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Market Plus: Dec 02, 2005

posted on December 2, 2005

Market Plus: Dec 02, 2005

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. I'm Mark Pearson. With me this week, one of our senior market analysts, Tomm Pfitzenmaier. And Tomm, as we look back over this week in the markets and look at what is ahead, the risk out there the producers face, maybe they're taking an LDP and are kind of sitting back going, 'Well, hey, I've got cash flow for a few months, I'm going to kind of sit back.' You know, look out there in July corn, that looks pretty good but they're looking at it, maybe not taking the step they need to, to sell it.

Pfitzenmaier: We've harped on it, you know, for two or three months now. You've got a 30- to 31-cent carry out to July. You're sitting with corn if you've LDP'd, which most people have, with no protection underneath it. You go back and look at history when you have a big crop with a big carryout. That July corn tends to work its way right down to where December is at. So, there is 20 to maybe 30 cents down yet in that July corn and it's just a big cherry that is sitting there waiting to be plucked and nobody wants to have anything to do with it because they think it's too cheap. You know, I wish I had all the money back from all the things I've bought because I thought they were too cheap and then they got cheaper. The reality of this market is that it's got, it's probably going to continue to work its way lower.

Pearson: As we go forward tonight I was thinking back right after Labor Day weekend. Katrina had hit and I was over talking to a group in Lincoln, Nebraska, and I called you and I said, 'What do you think the impact is going to be in transportation.' You said we'd see huge LDPs and you said 50-cent LDPs and we had some 50-cent LDPs in the western Corn Belt. And you thought that would be a detriment because producers would take that and then fall asleep at the switch and not make the sales on their side. From what we're seeing on the board, that looks like just what has happened.

Pfitzenmaier: Yeah, you have seen tight farmer holding firm up the basis, which has been another thing for that other 33 percent or whatever you haven't LDP'd; that LDP just continues down to 29 cents this morning. So, it's been our worst enemy for the people who haven't LDP'd yet because they're sitting there, yes, they've got coverage but the LDP has disappeared on them. So, it just seems to me if you've got a bin full of corn and you have no desire to sell it immediately, why wouldn't you take advantage of selling that carrying charge? It's just, like I said, it's just a big cherry sitting out there waiting to be plucked it seems to me.

Pearson: Absolutely.

Pfitzenmaier: You know the elevators and the grain, real professional grain merchandisers, are selling the daylights out of that.

Pearson: And they've told us that. And if you look at what is going on with producers right now, that seems to be the big hole in the marketing plan. Maybe we'll se a rally, maybe we'll see if we can get another dime on it and so forth. But if you don't take advantage of this that big chunk, I can't remember your total scenario, but if we took a 50-cent LDP, we had basis recovery and we sold that, we were talking about $2.55, $2.60 net corn.

Pfitzenmaier: Yeah, exactly.

Pearson: That is a big number.

Pfitzenmaier: That is a big number and if you're a grain producer with that kind of storage and the fancy storage facilities and all that, why in the world wouldn't you be a professional grain merchandiser just like the guy you go and talk to at the elevator is?

Pearson: Well put. Let's talk real quick on livestock. You mentioned this cattle market and we talked a lot about cattle on the show but we didn't talk that much about hogs. And the hogs, you think we had a little bit of a wake-up call this week, at least on the board.

Pfitzenmaier: Yeah, I mean, you've got the February contract sitting there nine dollars above the cash index. I mean, that is spread way out. You've got a reversal on Friday, you've got a seasonal that shows February losing particularly against April and the June contracts over the next month, month and a half. There is a lot of things sitting out here saying -- plus you've got hogs are record high weights and that is never a good thing for either pork or beef.

Pearson: So, heads up pork producers, get some hedges, get some puts, get something underneath there.

Pfitzenmaier: There is upside potential because it is perceived as having a good demand, but then again, here is the other thing; you look at the records for demand and demand for pork was down 7.15 percent in the third quarter. You know, everybody is all excited about pork demand but it was off in the third quarter and that has probably continued into the fourth quarter. You've got the dollar making new highs and exports have been the driving force on pork demand. So, you know, there is a lot of things sitting out there that make you awful nervous about this pork industry and these are high prices. If you're bullish, you think it's going higher, you think I'm crazy, go buy yourself a put and let, keep your top side open.

Pearson: Good point, Tomm Pfitzenmaier, some great insights as usual. Tomm Pfitzenmaier, one of our senior market analysts joining us this week on Market Plus. For all of us here on Market to Market, have a great week.


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