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Market Plus: May 13, 2011: Host Mark Pearson and analyst Tomm Pfitzenmaier

posted on May 13, 2011

Market Plus: May 13, 2011: Host Mark Pearson and analyst Tomm Pfitzenmaier

Pearson: This is the Friday, May 13, 2011 version of Market Plus. Thanks for going us here at our Market to Market website. With us this week is one of our long time market analysts Tomm Pfitzenmaier. Tomm we can talk about a lot of things. We've got some issues with the wheat market. We've got some planting issues up in the Dakotas but right now the focus is still on corn and soybeans. We got the crop in in a big way now you don't think it is going to be as highly planted as some do, but regardless we put a lot of crop here in the ground in the last seven days.

Pfitzenmaier: Yeah absolutely. The think about the corn market is everybody has been all freaked out this last week because prices tumbled and the whole thing is over with and we're never going to rally again.

Pearson: And seasonally this is when we're usually stronger Tomm.

Pfitzenmaier: Well, that's kind of true but seasonally that doesn't tend to start until the end of May first part of June. So we're a little early on that yet. But I think we need to kind of get past that and understand that a big chunk of this break that took place wasn't because of the fundamentals in the corn market. It was because of funds liquidating long positions that had gotten overblown. It doesn't have anything to do with how tight the corn supply is going to be this summer. It doesn't have anything to do with the fact that we've got ethanol demand that is very strong, very positive for those producers, they're not going to cut back. Feed use is going to be strong. There is no way livestock producers are not going to feed grain. There maybe some substitution of wheat but there's not going to be a lot of that. This corn situation is going to get very tight this summer. If you've got your hands on some cash corn, you're sitting on it in a bin, keep sitting on it because I think that is going to be a valuable product come June and July here. You're seeing the basis tighten up all the time, weekly almost, really saw it tighten up this week when you had that big break in the futures market. If you've got cash corn I think it is going to be a valuable product you want to hold on to for awhile.

Pfitzenmaier: On the new crop corn we talked about earlier there is this whole situation could send December corn, this tight old crop situation, could make December corn go quite a bit higher too if the right circumstances set up here. But I think you can not ignore the fact that that $6.75 to $7.00 is going to get you way over $6.00 plus cash corn and if you have any kind of yield that is going to make you a heck of a year and I think you're crazy not to take a piece of it in some way, shape, or form.

Pearson: Owning the board with this volatility go by is really out of the question. So you're really left with an option strategy aren't you? If they change the rules on daily limits?

Pfitzenmaier: Yeah. The volatility there cares the pants off most people and it really keeps people - now maybe if you want to sell the futures and buy a call to protect it so you have some sort of protection there I guess you could make a case for that. I'm more inclined to just buy a put or buy a - put spread where you buy a $6.50 put, for example, and maybe sell a $5.50 or something like that were you've got a set amount of money you know you are paying, you know what your risk is, you know what your floor is that you've pretty much established as and I guess that's a strategy I would be more inclined to implement. Then if you do rally you can roll that up, you can do additional puts at higher strike prices and develop something like that to give yourself flexibility, and we're all this way, if you get stuff sold and this thing takes off on you, you're going to so discouraged and feeling sorry for yourself, and all that. Then I think you need to build some protection for that in your marketing plan because the psychological part of that can wear on a guy pretty hard.

Pearson: And your banker. Soybeans, same kind of strategy?

Pfitzenmaier: Same thing there. Like I said in the show we're razor thin on that carry out on new beans. If anything goes wrong and that could easily happen in August, we all know that, there's great upside potential in beans. Now there is probably a limit to what we can do and we're going to price ourselves back out of biodiesel again and all that. But again up under tucked under $14.00 I think is a good place to do some sort of buying $13.00 puts or $13.80 puts or whatever you can afford, sell lower to help finance it, and leave some upside potential there too. But you need to get something established to get a good floor.

Pearson: And again $6.50/$6.75 on corn. $13.50/$13.00 almost - $14.00 these are good prices. We had a pull back. These are good prices.

Pfitzenmaier: I think the lesson of this last week or two it can get away from you in a heck of a hurry and the only way you get these good prices is to be a little ahead of it because if you are too late, you get late really quick.

Pearson: Good point. Tomm, we appreciate it. That's all the time we have for Market Plus. Thank Tomm Pfitzenmaier for being with us and for all of us here on Market to Market thank you for joining us at our Market to Market website. I'm Mark Pearson have a great week!

Tags: agriculture commodity prices markets news