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Market Plus: Oct 29, 2004

posted on October 29, 2004

Market Plus: Oct 29, 2004

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 veteran analysts Tomm Pfitzenmaier. Tomm, let's talk about a couple of things. Let's talk about corn, let's talk about cattle and hogs. This corn market, I think every piece of storage -- we're going to talk about this next week on the show -- but I think about every piece of storage that could be utilized is being utilized this week. I'm getting calls from guys who are not in outstanding corn growing areas calling me with 240 bushel on farm dry averages. I mean, this crop is big. People are saying take the low, let's store it, the is going to have to come to town. What is going to happen?

Pfitzenmaier: Well, it's kind of interesting because those areas you're talking about are the areas that haven't had very good crops, haven't had good crops and they don't have any place to store it. But there are some areas around that have been having consistently fairly good crops. They're used to storing them and they're probably going to get them put away okay. But those areas are really what is going to cause us the problems. And I think as we eluded to on the show there is a good carrying charge out into that July contract, sell that carry, take your LDP when the market drops and you can still salvage yourself, you know, $2.30, $2.50 basis of futures anyway. Probably, you know, pick your moments of when you want to make the cash sale. If you can, you know, catch a period into the end of the year, the first part of the year where the basis is firmed up a little bit maybe you want to convert that to a cash sale or a cash forward sale.

Pfitzenmaier: But, you know, there are going to be some opportunities here to sort of milk that carrying charge and take the good size LDP. Now, milking the carrying charge doesn't mean sitting here and doing nothing and then hoping that the price is $2.30 or $2.35 when you get to July. That is not the way it works. For some reason some people seem to think that and it's not. The only way you get that carrying charge is you have to sell the carrying charge. You can't just sit here and do nothing and then expect that it's going to be there because you have a tendency in these kind of markets where each successive month comes down and goes off the board where the previous one did. So, if December goes off at two bucks you're probably going to see March and two and May at two, etc. So, that is how you take advantage of that situation. Just sitting here doing nothing and sitting on the loan I don't think is going to gain you a whole lot. b>Pearson: Doesn't look like it.

Pfitzenmaier: It makes you feel good maybe but it's not going to get you anywhere.

Pearson: Right, and it's probably not going to buoy the market if everybody does that because, again, it's a factor that everyone knows it's there.

Pfitzenmaier: Yeah, everybody knows it's there and everybody knows it's eventually going to come to them. So, why get in a big hurry to pay up for it?

Pearson: It was a wild week in the beef trade and you talked about a lot of wild things happened on Friday. The GDP report, which was good, not as good as people had hoped. The job report was soft, we talked about that earlier in the show. And then you had, you know, Osama bin Laden raising his unfortunate head. So, you've got all these factors going on in this beef market. At the same time we're backing beef cattle up. If I'm a cattleman and I'm feeding cattle, some pretty expensive feeders I'm feeding, I want to be pretty aggressive don't I in terms of getting those cattle priced?

Pfitzenmaier: Well, I think so. That is why I said on the show, you get cattle up in that eighty-eight to ninety cent area and you've got to be making some sales. I mean, maybe they're going to ninety-two for a week or two but big deal, sell some more. But you get up in those areas and you just have to -- we did not have the same demand structure that we had a year ago. And we're talking about prices that are comparable to what we had a year ago. So, I just don't think there is any way around that you have to get on this because there is downside potential, there is a lot of bad things that could go wrong here that could really drop, you know, take another five, six, seven bucks off these cattle and then all of a sudden you're really going to be swimming in the red.

Pearson: Couple of things will be opening up, Canada, the framework with Japan, none of those negotiations fall through we could be looking at plenty of beef.

Pfitzenmaier: Well, even if the negotiations don't come through as you eluded to on the show earlier we have to convince the Japanese consumer that they even want to -- just opening it up is the easy part -- getting them to come back and start buying our beef is a whole other step that may be a little tougher to do.

Pearson: Good point, Tomm Pfitzenmaier joining us here on Market Plus. And thank you for joining us here at Market Plus. Be sure to tell your friends, the more the merrier we always say. For all of us here on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news