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Market Plus: Dec 17, 2010: Tomm Pfitzenmaier, market analyst

posted on December 17, 2010

Market Plus: Dec 17, 2010: Tomm Pfitzenmaier, market analyst Pearson: Welcome to the Friday, December 17, 2010 version of Market Plus. Thanks for joining us on our Market to Market Website. Joining us one of our long time market analysts Tomm Pfitzenmaier. It's always great to get Tomm's perspective on the world and you did on the show literally talking out of both sides of your mouth. You were saying if you haven't sold some corn, sell some corn. If you haven't sold some beans, sell some beans but otherwise stay patient. You think better prices are ahead.

Pfitzenmaier: Yeah, right, you know, that's perfect- You know I like to talk about options quite a bit and that's a perfect situation for options, where you go in, buy yourself a floor, you're guaranteeing yourself that if the market falls apart you're going to have some coverage but you're going to participate on the upside. So, to me seems tailor made to some sort of option strategy that allows you to participate in that rally but yet give you some protection.

Pearson: Tomm, I've been all over the Midwest lately and the main thing farmers talk to me right now are land prices. I mean we talk corn and soybeans and up in Swana, Wisconsin we were talking about dairy but in Sioux Falls and in Green Bay and in Fargo and Minneapolis everybody is talking about this farm land price and you've got real- estate background. I mean obviously we've got strong farm profitability. I mean it seems like the underpinnings are just there for this market to stay fairly strong. Iowa State reported Iowa's numbers this week up 16% year over year five thousand forty-six dollars the average price for an acre of ground in the state of Iowa. Similar story in Illinois and over in Indiana. I was in Indianapolis last weekend. What's your take on this? What do you tell farmers? ---

Pfitzenmaier: I talked to a farmer credit lender this week and I said how are the balance sheets coming and how are things looking for guys that you're going through? He said Tomm, there's guys coming in, it's scary, they're reporting rock star type incomes. Big numbers and when that's going on, if you've got yield, and you're getting it sold right they're going to go out and they're going to buy more land. Farmers tend to go to the gal that they brought to the dance and the gal they brought is farm land. They're not going to go out and buy, you know, Wiki Stock or whatever. They're going to buy farm ground and if they've got the income to support it they're going to be in there doing it and it's going to force cash rents higher I think and you're going to see the market well under pin. Now everybody is running around scared to death we've got the 80s getting ready to happen again. We don't have the debt we had then. Number one interest rates are low. By the way if you've got interest rate exposure and you need to lock it up I think we're rapidly approaching the time that probably needs to be done. But I see farm ground continuing to work its way higher here. Partially because I see crop prices staying high and that's going to be obviously one of the big drivers for that.

Pearson: So, this doesn't scare you that much and you don't think they're - obviously we're in a lot better shape than we were back in the 80s when we were lending based on equity as opposed to cash flow.

Pfitzenmaier: I'm not saying it's not scary. I'm just saying that there are people with the money to support and go out and pay high prices for farm ground. It's going to continue to produce. If you're worried about inflation maybe that's going to give you some inflation hedge too. At least there is some people looking at it that way. I think all that put together it's going to be hard to break land values back much.

Pearson: Alright. Well, good demand for all of our commodities across the board.

Pfitzenmaier: The wild card in that as it is in all this is what's gong to happen with ethanol. As long as we're using five billion bushel plus of our corn crop for ethanol and sopping all that up we're going to have pretty good prices. If there's a change in policy for whatever reason and that ethanol industry gets in trouble and their usage of corn goes down then the whole thing is going to be a bit of a house of card here. That's my big concern.

Pearson: Alright, good point. Just really want to mention cotton really quick. We're looking at record prices in cotton. A lot of our southern states are really in the catbird seat. Going forward you can lock in some great prices in here. You think we may even go maybe just a nickel or two higher?

Pfitzenmaier: Yeah, I think there's more upside potential but they really need to begin to watch that new crop and it's one of those classic situations where you've got old crop cotton up at a hundred and fifty bucks and you've got the new down under a hundred and you say gosh I hate to sell that low when we're this high but invariably when these market roll over that's exactly the thing to do and that new crop probably isn't going to go up like the old crop did. I think similar to the corn and beans there might be some more upside but boy you've got to take a piece of that if it's offered to you.

Pearson: Tomm Pfitzenmaier, appreciate your comments on the show and of course appreciate your comments here on Market Plus. And hey, thanks to all of you for joining us on Market Plus this week. Make sure you tell your friends or neighbors and also make a point to contact your local public television programmer and say hey, we enjoy Market to Market on the web. We'd love to see it on our local public television station. Help carry the word of agriculture out there to those folks in town. So, for all of us here on Market to Market, I'm Mark Pearson thanks for watching and have a great week.

Tags: agriculture commodity prices markets news