Pearson: This is the Friday, February 14, 2014 version of the Market Plus segment. Joining us on this Valentine's Day is Tomm Pfitzenmaier. Tomm, welcome back.
Pfitzenmaier: Thanks, Mark. Mike. Sorry.
Pearson: It's alright. We didn't have a chance to discuss cotton during the show. A little bit of a rally? What are your thoughts on the cotton market?
Pfitzenmaier: You know, the interesting thing about cotton is while we have seen this big break in the corn and the beans the cotton market has hung in there relatively well. Had a little bit of an up again this week, is hanging in there in the mid-80s now. The CBO report this week that projected cotton, made a cotton projection they're talking about it possibly slipping over the next year down into the mid-60s but even that's not too bad. The big question in my mind is those southern producers where they tend to grow cotton really have switched to corn over the last couple of years. They had record corn yields this year. What are they going to do this year? Are they going to -- corn has dropped but their yields are good. Cotton prices have been, are really good but they haven't been having that great of luck growing cotton. So how are they going to react? And that feeds into what is going to happen with the cotton market as well as what is going to happen with the corn market. Historically my idea is that when you've had really good luck growing a crop, when you've grown record levels of it you're probably going to at least try it one more time. And if that is the case that is going to tend to be supportive to cotton acreage. And if we can get the demand going in cotton, which is highly dependent uponChinaand how they react, I think we could have relatively decent cotton prices through 2014.
Pearson: Alright. And you mentioned the CBO report talking cotton down in the 60s. Would that be an incentive for some folks to go out there and get one to two years out priced at least some percentage?
Pfitzenmaier: I would think it would. I guess to me cotton priced in the mid-80s is a pretty good cotton price. I would think you'd want to have some coverage. Maybe you don't get carried away and just 25% or something like that but I'd think you'd want to have something covered up at those levels.
Pearson: Just get some protection on that.
Pearson: Alright. Now, we do have a couple of great, actually a number of great questions from our Twitter followers and Facebook followers. And Jenny inIllinoisis going to start us off. We've had a cold winter, Tomm. It has been cold, it has been unpleasant and it is early, we're not yet to planting. But Jenny is concerned, what effects will the super cold winter have on the grain markets if any heading into this next crop year?
Pfitzenmaier: I think I guess I'd reconfigure that question a little bit and say it already has had an effect. I think we have had very little grain movement really since the first of the year because it has been sold cold. People don't want to get the trucks going, the augers and all the stuff you have to use to move grain. And so we have seen very little grain movement. Now, going forward forecasts are for that to moderate and I suspect you're going to start to see some grain move. Now, that hasn't had an effect of stopping sales. Farmers have been making sales. But you haven't bee moving, the grain hasn't been moving. So that to me is where the difference is made and it also is probably going to tend to show up in the basis. We've had very good basis because they couldn't get their hands on the grain. They're bidding up to get their hands on it. I think going forward you're going to start to see -- ethanol plants and the end users are bought out February, March, starting to work their way into April. Once they get those needs met I think you're going to see basis deterioration. So, in my mind that is where weather plays into it. We can't ruin the crop or anything because of it during the winter.
Pearson: And I know it is very early but have we started talking about delayed planting at all? I know we've got almost 30 inches of frost in the ground inIowaand I'm sure it's comparable throughout the rest of theCorn Belt. Is that a concern yet or do we hope this moderation will lick that in time?
Pfitzenmaier: To be honest with you you're the first one I've heard mention it so I don't think it is real widespread.
Pearson: I heard it on Twitter so thank you Twitter folks.
Pfitzenmaier: But you're a cutting edge kind of guy, so --
Pearson: Alright, well then we'll throw that question away. Alright, looking on we do have a lot of questions. As you're talking crop movement out in the field, Tim inCrookston,Minnesotais asking, do we reward this mini rally and sell into it with some wheat and some beans?
