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Market Plus: Oct 30, 2009: Tomm Pfitzenmaier

posted on October 30, 2009

Market Plus: Oct 30, 2009: Tomm Pfitzenmaier Pearson: This is the Friday, October 30, 2009 version of Market Plus. Thanks for joining us here at our Market to Market website. With us this week one of the regular market analysts Tomm Pfitzenmaier.

Pearson: And Tomm we covered a lot of ground in our market segment on the show. Still it begs the question you know this late harvest, this wet crop, big discounts, people are wondering what to do. You've talked about it. We got dryers backed up around the entire Midwest that's slowing progress. You also mentioned strong cash price. So, it's a very frustrating period of time for producers who maybe got 20% to 25% of this corn crop in.

Pfitzenmaier: Well, the slow progress has created an opportunity. We talked a little bit about it on the show, but that narrow base is really -- is creating an opportunity. If you've got some corn harvested and I know guys are running out there harvesting, trying to keep their dryers full all the time because that's going to be such a bottle neck. So, there is some dry corn being generated because of that.

Pfitzenmaier: It's a good time to jump in and get some of that moved. Number one you're getting the basis advantage. Number two you're harvesting your crop that's probably not going to store that well. So, the more of that you can get moved out on a narrow basis I think the better off you're going to be. Now, you know, at some point the glut of harvest is going to hit, the basis is going to widen out, and then you're going to have to be a little more careful and pick and choose your ideas, but initially, I think, getting whatever you can sold is going to be an important thing to do.

Pearson: True for corn and especially true on soybeans. You talked about soy because there's not carry there.

Pfitzenmaier: Absolutely, there's no incentive to put beans in a bin and again you're harvesting high moisture beans that you're trying to dry down and maybe you're drying them down and maybe you're not, maybe you're going to get hot spots. It's probably not that great of crop to try and store anyway. If you can get it moved on a narrow basis move as much as you can as quickly as you can.

Pearson: All right, so take that one to heart.

Pfitzenmaier: Again, I said it on the show but I wanted to reiterate and if you still are bullish and still want to re-own it then great convert that cash sale into a futures or a call spread or some sort of a strategy, but the most important thing is getting the cash sold.

Pearson: Let me ask you about this one Tomm because this is a question I heard the most from producers out there. What about next year? There may be that E-15 is not approved by EPA or anything close to it. You talked also on the show about the pull back in ethanol demand for corn. So, there's a lot of things out there and you also talked about very weak export markets for corn. So, there's a lot of people out there who are concerned that 2010 maybe a bit tougher year and there's some opportunities.

Pearson: Now last time you were on there was a pretty attractive opportunity to at least sell some corn, at least engage some kind of an option strategy, take advantage of that $4.20 or better corn. We haven't got that today. Do we wait for that again or try to make more sales? Are we going to see that opportunity?

Pfitzenmaier: I think you'll get it again but I guess I'd take issue with you a little bit with you and I think there's going to be outstanding opportunities to make money in corn production next year relative to this year. You've been given a chance and you'll probably be given another chance to lock in $4.00 plus on cash corn which -- unless you sold it really early, you were hard pressed to do on this crop, plus you're going to be looking at the cost of production that's going to be down anywhere from $125.00 to $175.00 an acre. So, I think there's a chance if you have any kind of a yield at all and we're going to go into it good sub-soil again. So, you know, whenever you have that situation you have the prospects of a pretty good crop. I think there's going to be a chance to make really good money next year even better than what we had this year.

Pearson: Even with lower prices?

Pfitzenmaier: Even with slightly lower prices. Pearson: Better margins for 2010. So, you're not in that big of a hurry for some kind of strategy?

Pfitzenmaier: December of 10 corn closes around $4.15, you know, you get a $.15 to $.20 bounce on that you're looking at $4.00 cash probably. That's the thing and if you think we're going higher than that then buy a $4.00 put, sell a $5.00 call. You can do that for, you know, pennies and get yourself a nice trading range locked in there with a relatively high floor and then see what happens, but I start to do something when you're getting close to $4.00 cash corn locked in.

Pearson: You made a really good point about the inputs that's critical. So, your net maybe greater even if you don't lock in -- if you don't see those higher prices. What about on soybeans? You just mentioned there's no carry in this market, getting rid of beans is a good idea, when we see no carry to market that doesn't pretend well for prices historically correct?

Pfitzenmaier: I think the market is already anticipating-- you can look ahead and see that we're probably going to have enough beans for us to meet the pipeline and then you dump on, you know, who knows a 110 million metric ton crop total out of South America that they're going to be anxious to sell and we're probably going to have a mix of corn and beans next year that's not that dissimilar from this year. So, we're going to have plenty of beans around and then you have this China situation sitting here. Are they going to prop up our market like they did last year? So, if you can get a chance to get $10.00 beans sold or $9.90 or you know somewhere up around $10.00 basis the November 2010 crop or contract I think you have to do something to take advantage of it.

Pearson: And the least risk would be an option strategy?

Pfitzenmaier: The least risk would be that, yeah, buy yourself -- we were buying, you know, buy $9.40 puts and finance it with a $12.00 call or you know that sort of thing where you're locking in yourself a really nice wide range and a floor that's fairly comfortable.

Pearson: Absolutely and like you said better profit with lower inputs for 2010. Tomm Pfitzenmaier as usual appreciate your insights, appreciate you being with us here on Market Plus. I want to thank all of you for joining us at Market Plus as well and from all of us on Market to Market, I'm Mark Pearson and have a great week.

Tags: agriculture commodity prices markets news