard of folks switching to bean acres due to the wet and the cold? Has there been much talk?
Pfitzenmaier: There's been talk about it. Historically that doesn't tend to happen. People tend to switch, stay, I mean, unless it gets extremely late then you might see some switching. Historically it just doesn't happen and I guess I'm going to assume that it's not going to happen, especially if things warm up and we start planters rolling here in the first of May. I don't think if you get the corn planted between May 1st and the 20th or the majority of it I don't really see a lot of that happening. Now, maybe up in North Dakota I've heard that there's already been some seed corn taken back so there might be a little switching up in that part of the country. I don't think anybody else is going to switch much.
Pearson: Mainly going to happen at the margin and kind of a rare situation.
Pfitzenmaier: Right, right.
Pearson: Unless we get a lot more rain here in the next month.
Pfitzenmaier: Right, exactly. I mean, if we don't plant corn until the 20th of May to the 10th of June then I think, yeah, you're going to see that. But that generally doesn't happen.
Pearson: Right. Now, kind of building off that same question, Shannon is asking, when is the market going to get worried that we're not in the field? In north, northern Iowa, for instance, the soil is still 38 degrees, no planting progress. How late can this go on until the market starts to price in a little bit of a weather premium?
Pfitzenmaier: Well, the general perception is that you don't have much yield loss until that window of the 10th to the 15th. So I think it's at least going to have to get to that point and then, and then after that the next 10 days or so it's pretty minor yield loss. So we're going to have to be well into the end of May without much planting done before that happens. And I recognize it's cold up in northern Iowa and it's going to take a little while for those soils to warm up. But you get 70, 80 degree temperatures and the sunshine that happens in a big hurry. So the market up to this point hasn't worried about it and it doesn't look like they're going to for a while here.
Pearson: Okay. Alright, so it's going to be another month or so before that even becomes --
Pfitzenmaier: We got a little jaded by the fact that we planted everything so early last year and well, we're going to be well behind the five year average, five year average is 31% and we're probably going to be less than 10 this week again. But the market is looking ahead and I don't think it's going to be concerned for a while.
Pearson: Okay. Now, speaking of what the market is going to be anticipating in the fall, one of the things we didn't get to talk about on the show was what sort of price level would you be looking at selling new crop corn?
Pfitzenmaier: I think new crop corn has the potential to move up into that $5.40 to $5.60 range, maybe $5.65. If we do start to get some of these late planting concerns going on almost always late planting rallies are selling opportunities. So I guess I'd be looking to either make sales on futures, cash market sales, buying puts, do something on that kind of a rally I guess.
Pearson: Okay. And --
Pfitzenmaier: -- with that window of --
Pearson: $5.40 to $5.60.
Pearson: Find something in there. And on beans we mentioned during the show you were thinking in that $12.00 to $12.20 range.
Pfitzenmaier: Right, exactly.
Pearson: Make some sales up in there for that new crop.
Pfitzenmaier: Yeah, again, either futures or options or cash sale or whatever, you know, vehicle makes most sense for you.
Pearson: Certainly, take some of the risk off the table and price in that margin.
Pearson: Now we've got, it's going to be a question here from Eden Farms in Rhodes, Iowa and I think we're going to have a lot of discussion over this here this summer. We talked about it last year. What is going to be the ramifications if the government changes or plateaus the renewable fuel standard, the RFS?
Pfitzenmaier: Well, I think that is one of those things that sits out here that I think we all should be generally worried about because those standards were set up and it looks to me like they were just a wild guess. I mean, they took some tendencies and some trends and a projected amount and they didn't take into account the fact that gas -- cars are much more efficient and what gasoline prices was going to do and impact that was going to have on gasoline usage. And all of a sudden those numbers look out of whack, particularly if you put the cellulosic numbers in there which was completely a guess and hasn't turned out to be the case at all. So I think there's starting to be a perception that these high price RINs are driving the price of gasoline up, artificially driving it up because they have to pay up for them and I think at some point you're going to start to see politicians snooping around about that and saying, really, is this what we want to do? And so I think they're absolutely right, it's something that needs to be watched closely. I don't know that in the next month or so anything is going to happen but longer term it could certainly be an issue.
Pearson: And if it, if it becomes an issue, if they do decide to plateau it at the 2013 level or whatever they decide to do, since it is Washington they could do any number of things I'm sure, is that going to be a genuinely negative effect on corn prices do you think? Or has the market --
Pfitzenmaier: Absolutely. There's some people by some estimates think that could drive ethanol, demand for corn to produce ethanol down to sub-5 billion bushel. I've heard as low as 4, 4 to 4.5. So that's not my projection but that's what some people in the industry believe. So it is definitely something that could have a -- you know, we don't really want to drive usage down, when we're producing more corn do anything that drives usage down. So that is a problem potentially sitting out there that people need to be cognoscente of for sure.
Pearson: Okay. And then just to explain a little bit to folks who maybe don't understand the RIN issue, that's the -- I don't know what it stands for -- but it's basically the credit they get rather than using --
Pfitzenmaier: Rather than using ethanol, correct. They can go out and buy these credits and then substitute in for usage and that is what -- and those were trading at a nickel to ten cents and then got as high as $1.00 plus and that is what has driven up, some people believe has driven gasoline to the consumer up. And whenever that happens then griping shows up and the politicians get called and so you never know what could happen there.
Pearson: That's right. Now one of the things that I thought was interesting, the Chicago Mercantile Exchange is opening a futures trading desk for RINs. Now that seems like if they're willing to spend that kind of money they do anticipate at least ethanol to continue being made under some form of mandate for at least --
Pfitzenmaier: Well, they introduce a lot of things that don't actually ever work out so I don't know that anybody is ever going to trade that or it will amount to -- I think that's more exploratory than it is reality personally.
Pearson: Gotcha, kind of driven by that spike in prices that got people interested in something they may have never heard of before.
Pearson: Now, one final thought before we let you go, we mentioned, you mentioned on the show we're sort of anticipating lower gasoline prices as we roll into the summer. Can you talk to us a little bit about why you anticipate that especially if the dollar continues to rise?
Pfitzenmaier: I think -- I think as you, you know, in the -- they have to -- they have to shift from a winter blend and then back to a summer blend in the spring and I think once that transition gets done then all of a sudden gas prices are going to be more plentiful. We saw gas drop I think close to 30, 35 cents just this week. And I think, again, you've seen the economy soft enough that gasoline usage has dropped, you're -- more efficient cars are being bought and driven and used and so you aren't using the gasoline that we had anticipated and I think all that is going to come together to drive gasoline prices down close to $3.00 I think by the time the summer is over with.
Pearson: Alright, maybe we'll start to see some gallons of gas with a 2 in front.
Pfitzenmaier: Could happen I think by Labor Day.
Pearson: That would be pretty exciting from a consumer standpoint --
Pearson: -- from somebody who is looking to grill a little bit more steak this summer.
Pfitzenmaier: There you go.
Pearson: Thank you so much, Tomm, really appreciate having you with us here today. And thanks to all of you for sending in your questions via Facebook and Twitter. Please keep it up and we'll continue to get expert answers for you. Thanks for watching. I'm Mike Pearson.