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Market Plus: Mar 19, 2004

posted on March 19, 2004

Market Plus: Mar 19, 2004

Swalwell: Hello, I'm Rick Swalwell filling in for Mark Pearson. Welcome to Market Plus on the Market to Market Web site. And joining me now for Market Plus is Tomm Pfitzenmaier, our commodity expert. Tomm, a lot of positive numbers and news to talk about this week and we want to focus on the grains market. So, take it from there.

Pfitzenmaier: Yeah, Rick, you know, everybody sort of has this mindset here where they know these prices are really good, they know they should be taking advantage of them but they're scared to death to step in there and do anything because it might go higher and things might be better and they hate to limit themselves if there is a great amount of upside potential here. So, I think this is really an opportunity for people to take a good close look at the options market to utilize that, somehow incorporate it into getting some sort of a price established on corn and beans. And there is a whole myriad of strategies you can use. You can just flat out buy a put option, which locks in a floor. Now, a lot of people don't like that because our put options are kind of expensive right now. But, it really, it's the only thing that is going to let you participate on the upside and there is upside potential for this market if we have weather problems this summer or demand continues to rocket or the dollar continues to be weak. There is a lot of things that could make this thing continue to go higher and as a result, the options are kind of expensive. But it does lock in a floor if things fall apart too. And that potential certainly exists here also. As I eluded to on the show with the corn being drug higher by the soybeans, if the soybean market starts to fall apart you've got over a billion bushel of outstanding fund positions in the corn market and if that starts getting liquidated corn could overdo it on the down side and make those expensive puts maybe not look quite so bad. So, that is one strategy is to just flat out buy a put. The other one is to sell the futures market and buy a call against it, which is a call to synthetic put where you lock in a certain price but if the market starts to go higher that call option will help protect you on the upside. That is another strategy to look at. You can combine that with also cash marketing, sell a cash contract and then buy a call option to sort of protect against that upside too. So, I think some of those strategies are things that people really need to investigate. As I eluded to on the show probably your cash rents and a lot of other things tied to the market are going to go higher and it would be really nice to take, you'd feel real bad if the price dropped and all your inputs went up and you didn't get any good prices locked in. So, I think it's, there is upside potential but there is also, we're at a level where you need to look pretty hard at it.

Swalwell: Do you have a preference of beans over corn or opportunities in both?

Pfitzenmaier: I think that opportunities exist in both pretty much equally. I mean, if you look at, I'm not an absolute expert on this but I talk to a lot of farmers who are during the day and they all tell me that the profitability on new crop corn and new crop beans is pretty comparable. So, I think you need to look pretty hard at both of them.

Swalwell: And what about the acreage forecast for this coming planting season? How is that going to impact your strategies?

Pfitzenmaier: Well, that is going to be the big wild card. We didn't get a chance to get to it on the show but the 31st of March is when the USDA comes up with the official estimate or guesstimate maybe is a better word, of acreage and the whole market is going to spend the next two weeks digesting their expectations for that, and then after it comes out, adjusting accordingly. So, acreage is going to be key here and we need to have fairly high acreage in both of them with the world supplies as tight as they are in both those.

Swalwell: Alright, Tomm thanks, as usual, great advice, good information and some positive news to talk about this week. I'm Rick Swalwell filling in for Mark Pearson. Mark will return next week for Market Plus. Thanks for joining us here on the Market to Market Web site.

Tags: agriculture commodity prices markets news