Pfitzenmaier: Absolutely. I think we kind of talked about that on the show too. We have rallied those old crop beans up into that $13.50 plus. Maybe there's another 20, 30 cents in there. I wouldn't rule that out. But we're up into levels where I think sales, if you haven’t' made sales, make some. If you haven't made enough, make some more. And, again, wheat up at $6.00 I think needs to be sold too.
Pearson: Yeah. And now, you mentioned South America, their harvest is underway, it's hot in some parts ofBrazil. Does it still look like it's going to be a huge crop?
Pfitzenmaier: I mean, there were some that thought the soybean crop inBrazilcould creep up into that 92 million metric ton. You're starting to hear the last few days that some people are kind of backing that off into the 89.5 to 90 range. Still a huge crop, maybe not quite as big as we thought and it's going to be a problem. Like you say, they're getting harvested. There was some talk about it being dry but most of the dryness is in the south, southeastern area where they don't tend to grow as much. The areas where they actually grow the majority of their crops are really in quite good shape.
Pearson: Okay. Now, that kind of leads us right into Calvin in Barnard's question. As we look at new crop beans you mentioned on the show that this recent rally we've got represents a pretty good selling opportunity. As you look through the rest of this marketing year, what other bullish factors are out there? Are we going to have other opportunities throughout the year?
Pfitzenmaier: Well, like I said in the show, we're an island of tightness in old crop. Looking forward, like I said,Canadahad a huge crop, they've got product to sell. The South American crop is huge. The expectation, I mean, the CBO came out and said planted acres of 78 million acres. Well, there's nobody in the trade that believes that. Everybody thinks we're going to be up in the 80 to 82 range and if we have any kind of yield at all we could be in the 300 to 400 million bushel carryout range. So, what could go wrong? I guess if in fact farmers plant a lot of corn and not so many beans that would be one thing that would tend to be supportive. Now, that's another one of the big tradeoffs. Are we going to plant beans because we've kind of been out of the bean rotation, it's cheaper to put a bean crop in? Or are we going to plant corn? Which I think is more profitable, has more upside potential for yield, farmers tend to like to grow it. So I'm always suspicious of the oh we're going to have a massive switching from corn to beans story. But maybe we will this year. If we don't that could be a supportive factor.
Pearson: Okay. So as of now we're thinking the trade is 80 to 82, 83 million acres priced in. If it came in at that 78 might represent a bullish factor.
Pfitzenmaier: Yeah. And we do have, the ag outlook meeting comes out this week, this coming week. They meet on Thursday and Friday. They always come out with their sort of the kick off for the beginning of estimates for planted acres. So that will be something to watch closely going ahead this week.
Pearson: Alright. Now, before we let you go we've got a couple of our Canadian viewers, Peter in Blyth and Phil inDresden,Ontario, curious about corn demand. We're at record levels looking at feed demand, looking at exports. Is that going to continue?
Pfitzenmaier: Well, I'm not sure the export demand can hold up given the competition around the world. So I think it's going to be good. But when you rally corn prices 40, 50 cents like we did it tends to shut it down. Ethanol production has been good but that is going to, kind of peaked out there at about 5 billion bushel of corn. Feed demand, the USDA has plugged in a huge increase in feed demand. Cattle numbers are down, hog numbers are steady, poultry is barely higher. I don't know how you justify that. I'm very fearful of downward adjustments in feed demand reflected in that stocks report that comes out March 31st. So, Canadians, those guys had a great crop so there's a lot of product around the world to sop up some of that demand but it's still, like the CBO said, if they should happen to be right and we have a 2.6 billion bushel carryout it's going to take a lot of demand to take care of all that.
Pearson: That's a lot of corn to chew through.
Pfitzenmaier: A lot of corn to chew through and that is another reason why wheat's upside is limited because obviously they're competitive in some respects.
Pearson: You bet. Alright. Well things to keep an eye on. Thank you, Tomm Pfitzenmaier, for being with us tonight. Have a Happy Valentine's Day.
Pfitzenmaier: Thank you.
Pearson: And thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we'll continue to get expert analysis. And from everyone at Market to Market, want to wish all of you a Happy Valentine's Day and weekend. So take care and thanks for watching.