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Market Plus: Apr 25, 2008: Tomm Pfitzenmaier, Market Analyst

posted on April 25, 2008

Market Plus: Apr 25, 2008: Tomm Pfitzenmaier, Market Analyst Pearson This is the Friday, April 25th, 2008 version of Market Plus. We're glad you've joined us at our little spot here on the Internet and hope you tell your friends and neighbors. I'm Mark Pearson. With me one of our regular market analysts, Mr. Tomm Pfitzenmaier joining us on the show today. And Tomm, we didn't have a very long market segment and so I felt bad I kind of cut you off before you really had a chance to get into hogs in a big way. So, before I go on too much further why don't you kind of revisit the pork issue. You did mention deferred contracts look pretty encouraging. But obviously you temper that with the fact that these grain prices you pointed out earlier -- I want to talk about corn in this segment too -- has also got the potential to be extremely high.

Pfitzenmaier Right. The hogs have had a $10, almost $11 rally. Historically if you look back at some similar years having a $12 to $16 rally off the lows in fundamentally similar years would not be a big surprise. That could take us up to that winter high on the front month of hogs up around $81. That area I think is an area you'd have to start looking at pretty seriously to be a seller of anything you might be marketing through the summer and early fall. I think the back months, December maybe on out to February, have quite a bit of up side potential, maybe even upwards of $1 so I wouldn't get in a big hurry about selling those. But those summer months up $4, $5, $6 from here I think are probably going to be good selling opportunities. Exports on hogs are up like 50% from a year ago. So, if you subtracted that out the hog prices wouldn't be so good right now. Any we didn't talk about it on the show too much, you mentioned it in one of your features, I guess, but the dollar looks like there's a good chance that has started to bottom out here. The fed has indicated only maybe another quarter percent drop in interest rates. If that's the case that should stabilize the dollar, maybe start to gain. The Euro was starting to weaken relative to the dollar and that has been a big driving force in the pork industry. Now, China has a huge potential to be a buyer of our pork, a lot of the Asian countries have kind of gotten used to our pork, it fits well in their diets so I guess I continue to see that side be fairly strong and that's part of the reason why I think you're going to continue to see pork prices go up. But, you know, if you make that kind of a rally you could see a little sagging into the summer and I would certainly use those rallies as selling opportunities.

Pearson At some point if we get numbers down low enough eventually that price has got to come up. And we've had these massive liquidations. You mentioned Canada earlier in the show and plus what has happened here in the U.S..

Pfitzenmaier At some point -- things equalize, they always do. If you're going to have high prices of grains somehow you're going to have to get that price of pork up so that these guys can once again become profitable and that's how you do it. Somebody liquidates some place. Obviously the Canadians are starting and there's some liquidation been going on here in the U.S. too. Look at anybody trying to sell sows and it takes a while to get them in the rotation to get rid of them. So, yeah, things are going to change. Pork prices are going to get higher. That is going to be a contributor to the food inflation.

Pearson Absolutely. Let's talk about corn. We talked about corn and then there's so much going on with soybeans and both these products but right now corn, we were getting clubbed with the higher food price thing which you mentioned and that we will see that with higher meat prices. We've got higher oil prices, that is certainly driving the demand for ethanol which is driving the demand for corn. We also have a lot of DDG's available out there. As we go forward on the show tonight you talked about, yeah, $6 corn, in our lifetime that has been the best we've ever seen. But the flip side is we never had input costs like this and if we run into weather problems, which very early in this whole scenario we're there. We've got delayed planting already, you pointed that out, which will be a struggle for us to hit trend line yields. What is our up side potential in this corn market? What should a person do, what should an individual do, what should a producer do to make some sales now, lock in some profit, because they've got plenty of expenses from 2008 to worry about, but then leave the door open for the up side? What is your strategy?

Pfitzenmaier Well, there's two ways to do it. You can buy puts which locks you in some kind of a floor, leaves the up side open. I guess I tend to prefer for people who kind of want to know where they're at and want to get a sale made and say I want to know that I've got $6 corn sold I think a lot of them are a lot more comfortable going to the elevator, selling that $6, making that $6 cash sale and then they've got their insurance product that is going to protect them on the down side a little bit on the production risk. Then go and buy yourself a call to participate in that $2 rally or whatever might come along if there is a weather problem this summer. If that weather problem doesn't develop and we sag you've got your $6 corn sold. So, that is the one I prefer. Now, some people don't want to commit to an elevator, to an ethanol plant, we want to stay flexible, want to maximize the use of their bin and maybe for them going with a put gives them a nice floor, it gives them that flexibility, allows them to participate and make sales at a later date at a higher level if that comes along.

Pearson Alright, good strategy for people who are wanting that flexibility and maybe need that flexibility. Talk about those elevator sales because the story I'm getting from the country is boy, it's hard to go out into next year and make very many crop sales.

Pfitzenmaier Well, I think you can pretty well sell '08 corn but I don't think anybody is going to let you sell '09 corn and they might be doing you a good disservice by not letting you sell to them because I do not want to make sales unless I have some general idea what my input costs are going to be, until I get that cash rent negotiated for next year, until I find out what anhydrous is going to cost me next year. And I don't think we're going to be able to lock much of that in, in any significant way, until at least mid-summer.

Pearson Alright, good thoughts, as usual, Tomm Pfitzenmaier, good to have you with us on the show. Tomm Pfitzenmaier joining us this week on Market to Market and, of course, right here on Market Plus. And thank you for being with us as well. Make sure you tell your friends and neighbors. And from all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news