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Market Plus: Tomm Pfitzenmaier

posted on July 19, 2013

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Pearson: This is the Friday, July 19, 2013 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: All right. Thanks Mike.

Pearson: One of the topics we didn't get a chance to talk about on the show was cotton. Saw a nice little rally $1.10 up this week. What is driving that in cotton?

Pfitzenmaier: Cotton has got a demand and supply issue. The supply issue has been hotter than the daylights in Texas where a lot of cotton is grown and their crop has deteriorated pretty badly. You have seen it in corn. Their corn crop has been down, the rating is down there and it has also been affecting our cotton crop. So, you have got that supply issue counterbalanced by the predominate buyer of our cotton is China and China has backed off a little bit on their purchasing of cotton. So, apparently this week the problems in Texas sort of over - over balanced the problems with demand. I think you are stuck in a trading range from 82/83 up to 86/87 and you bounce around in that trading range and I don't see it doing much beyond that. So, I would make sales if you get up into the upper end of the range.

Pearson: Going to have to get to harvest to see really which problem outweighs the other.

Pfitzenmaier: Exactly.

Pearson: Ok. All right. So, if you need to 86/87 makes your sales and be ready to see what happens as we roll down the line.

Pfitzenmaier: Yes.

Pearson: All right. Now we have had a lot questions this week. We talked about it on the show a little bit, the lack of rain. I mean this, I know in some parts of Central Iowa we have been on about 3 1/2 weeks without rain. What are you seeing in the rest of the country? What are you hearing from customers? How does the crop look in Nebraska, Iowa, South Dakota?

Pfitzenmaier: Like I said on the show Nebraska has declined some. I don’t' know how much it can decline when they are pouring water on most of it. The downside there is probably somewhat limited. Everybody else - it would be nice to have a rain but all that rain this spring really did replenish subsoil moisture. So there is a pretty good tank to draw on. This dry weather has pushed those roots down so that's maybe a benefit to some extent. But we do need the rain and we don't really want to go into pollination period with a problem. So, I think they are right it is worth watching pretty closely and it is going to be the market factor the next two weeks.

Pearson: And it is going to be a mover if we get rain or not rain.

Pfitzenmaier: If we get the one to two inches of 70 percent plus coverage that is being forecasted by some this corn market is probably/maybe done for the year.

Pearson: Ok. All right. Now as we're talking corn market in '13, we were talking earlier about land rent values and how to best anticipate what are we in - what are we seeing with land rents? How do you handle these high rents in a lot of places as we look to the future? What is the best way to market and plan your operation to deal with those rents should they continue?

Pfitzenmaier: When you talk about rents there are two problems with the rents. Number one the landlords are reluctant to drop rent. They are slow to do it. Number two farmers understand that the best way - the only way to success for them is to control land. So they are reluctant to give up any land either. So having said that - I would expect if rents soften they are probably not going to soften by very much. So, you have to go out and look - ok, how do I assure myself that revenue? Well, we had revenue assurance insurance this year at a relatively high level. So a lot of people didn't worry about it much. Next year that's probably not going to be the case. If we have 4.25 to 4.50 corn like I have talked about on the show then you are probably going to drag December of '14 corn down there too. Now December of '14 corn actually got as high as 5.55 last week which was within a dime of the revenue assurance price that we scored for '13 in February. So to me if you think your rents are going to be high you want to actually assure yourself income. I think you need to look really hard at selling that corn, December '14 corn somewhere between 5.30 and 5.65 and do some kind of a scale up program or something because if we come into next year with a carry in of two billion bushels that 2014 corn is going struggle.

Pearson: It is going to have a pretty low ceiling on the December '14 prices come next year.

Pfitzenmaier: And the income you are used to getting is going to go away kind of quick.

Pearson: Very quickly. Yes indeed. Now we do have a couple of questions from cattle producers. Jerod in Seldom Rest, Oklahoma is asking as we look out in cattle, when is the herd rebuilding really going to pick up steam and limit the supply of cattle on feed?

Pfitzenmaier: Jerod would probably have a better handle on that than I would. But I - it looks to me like these - it is really hard for these cow/calf guys to think about doing that when they are getting these fancy prices they are getting for the calves. I mean you have got to be really well healed and go ok, I am so well healed I think I can pull a few calves back to start an expansion. And I am not - I don't know the exact date when that is going to happen but I don't think we're quite there yet. Now maybe when this calf crop gets sold we will finally be to the point where that happens. And he is right that is going to be another supportive factor for the market but I think we are ways off from them being well enough healed for that to happen.

Pearson: Producers would like to see us touch maybe that 157 mark, sell some calves and actually have some black ink on some paper.

Pfitzenmaier: Exactly.

Pearson: All right. So that is something to keep in mind. So as we are talking feeders, as we look out again how is the supply shaping up currently looking through the rest of the summer and into the fall?

Pfitzenmaier: I mean I think the calf crop is pretty good. The contraction is over. So we have stabilized the herd and I think for those that have feeders to sell you are going to get a good price. The futures are telling us that. So, I don't think there is a lot to worry about in that respect anyway.

Pearson: And now how has the cash market been relating to futures recently as we look at August cash.

Pfitzenmaier: As usual they have been a little ahead of the futures. I mean that market really is driven by the guys sitting out at the sale barn bidding and they keep it pretty stout.

Pearson: All right. You mentioned on the show crude oil prices being a major factor in people's consumer spending, in everything that we do, what is your take on the situation currently in the Middle East? Are we going to get some relief from these high crude oil prices any time soon?

Pfitzenmaier: Well, the Middle East is one of the big driving forces and particularly Egypt and the concern about the Suez Canal is one. The other one is the fear of a dust up between Iran and Israel. And those two factors are really driving forces and keeping that crude oil. Now those that aren't so bullish crude oil, they are looking at domestic production in the U.S. at 21/22 year highs saying wow, we need to drop crude. The heck with those guys over there and that's the path we are on. We are probably a few years away from that being the case but I don’t really see - unless shots begin to be fired, I don't think we will - we will have a tough time staying above that 108 maybe 110 level and then the other side of that coin is are we going to continue - how is refining going to be? We had two or three refineries have some problems around the country this week. So we started to see gasoline prices go up. As soon as they go up demand goes back and all the sudden gasoline inventories are building a little bit again. I think the consumer is really sensitive to any increases in - in gas prices that come along and I don't know. That's the way it looks to me. I don't - I am not real optimistic that you are going to see a lot more drop in gas prices at the pump going in through the rest of the summer.

Pearson: Well, not a very optimistic note but we will let you go with that. Thanks for being with us Tomm.

Pfitzenmaier: You bet. Thanks Mike.

Pearson: And thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we will have experts get you expert answers. Thanks for watching and have a great week.

Tags: acreage agriculture analysis basis commodity prices corn economy markets midwest new crop grain soybeans Tomm Pfitzenmaier USDA weather wheat