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Market Plus: Tomm Pfitzenmaier

posted on June 20, 2014

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Pearson: This is the Friday, June 20, 2014 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: We have had a number of questions from our Twitter followers. Most of them, of course, are concerned about the weather. We talked about it on the show a little bit, the impact of the flooding that we're seeing in northwest Iowa, parts of Nebraska and South Dakota. And Adam in Central Iowa is just curious, how widespread of an area are we talking about? We've heard a lot of the news in the Corn Belt. Is it just localized?

Pfitzenmaier: It is just localized. And the people I’ve talked to up in that area say, yes there's going to be some damage but the water is going to go off fairly quickly, it's going to reduce their crop size. But, like I said on the show, you had this big drought area supposedly from eastern Nebraska into western Iowa, that's been eliminated. You've got all the rest of the Corn Belt that has been getting nice, timely rains. So, I don't think the net is, to me, an increase, potential increase in production. Now, if it's your field and you've had some damage, not good. But for the overall impact I just don't see it as being anything that's going to damage the crop. It was enough to spark the corn market to rally and you see the pictures and everybody in Chicago runs out and buys corn because of it, but in my mind that's just creating an opportunity.

Pearson: Now, this flooding, though it is localized, have we seen much of an impact on transportation of old crop corn and beans coming out of elevators, South Dakota, nothing?

Pfitzenmaier: No, I don't think there has been any impact there at all.

Pearson: Okay. Alright. Now, we do have a question from Tommy in Independence, Iowa. Taking a look at soybeans, Tommy is curious, with such a huge price difference between cash and new crop beans, what is going to happen in that market as time goes on?

Pfitzenmaier: Well, I alluded to it on the show. The problem is we have been talking about this short situation in old crop beans now, well basically ever since Christmas. So, you've got to think that all the end users have probably kind of figured out how they're going to get by. By all accounts most of them have bought out through the second or third week of June. And at some point when you combine 90 million bushel of imports from Brazil, the plans that they have already made, probably some cancellations around the horizon at some point here, you put that all together and do you really need to rally old crop beans? You've got the funds have had a big, long position. They have been liquidating, liquidating, liquidating, that's why you've seen a big drop in the old crop and I just think eventually that's going to get worked out. It's not a surprise anymore. Now, it does, it is going to make that June 30th report pretty critical because that's going to tell us, there is a possibility that last year's crop was underestimated. That's another explanation. If they come up with another 20 million bushel then all of a sudden, hmm, maybe not such a problem. If this thing was really as tight as they say we'd have really tight basis, they'd be scrambling doing everything they could to get their hands on beans and it's just really not happening to any great extent.

Pearson: Alright. On the new crop side what do we think we're going to see on the cash side of the bean market there?

Pfitzenmaier: I think eventually you're going to see futures work down toward $10, another $2.50 down from where we're at now which is going to be $9.50 cash beans I think as we go into the fall. Acreage is probably going to be up, the way it looks. South American crop was very good. We've got the potential for an El Nino coming in, which that has been diminished a little bit but could benefit the crops in August, which is very critical of greens as we all know. So I think we have benefited from the unwinding of those spreads, given new crop a kick, but if you can see corn drop 88 cents, like which it did in a fairly short period of time, it sure wouldn't be a big stretch to see beans drop a buck here if the weather kind of starts to straighten out and that July mess kind of gets straightened up.

Pearson: And that makes $12.25, as you were saying on the show, $12.25 to $12.35 look like a pretty appetizing range with $10 on the horizon potentially.

Pfitzenmaier: Absolutely. I think a guy would be crazy to not at least take a piece of that. Now, if you think I'm completely crazy and that we're going a lot higher, that's fine, don’t' sell a lot, but at least do something.

Pearson: Get something booked. Now, Rodney in Edgar, Wisconsin is curious, again we touched on this a little bit on the show in the feeder cattle market, he is curious, how much more upside is there for feeder cattle and also for feeder hogs?

Pfitzenmaier: On the feeder cattle I think you have to decide what kind of assumptions, what is that feeder market assuming already? Is it assuming $4 cash corn? Or is it assuming something less than that? If it's assuming $4 corn and we've got another 50 to 75 cents down in corn then that adds probably another $10 onto the feeder market. If you think the fat market is going to stall out here at 50 then feeders are probably, if you think they can work up to $165, again not a projection on my part but a possibility, then that takes I think you could say feeders up in the $220 to $225 range is a possibility.

Pearson: But we're going to have to see big moves on the part of either corn or fat cattle to really justify a change.

Pfitzenmaier: That's my opinion, yeah. And the feeder pig market is basically kind of the same way, the profitability and what those futures are going to offer people are probably going to dictate how high that feeder pig market can go to.

Pearson: Alright. Now, before we let you go there has been a lot of talk over this past week with the situation in the Middle East, in Iraq and the crude oil situation. What is the market anticipating for crude oil? Do we expect this to be a relatively short-lived, a pop and then back down?

Pfitzenmaier: The problem -- the reason the market is nervous is that Iraq is the 2nd largest OPEC producer. And at this point those oil fields are controlled by the Kurds, who are somewhat friendly to us, and it's not a problem. The fear is that those are lost to extremists and to terrorists and cuts off a big chunk of crude. If that happens then I think you've got crude prices up to $120, maybe $125. Domestically it's not going to affect us as much as it had, we're at 27 and a half year highs in our domestic crude production. So, that has sort of a tempering effect on the impact to us, the domestic users of energy. But that crude oil market, if things start to get dicey over there has some pretty good upside potential in it yet I believe.

Pearson: And that could put a damper on folks' restaurant spending or, you know, high priced protein demand, it could have a ripple effect.

Pfitzenmaier: It could feed right into being a problem in the pork and beef side.

Pearson: Alright. Well, Tomm, thank you so much for coming by and sharing your thoughts this weekend.

Pfitzenmaier: Thanks, Mike.

Pearson: 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 prices corn economy markets midwest Mike Pearson new crop grain soybeans Tomm Pfitzenmaier USDA weather wheat