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Market Plus: Apr 20, 2007: Tomm Pfitzenmaier

posted on April 20, 2007

Market Plus: Apr 20, 2007: Tomm Pfitzenmaier Pearson: This is the Friday, April 20th, 2007 version of Market Plus here at our Market to Market Website. I'm Mark Pearson, so glad you've joined us. With us this week is Tomm Pfitzenmaier, one of our regular analysts and always has some great ideas. And we talked a lot, Tomm, on the show about corn, soybeans, wheat, cotton, all the impacts, all things are driving this grain market. And, of course, that has been a factor in the livestock sector in addition, of course, to all the weather things going on right now. Everywhere I go I hear from people what should I do, what should I do, what should I do. People that didn't make sales of old crop or new crop prior to that prospective plantings report feel like they've missed the boat. People that didn't sell before then haven't done anything since feel like they're lost. What are some ways people can make some decisions now and take advantage of this market where it goes particularly on corn and beans?

Pfitzenmaier: Well, those people did miss the boat. I mean, the cash corn market is $1 under, almost $1 under where it was so that boat has left the dock and is barely able to be seen over the horizon.

Pearson: They're waving off a fan tail, yes.

Pfitzenmaier: So, I guess you have to look and see what kind of a recovery rally can I get on cash corn and what will make that happen. If you have some kind of weather problems over the next two or three weeks you're going to have farmers out in the field I think you're going to get a chance to maybe get caught up on some of that old crop corn sales. In terms of new crop corn sales I think if you can catch a rally on corn up toward $4 you're going to be able to buy $3.50, $3.60, $3.70 puts for that 16, 20 to 24 cent area respectively for those three contracts depending on what you want to spend and how you want to protect yourself and that is how I would begin to start to price new crop corn if you haven't done some already. There is the potential, we don't know what acreage is going to be, I suspect that acreage drifted down from that almost 12 million that they originally asked within three weeks after that report came out, some of that had gone. So, you know, it's going to kind of be important over the next month that we get this crop planted well and you're still going to have to get it pollinated well. So, I think you're going to have a chance of rallies on December corn up toward $4 to give you the chance to buy those puts. If you're somebody who needs to buy corn or made some sales and want to reown it or for whatever reason I think you can go in and buy bull call spreads on the December contract, buy the $3.70, sell the $4.70, buy the $3.60 sell the $4.60 and get that done for, you know, somewhere in the 24 to 27 cent range, give yourself the chance to spend a quarter for the chance to make a dollar and I think that's a pretty good way to reown some of it with limited risk and some pretty good up side potential.

Pearson: Alright, so that kind of a strategy on corn, talk a little bit more on soybeans because the concern there is there's tons of soybeans. You talked on the show about South America has a huge crop and soy oil pricing along with energy, like you say, is creating a tremendous amount of meal out there. What is the strategy for a soybean grower, again, the person who we talk to out in the countryside a lot who hasn't done anything yet.

Pfitzenmaier: Well, if you're sitting on old crop beans you need to get with it and get some sold because there's probably up side potential but it's pretty limited and I think you need to use that, any rallies that come along because if I'm right and we chase some acres back to the soybean side where guys are saying, you know, it's getting late, I can't get the corn planted in the timely manner I want to get it planted in, I'm going to shift some of those acres back to beans, stay in my rotation where I like to be anyway. That's going to tend to be depressive on soybean markets. So, I don't see any sense in sitting on soybeans except for 10, 15, 20 cent rallies you try to catch. And like I said on the show, new crop beans I think you have to wait for $8 plus, hope there's some weather problem that lets you do that which is, you know, 40 cents above where we're at today.

Pearson: Okay, so at $8 you'd make sales on new crop?

Pfitzenmaier: Yeah.

Pearson: But old crop?

Pfitzenmaier: Needs to get with it, yeah.

Pearson: Alright, and Tomm, just on the flip side we want to talk about livestock producers here for just a minute because they dial into this segment too. Both hog producers, cattle producers, again, a lot of those people feel a little flat footed since 15th of September 2006 if they didn't have coverage. Now with this break are you covering feed needs? Should you be covering feed needs pretty aggressively before we get into an even more volatile period of time?

Pfitzenmaier: Yeah, those are one of the places where I think you can use those bull call spread strategies that I was talking about. That's prefect for a livestock producer, you spend a quarter, got the potential to cover yourself for $1 rally, it's limited risk, you know what you've paid for it because it's just like buying a regular naked option and so yeah, I think that's the way to go. In terms of meal, covering that, I don't really see a lot of need for that. I think your real risk exposure is into some potential corn problem.

Pearson: Alright, some great points as usual. Tomm Pfitzenmaier, our guest this week. We're so glad you've joined us here at our Market to Market Website. I hope you'll tell your friends and neighbors to have them join us here too particularly during these volatile commodity markets. From all of us here on Market to Market, I'm Mark Pearson. Thanks for being with us. Have a great week.

Tags: agriculture commodity prices markets news