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Market Plus: Dec 20, 2002

posted on December 20, 2002

Market Plus: Dec 20, 2002

Pearson: Welcome to the Market Plus segment here on our Market to Market Web page, thanks for joining us and be sure to tell your friends. I'm Mark Pearson, host of Market to Market. With us this week, Tomm Pfitzenmaier, one of our regular market analysts. Tomm, it's an odd time of the year, it's the holiday trading time, thin trading, you talked about it in the show. Anything in particular producers should be doing right now?

Pfitzenmaier: Well, you know, a lot of producers want to move some grain after the first of the year and we still have that situation where there's no carrying charge in the market. I mean, the basis has deteriorated fair amounts since that really tight basis we had at harvest and so there's nothing special going on in that respect but there's no incentive to hold this market, hold this crop in terms of looking at the carrying charge in the market. So, I don't think there's a whole lot of reason to stick it in the bin and forget about it. I think you move it, if you want to re-own some calls the option premium is really down on a lot of these, particularly in the corn market, the option premium has really been washed out of that market so you can buy yourself a July call or a May call and not spend all that money and still retain ownership if you're concerned about, you know, how weather and acreage and all that is going to go for the first six months of next year.

Pearson: Alright, don't want to be left out in the cold. Should something catastrophic occur you've got some coverage.

Pfitzenmaier: Exactly.

Pearson: But get rid of the cash.

Pfitzenmaier: Yeah, the cash has got to go. I mean, there's no reason to store it really with no carrying charge in the market really. The elevators aren't, they're moving it as fast as they can for that very reason plus there's some logistics reasons. You know, there's no corn in the eastern corn belt, there's tons of it in Iowa/Minnesota area and so we're trying to kind of work out the logistics and get it moved where it needs to be, that's probably the biggest thing that's going on in the United States right now is just moving grain from where it isn't to where it is or vice versa.

Pearson: The cattle on feed report out Friday're saying it's kind of bearish.

Pfitzenmaier: Yeah, it is. Number one, the numbers just flat out were bearish, we've also rallied in anticipation of a bullish report so you've got bullishness factored in and a bearish number, that's not a good situation, at least for the first part of next week.

Pearson: Cash markets have been pretty frustrating for a lot of cattlemen here in the last ten days.

Pfitzenmaier: I think it's going to continue to be. I think you're going to bounce around in that .71 maybe .71 bid, .73 ask and we're probably going to sit in that range which as I eluded to on the show makes that February contract when Dec pos(ition)s off the board look like it's way out of whack here.

Pearson: You also mentioned maybe looking at that April contract. We get .78 plus, maybe pull the trigger.

Pfitzenmaier: You had a chance to do that at .78 plus this week and I think you get up in that area, maybe I don't know, the preferred method for me is to sell the futures and buy yourself a call and the reason I say that is the call premium is substantially less than the put premium. Now, what that amounts to is a synthetic put but you also have a situation where if the market drops or something bad happens you're going to catch 100% of the move on the way down and you're going to get the protection on the upside if there's a problem, you're buying call premium which is cheap rather than buying put premium which is high.

Pearson: Expensive, some good points as usual. Tomm Pfitzenmaier, thanks for joining us this week our regular market analyst, Tomm Pfitzenmaier. For all of us here at Market to Market, have a great holiday. I'm Mark Pearson.

Tags: agriculture commodity prices markets news