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Market Plus: Dec 01, 2006: Tomm Pfitzenmaier

posted on December 1, 2006

Market Plus: Dec 01, 2006: Tomm Pfitzenmaier Pearson: And this is the Friday, December 1st version of Market Plus. Thanks for joining us here at our Market to Market Website. Mark Pearson and Tomm Pfitzenmaier, one of our senior analysts with us this week. And Tomm, there's a lot of things happening in this grain market. We talked about the wheat market, the run it's had, now a follower to corn and soybeans. I'm still hearing from people and I saw with my own eyes in the last five days, traveled about 1000 miles, there is an awful lot of corn that is going to be planted in 2007.

Pfitzenmaier: Yeah, and you've got December corn of '07 up at fairly high prices. We couldn't go into the details of strategies on the show because we didn't have enough time but there's a lot of things you can do here to get yourself a floor locked in, leave that upside open but take advantage of this, get a piece of it somehow because it's too good a price just to let go by especially for people who are going to increase their acreage. You know, they need to be doing something to get those extra acres, some price protection on it.

Pearson: At this stage of the game with December '07 corn $3.60, around in there, $3.60 plus that is better than corn prices we've had in at least the last 10 years and really in terms of people being able to take advantage of them the last 20 years. We had $5 corn in '95 because nobody had any.

Pfitzenmaier: Yeah, and maybe you do a blended strategy, maybe you go out and you just flat out forward contract 25%, go ahead and do a hedge to riot or something on 25%, do an option strategy on another 25%, give yourself a blended strategy but do something to take advantage of this. Just don't sit here and hold everything hoping things are going to go higher because they may not. Like I said on the show we may end up overshooting our acreage. I mean, here is a scenario that's possible, we overshoot the acreage, we have an El Nino next year that gives us record yields and we end up with an LDP next fall. I mean, talk about something that is totally unexpected but certainly could happen.

Pearson: Alright, and, of course, that would be the best way to get some of this stuff sold on the board and then pick up an LDP would all be good.

Pfitzenmaier: Yeah, so I mean, everybody is focused here on what the upside potential is and there certainly is decent upside potential here but you can't lose your head and forget that this is also creating a market, you know, everybody likes to complain about the funds. Well, the funds are creating an opportunity for you and you've got a chance to take advantage of the funds on this and I think it behooves a lot of people that start looking at that.

Pearson: Let's talk again about soybeans and soybean strategies because that is one where I don't see a lot holding the soybean market up based on what you were saying. I mean, we've got an awful lot of soybeans left over from 2006, good crops.

Pfitzenmaier: There's not, there's smoking mirrors holding the old crop up. The only thing that is holding it up is the prospect of having problems next summer of reduced acreage and drawing that down. I think there's also a lot of people that are excited about the vegetable oil markets, you look at what has happened with palm oil, basically they are considering those as a kin to diesel fuel and I think that is what is generating a lot of the interest over there. I'm not sure at these levels how profitable those actual soy diesel, biodiesel plants are going to be, whether that demand is going to be quite what they think it is at these price levels, they're almost on the verge of being priced out now. So, you make a good point and you'd be crazy not to be seeing these prices go by and, again, not take advantage of them at least partially.

Pearson: Real quick, Tomm, just again the flip side. You look at this cattle trade right now and you see a lot of trouble, you see certainly a potential for zero expansion this year the cow herd, beginning of the year USDA was talking one to three percent expansion. Now they're talking more like zero expansion and we could be looking at some cow slaughter.

Pfitzenmaier: Yeah, we could and that may pressure things in the long run. It might make the prices really good. So, there's some people I know that are going out and buying August cattle for next year thinking that that's going to be, will have been washed through and it will be starting to maybe climb back up a little bit by then. So, I mean, there's a lot of different strategies depending on how you think the producers are going to react to this.

Pearson: Alright, well, Tomm Pfitzenmaier, as usual we really appreciate your insights. That's all the time we have for Market Plus this week. Thank all of you for joining us. Again, look forward to more of this next week. Every week it seems like something new and exciting is happening in the world of the agricultural commodities. We're here to cover it for you on Market to Market. For all of us here on Market to Market, for Tomm Pfitzenmaier, I'm Mark Pearson, have a great week everybody.

Tags: agriculture commodity prices markets news