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Market Plus: Tomm Pfitzenmaier

posted on April 25, 2014


Pearson: This is the Friday, April 25, 2014 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: During the show we didn't have a chance to discuss cotton prices, which did see a little bit of a rally this week. What are your thoughts?

Pfitzenmaier: Well, old crop cotton, that story is a little bit like old crop beans is, the funds have been heavily long, cotton demand has been fairly decent but as exports are starting to tail off there a little bit I think it got a little carried away, you start to see more choppiness as the end of the week showed up. So I would guess that is probably going to start to tail off a little bit, much like old crop beans. New crop cotton, we're just starting, we're about 9% planted, so just getting started planting. We did close higher in the week but it was starting to get a little sloppy too toward the end of the week. So I think if planting progresses well you're probably starting to see the upper limits for new crop cotton.

Pearson: Okay. Time to get in there and probably make some sales.

Pfitzenmaier: Yeah, I think we've rallied up enough to high enough levels that it is probably worth at least starting some kind of a sales program.

Pearson: Okay. Now, we do have a couple of questions in here from our Twitter followers. And Josh in Belmond, Iowa is curious, how do you think the new crop bean price -- how does Mr. Pfitzenmaier think the new crop bean price will go this year? What are we looking at on new crop?

Pfitzenmaier: Well, as I said on the show, the United States is an island of tightness, it has pulled that old crop higher and has drug new crop along with it. If you look ahead a little bit the world has got plenty of beans. When we harvest our crop we're looking at higher acreage. If we have any kind of yield at all we're going to build on stocks too. So I think there's a ton of downside in new crop beans. To me them up in the $12.40 to $12.50, $12.60, whatever we can pull up to here in the next few days I think is probably going to be it. Now, if we have planting delays in corn that is even going to be more negative because it could push some acres back to beans too. So either way I think there's at least a couple bucks downside in new crop beans. So I wouldn't horse around too long here getting something done. Now, if you don't agree with that and you think there's more upside you can buy yourself a $12.00 put for I think they're trading around 50 to 52 cents this week, gives you a nice floor and leaves the top side open for a while.

Pearson: You bet. Now, you talk to a lot of producers, do you think the USDA's numbers of, I can't remember if it's 81 million acres in beans, do you think that's what we're going to come down with?

Pfitzenmaier: No. I think we're going to be above that. I think there's two or three million acres of crop that is sort of floating around here unaccounted for and if you think part of that goes to beans and part of it goes to corn I think the number they came up with is probably the lowest number we're going to see.  There's all kinds of room for adjustment in both corn and beans in the June report and in the next stocks report. So I wouldn't get real comfortable with the high prices we've got because there's troubles on the horizon, I believe, on both those crops.

Pearson: You bet. Especially, as you mentioned, if we get these ongoing scattered showers that slow down harvest and really make beans look more enticing.

Pfitzenmaier: Yeah, slow down planting, you mean.

Pearson: Right, slow down planting, I'm six months living in the future.

Pfitzenmaier: That's better than being behind.

Pearson: Maybe I'm behind. Who knows where I'm at.

Pfitzenmaier: Yeah, that is the other point that everybody is wringing their hands over the planting not getting done but it's not getting done because soil moisture is being replenished. So that isn't necessarily all that negative, especially when we're wringing our hands at the end of April. I mean, if it was the first of June, okay, let's get concerned but we've got a long time to get this planted and the capability of planting a lot of crop in a short period of time.

Pearson: That's exactly right. And so far most of the rain events that we've seen have been the kind of rain we need. There have been a couple of events of large, heavy downpours but by and large it has been big storm systems dropping a lot of rain over several hours.

Pfitzenmaier: Yeah, nice soaking rains, you haven't seen a lot of runoff and I haven't heard too much complaining from anybody about the rains they've gotten. So yeah, I agree.

Pearson: Now, we have talked to a lot of producers, a lot of folks in general, last week a report came out and said that we've got the largest crude oil stocks in a long time on the Gulf Coast and yet we saw crude oil price move just $2.00 this week, close to $3.00. What is happening there? Why aren't we seeing the crude price come down a little bit more?

Pfitzenmaier: Well, you've got a couple of things going on. One is this dust up between the Ukraine and Russia has everybody a little uneasy about how energy is going to move into Europe. So that's supporting it. The other big thing is that the bottom end of the Keystone Pipeline was opened up here a couple of months ago and you had these huge stocks of crude oil building up in Cushing, Oklahoma, which is the delivery point for WTI Crude. All of a sudden you open the spigot, all that oil is now sitting down on the Texas Gulf Coast and being drained out of Cushing. So I think that is the dynamics that have supported -- the oil hasn't gone away, the oil stocks are building, we are 26 years highs in production. We're in really high levels of inventory. So I think that's all good and eventually is going to pressure it. If this Russian/Ukraine thing gets straightened out and the inventories start to stabilize a little bit in Cushing, I think you'll start to see crude oil work its way back down at least into the $92 to $94 range.

