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Market Plus: Oct 05, 2007: Tomm Phitzenmaier

posted on October 5, 2007

Market Plus: Oct 05, 2007: Tomm Phitzenmaier Pearson: This is the Friday, October 5th version of market plus here on Market to Market's website. We're so glad you've joined us. Mark Pearson along with one of our senior market advisors, Tomm Pfitzenmaier. And Tomm, you know, we talked about this wheat market, it's kind of been dominating our segments here for the last month and really maybe we need to go back and take a look at what's going on in corn and a lot of people remain very optimistic about corn prices and the acreage fight is on next year, bidding prices up giving us great opportunities, big demand from biofuels and so forth. And I think that may be lulling some people to sleep when it comes to making possibly very profitable sales.

Pfitzenmaier: Everybody, every analyst, everybody you talked to said hold your crop, don't sell it, it's got to go higher, it's got to go higher. Well, there's a scenario that's not that far fetched where maybe that's not necessary because this report next Friday could very easily show a corn carry out of 2 billion plus, possibly as high as 2.3 billion plus under the right circumstances and through the winter we may see an adjustment down in this ethanol demand number. We talked about it on the show a little bit there is, we're running into what I guess the popular press is calling a blenders wall where we just can't move the stuff and if that starts to back up that adds another two, possible three hundred million back onto our carry out. You get a 2.3 billion bushel carry out and all of a sudden who cares if you switch six to eight million acres back to beans, we don't need them, we still have plenty of corn available. Domestic livestock feed numbers are probably a little bit inflated because so many DDG's are being fed so that number, they alluded to it on the show, the livestock demand feed number has gone up some but that may begin to stall out and actually back off a little bit here in the next year or so. So, if that is the case a 2.3 billion bushel corn crop, or carry out, does not dictate $4 to $4.50 corn or whatever high number people are looking at and there are some opportunities here with some options strategies or just flat out sales to lock in close to $4 now. So, I think people need to be taking a look at and not just sitting here staying open doing nothing. The other thing is the carrying charge, you could get 36 cents carry out to next July by rolling December out to July. Every farmer in the country should be capturing that carrying charge, some way, some form, put the spread on, do something but lock in that carry and doing nothing does not lock it in. Doing nothing means you don't get the carrying charge.

Pearson: With the amount of corn particularly in the western Corn Belt tat's still out there, old crop corn it doesn't look like there's been, there weren't a lot of people taking advantage of the rallies we had in 2007.

Pfitzenmaier: No, and the basis is going to be, everybody is complaining, oh the basis has got to get better. Why? You know, I think the model for that is the soybean market last year. You had tons of soybeans around and they never narrowed the basis up, they just stayed wide, still wide and with a 2.3, 2 to 2.3 billion bushel carry out the corn basis doesn't necessarily need to narrow either. So, look at places where you can forward price or take advantage to maybe capture some better basis, lock in some better basis because, you know, a lot of these end users are going to pay up until they get a fairly high percentage of the corn needs that they have met and as soon as those corn needs are met the basis is going to fall apart again. So, people need to be paying attention and everybody is just well I'm going to put it in the bin and do nothing and that I don't think really is a bit of a fool hearty marketing strategy.

Pearson: And, again, you wouldn't be afraid to just use the board at this point. Or like you say, if you come into a decent cash forward contract look at that.

Pfitzenmaier: Yeah, look at that, use the board. You know, if you're afraid of the board and you think we're going to six dollar corn use some sort of an option strategy, buy yourself -- you can buy a $4 put and sell a $5 call to pay for it. Give yourself a $4 floor with a $5 ceiling. How bad could that be in you farming life? How could you apologize for getting those kind of prices?

Pearson: I don't think you can and certainly in the 50 years that I've been around, Tomm, it's really all I can account for and that's darn good.

Pfitzenmaier: Over the last two weeks in central Iowa you've been able to lock in $9 for '08 beans. What's wrong with locking in 10%, 20%, 30% of your crop, expected crop for next year? Everybody is talking about switching acreage. If we switch acreage and bury the bean market $9 beans we may look back on that as being one heck of a good price for beans.

Pearson: You pointed out something to me earlier, that was the whole idea that people were talking about the farm bill right now, it's been delayed and all the political stuff is happening, you never know what that thing is actually going to hold. You made the point that for corn farmers, soybean farmers the energy bill may be the more important bill.

Pfitzenmaier: Yeah, it is. I mean, we need to get infrastructure built, we need to get incentives to get more ethanol usage throughout the country, not just Iowa and Minnesota. There's a lot of potential in this energy bill to really help farmers whereas in the farm bill it's price supports that are well under where we're at and probably aren't going to have huge amounts of relevance. But this energy bill could have an instant relevance and support for farmers. So, I think that's another thing we need to pay closer attention to.

Pearson: Good points, Tomm. Alright, folks, be ready to take some action. $4 corn is never a bad sale and $9 beans will never hurt you either. Tomm, thanks so much for being with us. That will wrap up market plus for today. I'm Mark Pearson and for all of us here on Market to Market and for Tomm Pfitzenmaier, our senior analysts, thanks for joining us here. We'll see you next week.

Tags: agriculture commodity prices markets news