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Market Plus: Feb 04, 2005

posted on February 4, 2005


Market Plus: Feb 04, 2005

Pearson: Welcome to the Market Plus page here at our Market to Market Web site, I'm Mark Pearson. This week one of our senior analysts, Tomm Pfitzenmaier, joining us. And Tomm, to say that you were bearish on the grain and soybean markets would be, I dare say, an understatement based on your discussion in the show today. And I see all these long faces and I go out and I hear from all these producers who say oh you're negative, you're negative, you're negative. Can't we make some money here on the downswing?

Pfitzenmaier: You know, it's kind of interesting. I had a client call me this week and said the same thing. He says, this has just been a tough market to make money on. And I said, no it's not it's easy as easy can be. You sell every rally for the last two or three months and you're in a down turning market. The faster you sell the more money you make. It's not bouncing around, it's not whipsawing you, it just keeps going down. And when you're in a down turning market that is what you do. You sell things as fast as you can sell them and everybody is sitting around here wringing their hands and holding onto stuff and every day they do that they lose more money. So, I'm a little confused as to why everybody is sitting on this. I mean, the rust is one thing. They try to say -- one of the things I hear a lot of is well the funds had a big position. Well, they had a big, long position last summer when they were along 500 million and then they went to 700 million and then it went to 900 and then 1.2, you know, they had a big position and they didn't get out of that position until there was a reason not to be long any more when the crop was made. Well, they've got a big short position and they're going to maintain that until there is a reason to not be short. And I don't see anything on the horizon that is going to make them nervous. But there is a lot of things that if you're sitting on long grain you should be nervous about.

Pearson: Soybean production in Brazil we talked about on the show. A potential for soybean crop and that seems to be the things that I'm hearing from producers who are saying, well I don't know, if the rust hits here, if we lose soybean acres this thing could give us a rally or if something happens these funds have to recover, those short positions, we could see one of those short rallies. Is it worth it to hold onto all this?

Pfitzenmaier: You know, I've done this for 20, 25 years and every single spring there is some compelling reason not to sell anything, every single reason. There is an El Nino, there is a weather situation of some sort, there is a -- every single year there is a compelling reason not to do anything. And this is another one, now we've got rust that is our compelling reason not to do anything. And nine years out of ten you should ignore that and go ahead and sell something and not live for the one year when something actually did happen. Now, if there is a drought this summer and things turn around great, we'll react to that, we'll buy calls or buy the futures, we'll cover it somehow. But until that happens you have to assume normality and normality means we're probably going to go lower.

Pearson: We talked about pricing corn ahead, looking at '05, and you were talking a $2.30, $2.40 being a place to make some sales because potentially with the carryout we've got unless something amazing happens we could be looking at serious carryover again next year with an average crop.

Pfitzenmaier: Yeah, you pick up forty cents on the downside, you add a thirty-five cent LDP, you add a forty cent payment from the government on top of that and all of a sudden you've got three dollar corn on that. I mean, I don't think it's that bad a strategy given the yield potential that we have here.

Pearson: Absolutely, soybeans -- anything you can do about the '05 crop?

Pfitzenmaier: Um, we aren't that high -- I mean, soybeans at $5.20, I'd really feel good about selling those up in that $5.75 to $6.00 range. Down in here I don't know, it's a -- I mean, you're only twenty cents off the loan, it's kind of hard to get excited about. And with the rust potential I don't think anybody is going to sell much anyway. You've got everybody sitting on their old crop beans, I don't know, I can't get excited about that. Maybe use that to buy calls so if it rallies you feel comfortable selling or something. That certainly is a strategy a lot of people like to look at.

Pearson: Alright, and we still have the LDP in 2005. You're right, add it all together and you can make money in a down market.

Pfitzenmaier: Yeah, absolutely.

Pearson: Tomm Pfitzenmaier, as usual, appreciate some great insights. Thanks for being with us. Thank you for joining us. Be sure to tell your friends and neighbors to join us here at the Market Plus page on our Market to Market Web site. And for all of us here at Market to Market, I'm Mark Pearson, have a great week.

 


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