Pearson: Okay. But right now it's a fairly large risk premium in that market.

Pfitzenmaier: Yeah, it is.

Pearson: Oh what's happening overseas.

Pfitzenmaier: You noted this at the beginning of the show, we were down a couple bucks this week as the market sort of adjusts for this tension in the Ukraine.

Pearson: Alright. Now, we do have a question from Phil in Ontario. He's asking, with corn demand growing and acres and production forecast to drop, he's asking, 2015 prices could be higher as you look out into the 2015 year --

Pfitzenmaier: I guess I'm not sure who is forecasting the production to drop, number one.

Pearson: Well, I think he's speaking this year as we look at the acreage decline from last year to this year.

Pfitzenmaier: That doesn't necessarily mean production is going to decline. We're still projecting a 163 to 167 bushel per acre yield. We're still going to build stocks probably by anywhere from 200 to 500 million bushel. Now, demand has been good because everybody drew their stocks down when we had these high -- everybody and their brother had the bins were empty and were kind of waiting to see. Well, they have filled the bins up, the export demand has been good, we're refilling the bins. I don't see that demand carrying through into next year. We're going to just top off what we use so I don't see the demand continuing. Hog numbers, cattle numbers aren't coming back in any fast way. Poultry numbers were off 1% again this past week. So I guess I don't buy -- I think we're going to build stocks. Granted, they went from 1.9 to 1.3 or 1.4 so there was adjustments and that's why we rallied this spring unexpectedly. But I don't think that's sustainable and I don't agree that stocks are going to drop.

Pearson: Well, now looking at that, as you look to 2015, should folks be considering making some sales into that 2015 year?

Pfitzenmaier: We have been. I think that December 15 corn and that $5.00 to maybe $5.25, anywhere up in that range, I think you start dribbling a few sales out there. I mean, I wouldn't get carried away because things can happen. But the other thing that we hadn't talked about is there's a higher probability of El Nino this summer, which we could get the crop planted, have an El Nino in June and July and boom, what happens if we have 170 bushel corn yield? So, everybody likes to talk about, oh, it's going to be a disaster and we've got all these problems but there's also the potential with the technology we've got out in these fields to have a heck of a lot of corn this fall.

Pearson: Right. And that will make the guys that are paying $186 for feeder cattle pretty excited come fall.

Pfitzenmaier: Yeah, there you go.

Pearson: If we get that El Nino so it's always a tradeoff.

Pfitzenmaier: Yeah.

Pearson: Now, Tomm, before we let you go, as part of our new initiative called Market to Market in the Classroom, we are asking our market analysts to provide insight on what you do before you come and sit in this chair. And we're going to put this on the Market Plus segment and then eventually it will be on the Market to Market in the Classroom website. So, tonight we've got a couple of questions for you. Our first question is, what are some risks to commodity tradings, trading commodities? And what are some benefits? Why would a producer or a speculator do it?

Pfitzenmaier: Well, the speculator is obviously doing it because he thinks he has figured out the market and he's going to, he's going to make some money on whatever position he takes. Obviously the risk is that he's wrong and you can lose your shirt. I mean, you're dealing with a situation that is highly leveraged where you're putting up a couple thousand bucks for a corn contract that is worth a lot of money and that can swing you pretty hard if you're right and if you're wrong. So I think the leverage part of that is something that's really, it's something that catches people off guard sometimes and zaps them pretty good. Now, the benefits to producers is it gives them an opportunity to price their product. That's why these markets were invented in the first place, that was the purpose is to give producers a chance to make sales and not be limited to their local market. And I think that's still true, particularly in the grains, where with all the bins that have been built you can go out and you can shop different -- you can sell it on the futures, you're not obligated to one in particular buyer, you can shop that around, try and make basis deals. I think that's one of the advantages of using the futures is that flexibility.

Pearson: Alright. And how would you recommend someone get started trading commodities?

Pfitzenmaier: Slowly. I mean, I think you have to understand what you're doing. You have to understand the risks. You have to associate yourself with somebody who is not going to take advantage of you, that's going to help you learn, walk before you run, I guess. That would be my recommendation. If you're scared to death of the futures maybe do a put or buy a call or do something that's a little safer where your risk is defined so you can gain an understanding. Now, I think it's important that you do something because we all learn best when our money is on the line and you can paper trade commodities all day long and do great but it's a different animal when your money is on the line and you have to write a check or it goes against your whatever. So start small, understand the risk and there's some people that can't stand the risk. I've had a lot of clients that have tried it, gave them sleepless nights, they and their wives were fighting, all that stuff and if that's the case then you've got to use a cash market or do something else, or HTA's or whatever works for you.

Pearson: You bet. You bet. Well, thanks so much for taking the time, Tomm, appreciate you being with us tonight.

Pfitzenmaier: No problem.

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 right to you. Thanks for watching and have a great week. 


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