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Market Plus: Aug 12, 2005

posted on August 12, 2005


Market Plus: Aug 12, 2005

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site, glad you've joined us. Our senior analyst Tomm Pfitzenmaier joins us this week and always good to have Tomm's insights. He takes a more global look, a more applied economics approach to agriculture and the farm business. And we usually talk about futures, on the show tonight, Tomm, you're talking about cash corn being an opportunity. Again, we have a lot of livestock producers that tune into this and watch the show and they've got some good prices on fed cattle, some good prices on hogs but I'll tell you what, those are some pretty thin margins if things go south.

Pfitzenmaier: Yeah, and this wide basis on corn, which most people that you talk to, grain producers are complaining about, is creating -- number one, it's creating an opportunity for livestock producers to get some grain locked in. And I think it's also showing us that there is some base value of corn, that at some point corn does become of value and when you start to get below that level that is when you start to see that basis narrow up. So, I think as you see the cash market stabilize here you're going to start to see, as the futures go down, you're going to see that basis tighten up because you do have that base value of corn. And once you get corn down to that base value it's probably a pretty darn good place to be covering those feed needs. So, I think it bears watching pretty closely here.

Pfitzenmaier: Now, I don't mean it is maybe absolute rock bottom, maybe you've got another dime down. But you're down in the reins where I think you need to start looking at it pretty hard.

Pearson: You also talked about, you know, making money -- this is the year when the bins pay for themselves.

Pfitzenmaier: Yeah, and there is so much money to be made on that it's just -- and it's so easy that it's almost scary. And if you talk to elevators around the state a lot of them are full or half full or trying to stay full and that is the reason why they can see this too, this big carrying charge, this wide basis, there is forty or fifty cents for them to make because they want to fill up their elevators and take advantage of that. And if it's a good marketing opportunity and a good merchandising opportunity for them it is certainly a good merchandising opportunity for the farmer. But I want to emphasize like I did on the show you have to sell that carry to capture it. You can't just use that bin as an opportunity to do nothing and then let things drift away on you because you're going to step on your own foot if you do that. It's going to be a mistake.

Pearson: Just real quick I also want to talk about -- we didn't cover it that much on the show, I didnt follow up really well with you on it -- your outlook for corn futures. I mean, you were talking the December contract. We may have a chance here to make some sales $2.40, $2.50?

Pfitzenmaier: You rally up in that $2.38 to $2.48 range you have to become a seller of corn. You know, if you're still an optimist then buy yourself a $2.40 put or a $2.50 put or a $2.30 put or something. But there is still a lot of down side in this corn. A 1.9 carry out is still a heck of a lot of corn. That is $2.08 to $2.05 corn, it's not $2.50 corn. And so, you know, there is still a lot of money to be made on the down side in this market. And, you know, if you don't trust the futures or you're afraid of them then buy yourself a put to take advantage of that.

Pearson: Alright, real quick, soybeans. That is the other big thing we get most of the comments about. Drawed out 180 million really doesn't get the trade that excited.

Pfitzenmaier: No, the other thing is you get up there about $7.00 or $7.25 and all of a sudden you're banging into big world stocks too. And everybody gets all excited about $7.25 and thinks we're going to the moon. Well, all of a sudden you're banging your head on that huge world carry out. Your piece earlier in the show talked about how they are projecting a 63 million metric ton crop down in Brazil. Well, that is just going to continue to add to that world carry out. They've had problems the last 2 years. You know, what are the odds of them having problems three years in a row? Probably not real great. So, domestically we're tight enough that you can run up into that, you know, $6.80 to $7 range but going beyond that is going to be very difficult.

Pearson: Some real good points as usual. Tomm Pfitzenmaier joining us this week on Market to Market and here on Market Plus. And from all of here on Market to Market, this is Mark Pearson. Have a great week.

 


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