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Market Plus: Sep 24, 2004

posted on September 24, 2004


Market Plus: Sep 24, 2004

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. I'm Mark Pearson. My guest this week, Tomm Pfitzenmaier. Tomm, I start off saying, you know, now is not the time to be selling corn and you said, I'm not so sure.

Pfitzenmaier: Well, I mean, I think the downside potential with the size of this crop is probably fairly substantial here, you know, another ten to fifteen cents down. And the upside potential is fairly limited so you look at selling that July corn, selling that good carry charge out into the $2.40 maybe even $2.45 or $2.50 on a good rally, you take a 30-35 cent LDP and all of a sudden you're back up into $2.75, $2.80 for your corn. I don't think that is a bad, you know, everybody is still all hung up on $3.40 corn when those days are past us for this year. And if you want to merchandise that corn and concentrate on being a merchandiser there are opportunities setting themselves up right now, today as we speak, to take advantage of a couple of things that can be pretty beneficial to you.

Pfitzenmaier: Now, I recognize if you haven't harvested the corn you can't take the LDP but I'm talking in general here.

Pearson: Alright, so go ahead, make the sale, get the LDP and then go out and you're right, the carrying charges are huge based on what they're guessing this crop is going to be, at least right now.

Pfitzenmaier: Absolutely.

Pearson: Let's talk about this...

Pfitzenmaier: Now, on top of that, I guess if you're one of those that thinks we're going back to $3.40 then go out and spend a few cents on a call. You can buy a $2.10 December corn call for five cents. You go out and you spend a nickel and it covers you for the next 60-65 days. That is pretty cheap coverage, you know, it gets you out into the end of November, Thanksgiving time, then look around and see what the landscape is like. So, I mean, there are some ways to cover yourselves if you're still, you know, optimistic that we're going to go up and I think speculatively if you want to pay a nickel for a corn call that is probably not a bad thing to do anyway.

Pearson: Limits your loss, you know what you've got tied up.

Pfitzenmaier: Absolutely.

Pearson: Alright, now I want to talk about these hogs. You know, $4.42 on that nearby October contract for a gain this week. Seventy-six dollar hogs, we're killing 400,000 a day, a little over 2 million a week. When we did that in 1998 we were selling hogs for nine cents a pound.

Pfitzenmaier: All of us know how fickle this demand thing can be and that can turn on a dime. You've got demand and you've got speculative fun buying on the hog side but all this based on demand. And that could turn around Monday. So, these aren't the kind of markets where a guy wants to get himself all bulled up and not do anything. These are markets to take advantage of and if you think there is upside potential you do it with puts. If you think there is not much upside potential you just flat out sell them. If you're kind of in between you sell them and buy yourself a call. But I think this is a time to do something because opportunities are being presented. Now, on the grain side for the livestock producer, if we get corn down another ten to fifteen cents you need to look pretty hard at getting some of that locked up and getting your feed costs covered, same thing probably on meal. You drop meal a little bit, you know, in the next two or three weeks, that is probably a time to lock that in, maybe all the way out into spring.

Pearson: We had meal down, what, six and a half dollars this week.

Pfitzenmaier: Right.

Pearson: So, it's moving that way.

Pfitzenmaier: It's getting beat up pretty good here.

Pearson: Excellent insights as usual. Tomm Pfitzenmaier joining us here. I want to thank him and again thank you for joining us here at our Market Plus page. For all of us on Market to Market, have a great week.

 


Tags: agriculture commodity prices corn markets news