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Market Plus: Mar 03, 2006

posted on March 3, 2006


Market Plus: Mar 03, 2006

Pearson: Welcome to our Market Plus segment here at our Market to Market Web site, we're glad you've joined us for our little bonus information from our analysts every week, this week it's Tomm Pfitzenmaier, one of our senior analysts. And Tomm, I want to talk first about biofuels. It has become so hot, I mean, we have Senator Grassley from Iowa is saying we shouldn't sell to foreign companies and people seem to be just lined up to hand money to these new plants for biodiesel and for ethanol. That's going to produce a lot of feed out there, soybean oil is the main starter in the biodiesel thing and of course if you're producing all that corn ethanol you're producing a lot of byproduct.

Pfitzenmaier: Yeah, that's going to be very interesting to see how that develops here because, you know, that outlook meeting came out and they said we're going to have an extra 500 million bushels going to be going toward ethanol production and sort of lost in all that everybody sort of fails to mention that there is DDG's that get produced. And then on the other side of it like you reference you're going to be crushing beans for oil for the biodiesel and then you've got that meal byproduct. So, all of a sudden it looks to me like meal is really going to struggle. Well, when meal constitutes 80% of the value of a bean it's hard for me to believe that the beans have huge amounts of upside potential here with all that competing feed coming on the market. Just the way it looks to me I don't know how that is going to, you know, how are they going to figure that out? How many beans -- are you going to crush a lot of bean for the oil or are you going to cut back on the crush so you don't generate so much meal? That's going to be interesting to see how that gets shaken out here.

Pearson: Had a lot of producers ask me with all this demand for oil is that going to, are we going to start buying oil away from the food sector? I mean, if you get a jar of mayonnaise it's mostly soybean oil. At what point do we start raising the price of soybean oil to where we take it away from the food sector and can we do that and then does biodiesel work?

Pfitzenmaier: We had an interesting, I had a couple of clients and we had an interesting discussion about that this week about do we have to change our mindset in agriculture and we've always viewed corn and beans as feed stocks. Are we going to have to change our mindset and begin to view ourselves as energy producers? And if you change that mindset you change that way you think about it, you know, maybe you have more upside potential in corn and beans. You know, as a fuel maybe things aren't quite as tight. So, that is one of the things I get a little concerned about when I see corn and beans going up here against fundamentals that given our old mindset seems like it shouldn't happen. But maybe if you're switching over to an energy mindset maybe there is a lot of upside potential here in corn and beans.

Pearson: And maybe prices should be tied more to what crude oil is doing as opposed to what other wheat and other commodities are...

Pfitzenmaier: And you've seen that too, you've seen the price of corn and beans be tied more to what crude is doing, what gold is doing, what some of those outside inflationary type indicator commodities have been doing. And so sometimes the fundamentals of a market aren't immediately obvious when you see the thing take off and come in later to sort of explain what happened. And we need to keep in mind that that potential exists in this situation.

Pearson: And you're right, right now the complaint is, is that ethanol is too highly priced, the E-85 segment because there is such huge demand for it has an auction vein on both coasts. So, you're right. Alright, so that is something we do need to maybe think a little bit about. I want to talk to you a little bit about hogs because we ran out of time talking about hogs on the show in a big way. And, of course, we understand that most of the hog sales are now done under some kind of a marketing agreement, some kind of deal ahead of time but this cash hog market which has kind of leveled off after a big push to the down side, as you look ahead now on hogs and numbers what do you see, Tomm?

Pfitzenmaier: Well, I think we're going to see more and more, I think there is expansion going on. The profitability has just been too good in the pork industry for there not to have been. Like I said, the numbers have backed off a little bit but we're still generating a lot of pork. It is moving okay but the cheaper chicken ____ and more of it is available that is going to continually be a problem. I think there is two to three dollar upside potential here in April and June hogs. If that kind of a rally comes along I think you're going to have to be all over getting it sold.

Pearson: Alright, Tomm Pfitzenmaier, as usual appreciate your analysis. For all of us here on Market to Market, I'm Mark Pearson. Thanks for joining us here on Market Plus. Have a great week.

 


Tags: agriculture commodity prices markets news