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Market Plus: Apr 16, 2010: Tomm Pfitzenmaier

posted on April 16, 2010

Market Plus: Apr 16, 2010: Tomm Pfitzenmaier Pearson: This is the Friday, April 16, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site. I'm Mark Pearson. With me this week one of our regular market analysts, Tomm Pfitzenmaier, joining us on the show and, of course, here on Market Plus. Tomm, on the show we talked about a number of things related to corn prices and you have to look at what's out there right now, what's out your front window and right now we've got excellent corn planting conditions for a large portion of the corn belt for the next five days. With big equipment and these outstanding producers we have out there we can plant a lot of this crop pretty quickly. Of course, with that being the case your first look at the corn crop is it looks pretty good and as you pointed out on the show it could also mean some more acres out there. We've already got a 1.9 billion bushel carryout for going into 2010. Barring a crop problem somewhere couldn't we see some burdensome prices? Shouldn't we be strategizing or doing something right now to ensure some price protection?

Pfitzenmaier: Number one, I think they need to get a little more aggressive on 2009 crop. The basis has been tightening up, which is what you want to have happen. We've had a nice 20, 30 cent rally in corn over the last week or so. Maybe you'll get a little more than that going into next week. So, you've got a nice opportunity to get some of that cleaned up. And I know everybody's trying to plant and nobody wants to mess with it but hire a trucker, get some kind of sale made on the 2009. As far as 2010, again, we've got fairly decent prices that are at break even or above. So, if you want to sell futures in that $4.00 or $4.05 or hedge to arrive or whatever you're comfortable with that's one strategy. I prefer a strategy buying puts where you can buy the $4.00, $4.10, $4.20 depending on how much you want to spend, go out and sell a call that's at a strike price that's above the winter highs and then see what happens here through the summer. I agree with you, we have unbelievable capability of planting, of growing a crop and barring some real unforeseen problem we're going to have a lot of corn next year, probably a 2 billion plus carryout.

Pearson: And that's a lot of corn and that's a lot of safety for the market so they're not going to be offering premiums, that may take away some of our volatility. Same thing could happen on soybeans?

Pfitzenmaier: Yes. Look at the rally we had in soybeans. We're banging on $10 beans again. Now, farmers have, like I said, been more aggressive on selling beans so there's not quite as many 2009 and that is what has helped support us. But if you've got any left out there this is a good chance to get cleaned up on them and as far as 2010 goes, yeah, almost everybody can lock in $9 plus and some $9.50. So, I think you have to take a piece of that and granted, the whole crop situation is going to be a little tight, but you're dumping a huge South American crop, I mean an absolutely huge South American crop onto the world market and we've got the potential even if acres slip a little bit to produce a pretty darn good bean crop in the U.S. again. So, some estimates have carryout growing in beans next year of all the way from 250 to up to 500 million bushels. So, in May the USDA will update us on what the 2010-2011 projections are. But these are decent prices and people need to take advantage of them.

Pearson: Again, an option strategy, at least buy the insurance and get it covered.

Pfitzenmaier: Again, a $9.00, $9.20, $9.40 put, sell at $10.60 to $11.00 call to help pay for it and tie up a quarter or 35 cents, something like that and have yourself a nice floor underneath the market and then see what happens.

Pearson: Based on the expansion that is still occurring in South America based on improved productivity in the United States, we talked about this on the show too, I know you're reluctant to get real fired up about selling a crop two years out, but 2011. If we hit these big crop numbers and that carryout is going to come through we could see prices get dragged for a while.

Pfitzenmaier: Well, if you can get $4.25 for the December 2011 crop that's probably, you know, in the proximity of $4.00 cash. If you can roll it out to July on a -- because if we have a big crop you're going to have a big carry, roll it out, pick up 30, 35 cents on the carryout to July and there you are, you're probably at $4 plus for corn. If you're any kind of an aggressive producer you've got to take 10, 15, 25 percent of your crop, a conservative estimate of your crop and get some of that marketed at those kind of prices.

Pearson: Tomm Pfitzenmaier, always has some great insights and some great strategies, appreciate you being with us this week on Market Plus and, of course, on Market to Market. And from all of us here on Market to Market, thanks for joining us here at our Web site, look forward to seeing you again next week. Have a great week.

Tags: agriculture commodity prices markets news