Iowa Public Television

 

Market Plus: Jan 20, 2006

posted on January 20, 2006


Market Plus: Jan 20, 2006

Pearson: Welcome to the Market Plus segment here on Market to Market's Web site, I'm Mark Pearson, really glad you've joined us. Tomm Pfitzenmaier is with us today. And Tomm, always good to have you with us. We got to go in depth some on the market segment this week talking about setting up a channel of profitability hopefully for a producer by using puts and calls. We were talking about corn. We're talking futures pretty much the whole show. This cash market has had a nice rebound. Now, what is ahead now for cash corn?

Pfitzenmaier: Well, you know, almost all of the cash corn has been LDP'd so the market, the farmer is sitting here predominantly without any down side protection. If you've talked to people up in north central Iowa they'll tell you that they had planned on selling to the ethanol plants and the ethanol plants are bought out through next July. I think anybody that is sitting on cash corn here needs to get it moved. You've had a tremendous bounce off the lows at harvest. Your bin has done everything it can for you. There is still some carrying charge to sell. I think sales need to get cleaned up and get done marketing the 2005 crop. Sitting around and waiting for that you're just going to be, everybody is going to be trying to get through the door at the same time next summer and I think that crop needs to get wrapped up. And if the market rallies then use that to start selling '06. But you've had two years here to get the '05 crop sold. You need to get it moved.

Pearson: Alright, I want to recap the futures strategy we talked about on the show. Again, not complicated. This has been a strategy that has worked for the last three years very, very well, very profitably netting people almost three dollars a bushel on their corn.

Pfitzenmaier: Yeah, it has. The market -- and I think part of the reason this carrying charge is that these ethanol plants are going to pay farmers to store the grain for them. So, you're seeing these 25 to 30 cent carrying charges. Now, the LDP at 50 cents that we saw last year I think you have to say that at least ten cents of that was probably attributable to Katrina. So, you wouldn't want to figure on that. But there is certainly a good chance you can be in that 30 to 40 cent range, again, on an LDP. If you can pick up 50 cents on the futures sell the carrying charge you're at close to, and your bin is doing tremendous work for you, I think that is one area that we need to look at in terms of management is that I think we're under built on bins. That is why you see all these piles out in the country is that I think there is a good return to storage and I think guys need to start taking a good look at maybe putting up some more bins here over the next year or so.

Pearson: You know, historically they paid for themselves.

Pfitzenmaier: If they are used as marketing tools and not used as an excuse to not make a marketing decision. Then they are a hindrance.

Pearson: Okay, buying a put, selling a call.

Pfitzenmaier: Buying a put and selling a call, locking in the $2.00 to $2.50 floor, giving yourself 30 cents up side, building a little hope into the market versus selling the futures where if you sell the futures at $2.50 you're getting $2.50 whether it goes up or down or whatever. At least this gives you the flexibility if the market does go up some, up in that $2.80, $2.90 area you're still going to participate on rallies up to that level, it gives you some flexibility with a really nice floor underneath you at the same time.

Pearson: It's a great strategy, it's been very successful. Tomm, what about beans?

Pfitzenmaier: Beans I think the same strategy can work. You can even give yourself a little wider window with a floor in that $5.80 to $6.00 range and sell a call up in that $7.80 to $8.00 range. You're giving yourself a nice wide window, beans have a, you know, can be more volatile, there is more upside potential. But you're locking in, again, $5.80 to $6.00 is still probably 40 to 50 cents above the loan rate on beans with these 550 million carry out that we talked about, the huge South American crop, the switching in acreage, there is a good chance we could see a four in front of beans instead of a five or six.

Pearson: Something to think about. Tomm, some great strategy ideas. Thanks so much, Tomm Pfitzenmaier joining us this week on Market Plus and, of course, on Market to Market. For all of us here on Market to Market and for Tomm Pfitzenmaier I'm Mark Pearson, have a great week.

 


Tags: agriculture commodity prices markets news