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Market Plus: Apr 23, 2004

posted on April 23, 2004


Market Plus: Apr 23, 2004 Pearson: Thanks for joining us here at the Market Plus page on our Market to Market Web site, I'm Mark Pearson. Our guest this week the inevitable Tomm Pfitzenmaier. Tomm, as we look ahead in this market we're getting ready to head into a weather portion, we've had good news so far in the corn belt as far as corn prices are concerned. You know, chances are, history proves that usually we get some weather scares at some point and a premium gets put back in. What are you telling producers?

Pfitzenmaier: Well, I think if you get some rallies, especially if you can get any rallies during the spring time period, I'm talking particularly corn, I'd hold off on doing much of anything in beans, but if you can get December corn up in that $3.10, anywhere up in that level then I think you have to start doing some scale upselling, figuring it's got the potential on the outside to go up and retest the highs and just set some sort of a scale up selling program. And I would probably do that with options either buying puts, start with the three dollar puts, if it rallies a little higher but $3.10, if it's a little higher than that buy $3.20's and scale up, get yourself some nice floors established. If you think it's toppy after that then go out and sell yourself some calls to help pay for that. You're probably going to have a chance to sell the four dollar or $4.10 calls for ten cents plus which will be a nice way to pay back. The one thing that does also is it builds some hope into your program so that if it does go up, you know, that's the disadvantage of having stuff just flat out sold at the elevator. If it starts going up you have no way of participating whereas this strategy allows you to participate at least up above four dollars and if it starts going above that you can take some defensive strategies if you need to. But I think it's important, in this kind of a market with potential we have this summer to build hope for any strategy you have for grain marketing.

Pearson: Absolutely, and we've learned I think one thing already, that we're counting on planting problems, you missed the boat. So, you don't want to miss the boat if an opportunity comes back your way and this is a way to reduce your cost by selling the call, the out of money call and your cost per bushel is going to drop dramatically.

Pfitzenmaier: Right, because that is one of the big complaints everybody has is I don't want to buy a put because they're so expensive, I don't want to waste all that money and they always expire worthless and all that and those are all very good points. But if you think they're overpriced go out and sell, if you think buying an option is overpriced, go out and be the seller of one on the top side and take advantage of that overpriced situation to make yourself some money and to get yourself a nice solid floor at a decent price locked in.

Pearson: Absolutely, and this is going to be the year to be doing that it looks like. Now, let's talk about fed cattle market and livestock prices in general. We've had a nice life in these hogs.

Pfitzenmaier: Yeah, we have and like I said on the show I think there is a potential for June hogs to go up to $80. If they do it's going to pull those puts up and you're going to be able to buy some puts at a really nice high level for relatively decent money. So, I'd sure keep an eye on that. Like I said, I think there is upside potential but, you know, once you get that upside potential it would be nice to lock it in and not just sit there and hope that it stays.

Pearson: And you also mentioned on the show we're at that point where you see kind of the spring peak in cattle prices, then we just kind of head down through the heat of July. Anything we should be doing on that front?

Pfitzenmaier: I think there is another market, now, they've already got that June discounted fairly well so I wouldn't do anything right here. But I think if you can get a rally up into the upper 70's then I don't know whether you, a little different strategy in the cattle that I like to use and that is if I get up to a good level where I can lock in a good profit in my cattle I'd just as soon sell the cattle futures, get that locked in and then if you're worried about a big blow off in the top because of the Japanese market getting opened back up or Canada or whatever, then buy yourself a cheap call to guard against some huge upside potential. But that way you've got a solid sale made and I like that strategy in the cattle because I don't think there's quite the upside potential that there is in the corn contracts.

Pearson: Good points as usual, Tomm Pfitzenmaier, our guest this week on Market to Market, one of our long time analysts. Thank you Tomm. Hey, be sure to join us here again next week and be sure to tell your friends about our Market to Market Web site. We really appreciate it. Thanks for all your e-mails and all your help out there. Have a great week and a safe planting season from all of us here on Market to Market.

Tags: agriculture commodity prices markets news