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Market Plus: Tomm Pfitzenmaier

posted on October 4, 2013


Pearson: This is the Friday, October 4, 2013 version of the Market Plus segment.  Joining us now is Tomm Pfitzenmaier.  Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: We've got a number of questions here from a lot of our viewers.  People are curious about the weather.  As we watch the series of blizzards farther west, tornado watches and warnings in Nebraska and Iowa and then this threat of the tropical storm rolling up into the Gulf Coast states, what effect should we be anticipating in the futures markets come next week?

Pfitzenmaier: That could have some effect on crude oil.  As a matter of fact, you saw it in the gasoline RBOB futures at the end of the week where there was some concern about the refineries.  It was kind of interesting in the crude and gasoline markets this government shutdown and the fear of the impact it could have on economic activity was tending to depress those energy markets except for gasoline which found some pretty good support because of this potential weather if Tropical Storm Karen turns into a hurricane you might see some refineries shut down.  So that would be the one area where I think it would have a direct impact.

Pearson: Okay.  And crude we're trading just a little over $103 and it seems like we've come down a lot from sort of the Middle East --

Pfitzenmaier: Right.  We had all that Syrian whatever pumped into the market, premium I guess you'd say pumped into the market.  As that has gone away that is part of it.  The other part of it is the perception on whether the Fed is going to stimulate or not.  If they're going to continue to stimulate that is going to tend to be price supportive.  If not, if there's some compelling reason for them to start to pull back that is going to have some effect too.  So I think those two have been the main, big factors.  Oil production has been quite strong.  As a matter of fact I think the Wall Street Journal had a front page article saying the U.S. is now the number one oil producing country in the world.  So we're really ramping that up.  The Dakotas are credit to that.  That opening up of the Keystone Pipeline from Cushing down to the Gulf Coast has had some effect on those markets.  So, yeah, weather and those factors have combined to make that market kind of interesting.

Pearson: Yeah, and supported here in the short-term anyway with this weather.

Pfitzenmaier: Right.

Pearson: Now, let's take a look at the commodities.  We've got a question here from Tim in Crookston, Minnesota and he is asking, looking at the quarterly stocks report the USDA found more 2012 soybeans yet old crop basis remains very, very strong.  What is going on there?

Pfitzenmaier: Well, number one, they didn't find all that many, it was only like 18 million bushel.  Number two, is we were tight last summer.  Really ultimately it doesn't matter what the USDA said, what matters is how many beans are available and obviously those beans that remain at that 125 million or 140 million, whatever it turned out to be, were in very tight hands.  The farmer wasn't willing to sell them.  They were holding onto them hoping for more improvement.  And so you had a tight situation.  I don't know that that stocks number really ultimately when things get that tight makes that much difference.

Pearson: And certainly not at the local co-op level when they're trying to meet their obligations.

Pfitzenmaier: Right, and the processors really had a strong demand for beans and were paying up to get them.  The farmer thought he had them in the driver's, well did have them in the driver's seat, was in the driver's seat all summer and so he had a strong basis.

Pearson: Alright.  And that is going to continue until we begin to see real new crop supplies rolling in.

Pfitzenmaier: You've really seen that erode here over the last two weeks as harvest has picked up, three weeks really and I think you're going to continue to see more pressure as we move into the -- like I said on the show, the farmer is incentivized to sell beans and not corn so much so that is going to tend to work against you on that basis too, at least in the short run here.  Now, maybe by the end of the year that could snap back after everything is kind of locked up. But in the short run it's going to be a problem.

Pearson: Okay.  Now, speaking, you mentioned new crop and Shay in Ames is curious about, again, how will the shutdown affect bean futures with no USDA reports?  And asking about the higher yields we're hearing so far coming off the combines, are those going to continue?

Pfitzenmaier: Well, it has been my perception that that's exactly right, the early yields, particularly in the southern areas and as we move north, have been good.  Now, the beans that have been harvested have mostly been beans that were planted on time so you would expect them to do well.  Now, all I've heard for 30 or 40 years is the month of August is the critical month for the production of beans and I can't imagine August being any worse.  So I guess I'm still a little uneasy about whether or not those yields are going to hold.  I mean, we've only harvested 12-14% of the beans so there's a big chunk of them we don't know about yet and so I'm not inclined to get in a big hurry.  Now this is one area where we're going to kind of miss those reports on Monday, the harvest progress reports to know kind of where we're at there.  So that's going to, again, introduce some uncertainty to the market.

Pearson: The trade will just be doing windshield tours I imagine to see how we're doing.

Pfitzenmaier: Yeah, we're going to have to rely on private and more anecdotal harvest results to sort of guide us on how we proceed in the next week or two or until the government starts, gets back in action.

Pearson: And we start seeing those reports again.  Now, as we're talking about the tight supply in beans, we saw throughout 2012 and into 2013, Dave in Sycamore, Illinois is asking, can the tight supply and demand for beans keep the corn market supported this year?  Is there a link between the two?

Pfitzenmaier: Well, there's a loose link.  I think like, again, I alluded to on the show, the South American crop in beans is, they're on the verge of being or maybe are the number one producer of beans in the world so they have a big influence on the beans.  We're still sort of kind of in the driver's seat to some extent in corn production.  So it's certainly possible.  I mean, you look at it in wheat, you've got wheat $2.00 to $3.00 above corn, you can have the same thing happen in beans, you could have, and corn, you could have beans rally and corn just sit here and do nothing quite easily.

Pearson: Okay.  Alright.  So there's not a tremendous link and we'll just have to see how it plays out.

Pfitzenmaier: Now where the link will show up as farmers are making the decision on what to plant next spring and they're really watching those differentials.  Like I said, the old crop differential is almost three to one on beans so it certainly favors but when you're making the decision what to plant you're looking at next years and that ratio is down to 2.3 to 2.4 kind of bouncing in that range which is kind of normal for the relationship between corn and beans.

Pearson: Beans aren't out there aggressively buying any more acres?

Pfitzenmaier: Not yet.  Now maybe that's going to change through the winter but it certainly isn't the case now.

Pearson: Alright. 

Pfitzenmaier: That's why I was so adamant about making some sales on new crop corn because that tends to favor corn and ultimately if the acreage comes out and we stay at those ratios you're going to plant more corn and really be buried in corn.

Pearson: Yeah, yeah and just see that slide continue.

Pfitzenmaier: Yeah.

Pearson: Well, thank you so much, Tomm.

Pfitzenmaier: Thanks, Mike.

Pearson: Appreciate you being with us this week.  Thanks to all of you for sending us your questions via Facebook and Twitter.  Please continue to do so and we'll continue to get expert analysis right to you.  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