Iowa Public Television


Market Plus: Apr 24, 2009: Tomm Pfitzenmaier

posted on April 24, 2009

Market Plus: Apr 24, 2009: Tomm Pfitzenmaier Pearson: Welcome to the Friday, April 24th, 2009 version of Market Plus here at our Market to Market Web site, a special additional feature for our regular Market to Market viewers. By the way, throughout the winter I've been out speaking to groups all over the country and you all enjoy Market to Market, it's great to hear from you. If you're in an area that doesn't get the show on PBS all you have to do is pick up your cell phone, call information, ask for your local public television station and talk to the program manager and say I really like the Market to Market show and I'd really like to have it run here in our market so you can pick up our live show every week on your local PBS station and all of our extras here on Market Plus. With us this week one of our regular market analysts, one of our senior analysts, Tomm Pfitzenmaier is with us. I was kidding him because he was pretty excited about what's happening in the hog market. Tomm, we've been talking about marketing for a long time and when this bull market in grain started on the 15th of September 2006 most livestock operations and poultry operations were caught with their pants down and so we've been hearing, you've been talking to all these groups and you're hearing the same thing, we need to improve our financial management and our risk control. Well, on the show you were talking about a way to do that particularly right now an opportunity presents itself in hogs.

Pfitzenmaier: The price on futures have anticipated so much improvement in hog prices that it's already built in and I just think that people need to take advantage of it. The tendency is to say oh, it's going to get better, I don't need to do anything but that is making an assumption that the futures are right and probably what's going to happen is the futures are going to come down a little bit, the cash markets are going to come up a little bit and you're going to get an okay price instead of the really good price that's being offered here. So, find yourself a way to do that whether it's selling the futures and if you're afraid of that buy yourself a $70 put or some sort of a strategy that locks in a trading range for you.

Pearson: The cost of a $70 put, Tomm, ballpark what is it going to run?

Pfitzenmaier: It's probably going to run you a couple bucks -- I didn't look before I came over tonight -- but probably a couple bucks and if you can mix it in with some kind of a selling call or something that locks you in a window you can probably get that cost knocked down to maybe even 50 cents. So, there's all kinds of strategies here that give you some flexibility, give you some protection, go out and do some investigating and see what you can make work for yourself.

Pearson: Get some insurance, all I hear is crop insurance, crop insurance, new acre program, all this stuff, get yourself some insurance on that price.

Pfitzenmaier: Livestock guys don't have any of that, they're on their own.

Pearson: Exactly so you want to create your own policy here's your chance to do it. Let's go back to what drives cattle, hogs and poultry and that's this corn market. I just see a lot of producers out there scratching their heads. I've been out to a lot of groups, talked to a lot of people, it seems like the response has been we're selling off our old crop right now, we were until we started planting and in the eastern Corn Belt they're still moving some corn as that's been slowed down but by and large when it comes to making new crop sales everybody seems to be a little confused and not a lot of action is occurring. Obviously $4.00 is an awful good price for corn.

Pfitzenmaier: There's some strategies there too. You can go out and buy yourself a $4.20 put, sell a $5.20 call, $6.20 call, something to knock the cost down on it, you're locking yourself in close to $4.00 plus on the futures. If we have a good crop which we probably are going to, we're getting it planted in good shape, we're starting with a fairly good size carryout, every time we have that situation you end up putting a bunch of carry into the market. You can get that December spread from December out to July up to 30, maybe 35, 38 cents, roll it out to July, there you've got July locked in at $4.50, $4.50 plus, take a little basis off that and you're $4.00 plus. Now, everybody I've talked to since fertilizer has come down, seed has softened up a little bit says that they can make some money if they can get $4.00 plus for their corn. Here's a way to do that and you're doing it by locking in a trading range and you're leaving yourself some upside up into that $5.00 plus area. So, why wouldn't you do some of that to get yourself some kind of a floor established and leave part of the upside open. I'm not saying go out and sell 100% of your crop but get something underneath yourself. There's a lot of situations like that where people are just sitting around waiting for something to happen and there's opportunities being presented right here to do something.

Pearson: A lot of people were saying we pulled the trigger too early last year, I heard that a lot and the worst thing typically is to use last year's marketing plan.

Pfitzenmaier: Particularly 2008, people that have been farming 30 years have never seen years like that. Is that what you want to model your marketing plan on? Probably not. That same sort of strategy is available in beans, you can do an $8.80, $9.00 put, sell an $11.00 call to pay for it and get the cost knocked down there and have yourself a fairly good floor because I'm not kidding you, if we bump acreage and we have a good crop this summer we're going to be talking about big bean carryout. And what are the odds of Argentina having another bust next year like they did this year? Probably not that great either. So, again, there's opportunities here to get some pretty good prices locked in and leave yourself some upside. I'm not saying lock it in, I'm saying get yourself a window that gives you an opportunity to participate if it goes up and some good insurance if it starts to fall apart on us.

Pearson: As usual, Tomm, some great insights. We appreciate it. Tomm Pfitzenmaier with us this week, one of our senior market analysts here on Market to Market. Good to have him with us and good to have you join us too. Don't forget, contact your local public television programmer and say I want Market to Market to air in my local market. For all of us here on Market to Market, thank you for joining us here at Market Plus. We'll see you next time.

Tags: agriculture commodity prices markets news