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Market Plus: Aug 06, 2010: Tomm Pfitzenmaier

posted on August 6, 2010

Market Plus: Aug 06, 2010: Tomm Pfitzenmaier Pearson: This is the Friday, August 6, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site and encourage your friends to join us here too. We'd love to see as many people as we can. We've always got room available. I'm Mark Pearson. With us this week one of our regular market analysts Tomm Pfitzenmaier. Tomm, we just have to talk about this whole wheat deal. I think you did a great job of explaining the fundamentals of the wheat market but this dynamic out there that has come into this market in the last five years, which is this outside money, is huge. And, you're right, equities have been lousy for ten years, real estate hasn't been good, people want to make some money somewhere. They can't make it on a tenth of a percent at the bank.

Pfitzenmaier: Right and that's why you've seen this big volume of money flow into the wheat market. It has made the wheat market overreact. It is a frustration, in some respects, for farmers because they'd really like to take advantage of this. And like we talked about on the show, you roll up with your truck loaded with wheat and they give you $1.40, $1.60, $2.00 basis in some places and you kind of turn the truck around and drive home and shake your head. And the only way to really take advantage of that is you've got to do a futures transaction and wait for those to come back together. That's the only way to do it.

Pfitzenmaier: Now, if you're elevator will do an HTA, which I don't know if a lot of them, a lot of them are a little spooked too, you can always go and buy yourself a put, if you're really scared sell the futures but you've got to do something in the futures market and wait for that basis to come back together to really get these good prices locked in.

Pearson: Tomm, let's say we have the situation here where wheat prices drop back dramatically here. We've had this huge spike up and fears are starting to calm, they started to calm as soon as Putin said that we are going to allow sales that have been contracted to be made, things started to chill off quite a bit right there. But let's say this thing drops a couple of dollars here, that's not going to amount to much of an acreage battle.

Pfitzenmaier: No it's not. That's what I'm saying. If these premiums hold then there's an acreage battle but if they don't -- the strategy I talked about of selling the futures there's probably only five percent of the farmers in the country, wheat farmers that will actually do that so 95% of them are going to end up getting probably good prices but not great prices. And in that situation corn is going to compete with those wheat acres fairly well.

Pearson: All right. Of course, once we get past the Hessian Friday -- I was in Oklahoma City this last week and I talked to a bunch of wheat growers down there and I said, what does this make you do? They said, well, if nothing else we'll plant a lot more wheat. And they said, they'll plant more wheat in Illinois and Missouri and parts of Ohio and Indiana where we can get that soft red wheat grown. But you know what those guys are going to do if this wheat price breaks too much, they'll just come out there with some glyphosate of your choice, burn it down and go back and plant corn. And the wheat plains, on the plains they'll run the cattle in there and they'll consume the wheat that way.

Pfitzenmaier: They've had fairly good luck growing corn in a lot of these areas the last couple of years and so I don't think they're going to be discouraged from trying to grow corn. They had good moisture to do it again this year. So, as long as that's a good, viable alternative I don't know that you're going to see big acreage shifting.

Pearson: Well, it's going to be interesting to see. Really want to talk about corn and soybeans real quick too because you're, again, this has pulled all the boats in the harbor higher and in a market that otherwise -- if you look at what these private forecasters are saying and we'll get more of those next week then USDA number comes out the middle of August, they're still, despite all the problems, the wet spots and the holes and everything else I've gotten phone calls about, there's still a big crop out there for both corn and beans.

Pfitzenmaier: Well, year after year people tend to forget we're growing hybrids out there that have the ability to adapt to a wide variety of growing conditions and so I don't want to discount the genetics that we've got working out in these fields and so I guess I'm in the camp that thinks that those numbers that they came out with this week are probably fairly close. If you look at demand are there going to be any changes there? Feed is probably not going to be changed much. Exports might be bumped up a little bit. We didn't talk about it on the show but ethanol I think is going to struggle here. It looks like the 15% blend thing is going to get put off until at least after the election and we may even reduce our subsidies in ethanol. So, I think the USDA is maybe overstating that usage enough to offset some of these export numbers. So, it's going to come right down to basically the yield. If the yield is up we're going to have a carryout similar to this year and there's no real need to have corn up at $4.30 or $4.40.

Pearson: All right, same story on beans?

Pfitzenmaier: Same story on beans. You've got the good South American crop. Again, it's a fine line. You have 44 bushel plus beans and you've got a 300 or 400 million bushel carryout. You drop it down closer to 40 and now you're down to 200, 220, 250 and it's not running out but it tightens it up substantially. Again, these high prices are certainly not going to discourage anybody in South America. So, you've got that problem to face next winter too.

Pearson: All right. As usual, some great insights. We appreciate it. Tomm Pfitzenmaier, one of our regular market analysts joining us here on Market Plus. A quick reminder if you enjoy Market Plus on the Internet and you'd like to see our live show broadcast on your local PBS station make sure you put a phone call into your local public television programmer and tell them you watch Market to Market on the Internet and you'd like to see it on your local PBS station and I'm sure he will do everything he can to accommodate your needs. From all of us on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news