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Market Plus: Aug 17, 2007: Tomm Pfitzenmaier, Summit Commodities

posted on August 17, 2007


Market Plus: Aug 17, 2007: Tomm Pfitzenmaier, Summit Commodities Pearson: This is the Friday, August 17th, 2007 version of market plus. We're so glad you've joined us here at our Market to Market website. With us this week, Tomm Pfitzenmaier, one of our senior market analysts. Tomm, it's getting wild out there. Everyone is wondering what's ahead. We've had a sell off in the bean market this week. I have been at the Iowa State Fair for the last 10 days and all I've heard from farmers is cash prices are terrible particularly on soybeans but also on corn and with the basis values this bad people are thinking, what are we going to do, what's going to happen this fall, what should we be doing. What are you telling them?

Pfitzenmaier: Well, as I alluded to on the show, if you're a cash and you have to get product moved ahead of harvest you've got kind of a difficult situation there. Use rallies to get it sold. I think this is one of these years when you can re-own it and catch a pretty good updraft and prices and add some value to whatever you get out of the field. We're going to struggle with this basis thing on corn through the winter with a billion and a half bushel carryout. It's a little like we had in beans last year where we got plenty of corn available through the winter. Now, one of the things I alluded to on the show was the fact that storage is going to be very valuable to you. You can make sales, capture that carry but the other thing that that storage is going to allow you to do, particularly for a lot of people with the growth in the ethanol industry is you're going to be able to shop the basis on the grain you've got in those grain bins because these ethanol plants are going to want to get their hands on the product you've got and you're going to be able to play one off the other and I think do a pretty good job of managing your basis. Now, the next question you have to ask yourself is where do I begin to makes sales. And as I said on the show I think you're going to have to have a pretty good rally in corn to entice people to plant corn next year. But that also is going to drag the corn you've got in hand higher too. And I would not want to get too excited about making futures sales unless I could get up in that $4.25 to $4.35 area. I think you get up there so you're approximately locking in $4 for your cash corn and then you've captured your carrying charge and that's a good level to start. Now, there is the potential to go higher than that. If we do then you just scale up and keep selling into that kind of a rally.

Pearson: Alright, now soybeans are the other topic that have been the most discussed when it comes to basis deterioration. And as you said on the show, there's a lot of beans out there still.

Pfitzenmaier: Yeah, that thing is going to snap back. I mean, it's not going to snap back immediately because you kind of have to get through harvest. But I think that after you start getting through harvest and getting into the, you know, the Thanksgiving, the Christmas time period you're going to see it come back pretty nicely and then as you get to the end of the marketing year next, you know, March through May I think that's the time you're really going to see that bean basis improve. So, again, you're back into the situation where the only way to capture that is to store the beans because owning them on the board isn't going to do you any good on capturing that basis improvement.

Pearson: You also mentioned on the show the fact that beans need to go higher if we're going to have this worldwide expansion or meet what the perceived demand is out there.

Pfitzenmaier: Yeah, we either have to entice South America to increase dramatically and I don't think there's any question they're going to increase some but whether they're going to increase as much as we need them to I don't know. That is going to be the interesting thing to watch over the next nine months is how we work that out between corn and beans because we have the potential to run beans up toward $10 and if you do you've got to have, to keep that 2.5 corn-bean ration you've got to have corn at $4. So, it's going to be very interesting, it was a very clear decision for farmers last year because the price of corn was so good compared to beans and wheat it was a no brainer to plant corn. That's not at all the situation as we sit here today for corn producers.

Pearson: A lot more competitive situation.

Pfitzenmaier: Absolutely.

Pearson: You mentioned another thing on the show and that was rising costs, rising input costs, anhydrous just one item that you mentioned plus cash rents out there.

Pfitzenmaier: Yeah, and there are enough people around that are going to be pretty disappointed by their corn on corn performance, that's going to take a few of them out. You've got some people that just like being in a rotation, they like the way it spreads out their work, they like the way it spreads out their risk, they like the way it treats the soil so there's a lot of other extraneous reasons to want to get back into that corn-bean rotation and we're going to have to fight that as well.

Pearson: Alright, as usual some great insights from Tomm Pfitzenmaier, one of our senior market analysts on Market to Market. Thank you for joining us on market plus. From all of us here at Market to Market, have a great week.


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