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Market Plus: Tomm Pfitzenmaier

posted on January 10, 2014

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Pearson: This is the Friday, January 10, 2014 version of the Market Plus segment.  Joining us now is Tomm Pfitzenmaier.  Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: One of the topics we didn't get a chance to discuss during the show was cotton.  We saw a little bit of a sell off this week in cotton.  Where do you think that market is headed?

Pfitzenmaier: I don't think it's going anywhere.  Cotton is locked in a trading range here from roughly 84 or 85 to 87, 88 maybe.  We've got a problem with, number one, having too much cotton and number two, it looks to us like China is going to be backing off on their cotton purchases.  They're drawing from their own reserves and I just think the upside potential for domestic cotton prices is really limited.

Pearson: Alright.  Now do you think a lot of those cotton acres are going to be planted to something else?  Or are producers going to go ahead and --

Pfitzenmaier: Here's another issue.  If you look at this crop report, last crop report and look at the yields -- Arkansas out yielded Iowa last year in corn yields.  So those guys, Tennessee, all down in through there, they had phenomenal corn yields and I think if you have good corn yields and you make pretty good money growing corn there's probably a good chance you’re going to take another shot at that.  You talk to the people at John Deere, their cotton picker sales are off quite a bit I think for that very reason.  So there's some pretty good evidence that you're going to see some of that shifting, maybe not more shifting but I think they're going to hold those acres.

Pearson: Okay. Alright.  Now, as we talk about acre shifting, we've got a lot of questions this week on the bean outlook for the new crop.  Rodney in Edgar, Wisconsin is asking a couple of questions here, two-part.  If corn goes to $2.75 for 2014-2015 new crop, where do you see new crop beans next fall?  Do you think corn is going to $2.75?

Pfitzenmaier: I guess I'd be surprised if it went quite that low.  I certainly think you could go to $3.25 to $3.50, which if he's talking cash may translate to cash prices that low.  But I also think you’re going to see beans at $9.50, under his scenario if things are that good maybe even $9.00 on new crop beans.  So, like I alluded on the show, if you're in a camp that thinks you're going to plant beans and just assuming the price is going to be good I'm not sure you should make that assumption.  I think if you're going to plant the beans you better sell some beans.

Pearson: Okay.  And that comes back to Tim in Crookston, Minnesota has a question, 90 million ton South American bean crop and it's getting bigger as we talked about on the show.  The U.S. has hit the USDA's expectations for soybeans exports already.  We've got 13, excuse me, 7 months left in the marketing year.  Is global demand going to offset this large South American crop?

Pfitzenmaier: No, I think you're going to see the Chinese cancellations come along.  And everybody says, well why hasn't it happened?  Last year at this time we -- if you remember they had trouble getting those boats loaded out down in South America last spring and there were a bunch of them floating around waiting to get loaded, they're paying demurrage charges on them and I think they're trying to avoid that.  That's why I don't think you're going to see any of those cancellations start until mid to late January this year so that has all been pushed back.  But I can't see why it isn't going to come.  Their prices are substantially under ours.  They've got, like I said, 90 up to a 95 million metric ton just in Brazil crop.  You've got Argentina doing some negotiating with their farmers to try and compensate them for the currency losses that they might incur, trying to encourage movement of their products.  So I think there's trouble on the horizon there.  And if you look at the futures setup, each successive month is lower.  So if you hold beans thinking things are going to get better not only are you seeing the futures lower but you're probably at some point going to see the basis fall apart on you.  So holding -- and you've seen that farmers have been much better sellers of beans and they have corn and that is one of the reasons why.

Pearson: No carry and it has prompted a lot of sales.

Pfitzenmaier: Exactly.

Pearson: Now, Phil in Canada, who is in Ontario, Canada, actually has kind of a tie this all together question, with the USDA in the rear view mirror what should farmers be planting in 2014?  What crop offers the most hope in your opinion?

Pfitzenmaier: In my opinion it sure looks to me like if you compare November 11 - soybean prices at $11.00 versus Corn, December of '14 corn around $2.60, I mean $4.60, to me corn makes a lot more sense than planting beans do.  Now, maybe you're wanting to get back in a rotation or maybe you've got some disease thing or maybe your tight on cash and you have to plant beans because you don't have the money to plant a corn crop, but overall it looks to me like corn is going to be more profitable.  And the other thing about corn that I think you cannot avoid thinking about is that I think there's more upside potential in corn.  When farmers go out to plant a crop they're planning, expecting that whatever they put out there is going to yield well.  You don't go out there saying it's going to be a terrible crop or you wouldn't do it.  By definition it's an act of optimism.  So if that's the case, it looks to me like there's a lot more upside potential on a good year for corn than beans.  Maybe your beans can go from 50 to 60 but your corn can go from 180 to 250 under the right circumstances and I think people think about that.  So to me corn still wins.

Pearson: Okay.

Pfitzenmaier: I guess that was a long answer to a short question.

Pearson: Now, we've talked corn and beans, we've got a couple of wheat questions.  Mark in Enterprise, Kansas is asking, with this horrible spate of cold weather, the polar vortex that has come on, do you think we're going to see a lot of winter wheat kill?

Pfitzenmaier:  I would never comment about winter kill on wheat in January.  I think you have to get into March, April to see that.  I guess you'd have to ask somebody in Kansas.  They know more about that than I would -- we hear that talked about every winter and sometimes it happens but most of the time it doesn't.  So I guess I wouldn't be counting on that a lot.

Pearson: Okay.  And the trade isn't pricing any winter kill in as we've seen as these markets continue to slide.

Pfitzenmaier: Right, and there's a lot of wheat around, a lot of wheat in the world so maybe if there's some winter wheat, winter kill it may not matter all that much.

Pearson: Yeah.  Now, Gus in North Dakota was curious, as we look at the Minneapolis and the Kansas City contracts, typically we see a premium for the Minneapolis this time of year but this year they're trading roughly identical.  What has happened?

Pfitzenmaier: To be honest with you I don't follow that market that closely so I guess I'm not sure.

Pearson: Alright.  Well, Tomm, we appreciate you having us with us.  We're going to see if farmers take your advice and we see some projected bean acres go back to corn.

Pfitzenmaier: Yeah, we'll see.

Pearson: Thanks for being with us.  Have a great week.  And thanks to you for sending in your questions via Facebook and Twitter.  Please continue to do so and we will have expert analysis for you every single week.  Thanks for watching.

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