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Market Plus: Oct 08, 2010: Tomm Pfitzenmaier, market analyst

posted on October 8, 2010

Market Plus: Oct 08, 2010: Tomm Pfitzenmaier, market analyst Pearson Welcome to the Friday, October 8, 2010 version of Market Plus. Thanks for joining us here at our Web site. With us this week one of our regular market analysts, Tomm Pfitzenmaier, one of our senior analysts because today was a huge day. And Tomm, we can talk about wheat, we can talk about soybeans but really they're not all that critical to the supply demand picture but this corn number just a hair under 156 bushel average, this has caught people by surprise.

Pfitzenmaier: Yeah, absolutely. There's no question about it, it's going to create -- well it's going to create opportunities and it's going to create problems. It's going to probably drive fertilizer prices higher, it's going to drive cash rents and land values higher. It's going to have long-term consequence to agriculture and farmers no question about it.

Pearson In my home state of Illinois we always said rain makes grain. That is no longer a truism we can bank on. We had so much rain we lost our nitrogen, poor stands and you see this whole thing developing and yet we have tremendous confidence in our hi-breds but they aren't built for wet so here we are.

Pfitzenmaier: That's right. You talk to a lot of farmers around and they say, you know, it was kind of an interesting year but I'm not sure what I've learned from it because the odds of it ever happening like this again are probably not that great.

Pearson So, what do we do, Tomm? What do we need to do as a corn producers? You said on the show you're not anxious to be selling 2011 and 2012. That tells me you are uncharacteristically bullish.

Pfitzenmaier: I absolutely would not sell '12 because there's just too much uncertainty and, like I said, fertilizer is going to go up, land, you don't know your costs. So, that makes me really uncomfortable. You can get your costs established on 2011 pretty well and I really think you get up in that $5.60 to $6.00 range you probably need to start looking at some sort of a strategy to get some corn sold. Again, people sold a lot early so they are really reluctant to part with those last few bushels. There's not a lot of carrying charge and that is probably going to go out of the market as we go higher because, you know, when there's a shortage everybody wants to bid up for the nearby to get their hands on it, they're not going to pay you to store it. So, you get up in those $5.60 to $6.20 range, somewhere up in there some kind of a scale up selling program I think is appropriate.

Pearson Your favorite strategy is an option strategy still?

Pfitzenmaier: Yes. I still like -- one of the reasons is, people kind of look at you funny when you say this, but they have really jumped up the option premium. I mean, option volatility is way higher than we've seen in quite a long period of time which creates an opportunity because granted, to buy a put it costs you a little more, but you can sell calls that are way out of the money to pay for them, you can sell puts that are way out of the money to pay for them and end up with a net strategy that gives you a fairly high price for not a lot of costs and, again, a call sold that is, you know, $1.00, $1.20 out of the money. So, in the long run this is creating some opportunities in the options and don't just go out and look at options and go, oh, these are too expensive, I'm not going to do anything. You need to kind of think it through and strategize a little more.

Pearson All right. Use an option strategy. Beans are going to roll along with corn, they have got to buy acres. Wheat is strong. Similar strategies there, Tomm? Again, you don't want to go out too far?

Pfitzenmaier: Yeah, again, I don't want to go out to 2012. 2011 I'm assuming that eventually that is going to get drug along higher. There is a lot of still uncertainty about the South American crop, obviously, that is barely getting planted. They have got problems down there, there is the potential for a La Nina hurting their crop so I don't want to get too frisky selling that 2011 November beans until I have a little better handle on what is going on down there. We are seeing a shrink -- granted 265 million bushel is an adequate carry out but that was a pretty sharp drop from 350 to 265 that we had on Friday morning and if something happens, the Chinese keep buying and it looks like they're going to, that carry out could continue to drift lower. So, I guess, again, an option strategy that leaves you some up side potential I think is probably appropriate in that market too.

Pearson Well said, Tomm Pfitzenmaier, thank you so much for joining us tonight, one of our long-time regular market analysts. From all of us here on Market to Market, a big day, a big week in the commodity markets expected to continue through next week. Have a great one everybody.

Tags: agriculture commodity prices markets news