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Market Plus: Apr 21, 2006

posted on April 21, 2006

Market Plus: Apr 21, 2006

Pearson: Welcome to the Market Plus page here at our Market to Market Website, glad you've joined us. Mark Pearson with Tomm Pfitzenmaier. And whew, Tomm, these are strange times. We've got record high oil prices and you're on the show tonight telling me that these record high oil prices are causing this corn market to be this high and the soybean market to be as strong -- these are strange times.

Pfitzenmaier: Yeah, they are. I mean, a person has to, instead of getting yourself all hung up on the fact that these energy prices are warping the market, I guess is the way a lot of people would put it, I think you also have to view it as the fact that they're also generating opportunities here that we otherwise might not have had. And the only way you take advantage of an opportunity is to do something. You can't just sit and watch it go by you. You have to be proactive on it and I think there is opportunities here to buy a $2.70 corn put for probably eighteen to nineteen cents, get yourself a $2.50 plus floor locked in. If corn goes to $3.20 great, let that option expire, sell your corn at $3.20 and march merrily on. But, if we turn around here and oil prices break we have to keep in mind that we also have record stocks in oil and if, you know, if this Iranian thing doesn't blow up and two or three of the other things that are sitting on the horizon here don't happen and oil prices begin to break you're really not going to have a lot holding corn nor beans up here. So, when opportunities like this are presented you have to take advantage of them I think.

Pearson: Okay, alright. So, what about on the soybeans? You said, $2.70 puts. What would you do on beans?

Pfitzenmaier: On the beans I think you have to look at the $5.80 to the $6 put. The $6 put is priced in the mid-30's and I think that is viewed by most people as being a little pricey. The $5.80 is down around a quarter. A lot of people are a little more comfortable with that. You know, it locks in approximately a $5.50 floor. Like I said on the show, I think there is a fifty cent to a dollar move down. I mean, we're talking about a 565 million bushel bean carry out, bigger acreage. If we have a good crop we're going to be talking 800 to 900 million bushel bean carry out. That is unbelievably gigantic. I don't care how many ethanol plants they build in the next year or two, that is huge.

Pfitzenmaier: And it's going to generate all kinds of meal that is going to compete against the DDG's that are going to be generated by the ethanol plants and we're going to have a lot of feed product sitting around here.

Pearson: Absolutely, so that would be a way to lock in some profit. Now, the other thing, we talked about the cattle market, you weren't excited about doing anything right now because we've had such a huge break. But you did say for those cow/calf people out there who have been low to use, by and large, low to use that feeder contract you would look at utilizing that one.

Pfitzenmaier: That thing is sitting out there with, you know, the September, August, September, November contracts up there in that $103 to $105 range. Look back over time and historicals on the feeder cattle chart and tell me how much time we spend above $100. It's not very much and you're facing some real negatives in feeder cattle in terms of lower fat prices, higher corn potential and both of those are historically very negative to feeder prices.

Pearson: That's right. So, again, that is one out there that if you haven't done any protection because we've talked about this, this livestock market, again, this big backup in poultry affecting the beef market, also the fact that we've increased herd size for cattle and hogs. So, plenty of protein out there, there's a good piece of profit for those people in the ranching business to cow/calf business to take advantage of. Some great insights. Tomm, thank you so much. Tomm Pfitzenmaier with us this week on the Market Plus page. Hey, tell your friends and neighbors to stop by, we'd love to have them join us here as well. For all of us here on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices corn markets news oil