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Market Plus: Market Analyst Tomm Pfitzenmaier

posted on August 26, 2011

Market Plus: Market Analyst Tomm Pfitzenmaier

Pearson:  This is the Friday, August 26, 2011 version of Market Plus.  Thanks for joining us here at our Market to Market web site.

Pearson:  With us this week one of our long time market analyst Tomm Pfitzemaier.  Tomm there is a lot of things going on and we didn't touch on farm land values.  We had a great question emailed to us on our Facebook page from a viewer who wanted to know where farm land prices are going to go and some of this ground that is moving now on the ten thousand dollar an acre range that really isn't that productive.  How are you going to make this thing all pay off and how is all this going to work?

Pfitzenmaier:  It is going to go higher.  Look at the profitability of farmers and it is high.  They are making a lot of money.  Like one of my ag lenders said some of these guys are making rockstar kind of incomes and do you think that these farmers are going to go buy Disney stock with that money?  Absolutely not.  They are going to go back and buy the thing that got them - brought them to the party.

Pfitzenmaier:  And I, you know, and if the neighbors ground comes up and they have a chance to buy it they are going to take some of that money and buy it.  So - and then you've corn and beans making new highs.  That certainly isn't going to discourage land ownership.  There is some mention, you know, talk about a bubble but that bubble almost every time you have a bubble it a lot of leverage is involved with that bubble and there is no leverage in it.   These guys are just writing a check for this ground.  So, I don't see -- I think like you said in the report there maybe it is not going to go up as quickly or as fast and as hard as it has been there is still going to be an upward tendency on land prices.  As long as there is guys making money and there is competition to buy the land.

Pearson:  You don't want to leave it in the checking account.  You ain't getting paid there or money market or anything else.  So and your CDs aren't going to get it done for you.  So you might as well do something with it and that seems to be driving it.

Pfitzenmaier:  Making it a comparison to gold that maybe is a bit of stretch because it does - it is - doesn't earn income.  It has value.  It's -

Pearson:  It doesn't earn income.  It is not a liquid.

Pfitzenmaier:  It's not - you can't make a comparison between the now and the way that it was in the 80s.  It is completely structured different than the problems that we had then.

Pearson:  And you have got to give credit to the lenders.  I mean lenders come on and said "Hey, you're going to pay fourteen thousand an acre?  We're getting forty percent up front.  We're getting thirty down.  We're getting fifty down."  And they are getting that and more.  I mean that what all the lenders are telling us. 

Pfitzenmaier:  Those guys have learned their lesson in the 80s.

Pearson:  They don't want to go through the 80s again.  All right.  Let's shift gears.  We got record high prices this week Tomm.  This is the - these are the highs.  What should you do?  Don't you think you got to lock in some of this?

Pfitzenmaier:  Absolutely I do.  I maybe was overly bullish on the show but I think at a bare minimum you need to start doing some minimum pricing here.  I mean you can buy December/March puts in that 7.70 to 7.80 range.  Maybe sell a lower put.  Sell a higher call.  Do some things to cheapen it up but you can get yourself some 7.50 futures locked in as your floor price and then leave yourself flexibility.  Like I said on the show there is going to be a tight situation in the cash market.  So owning a bin, putting that grain in a bin, and then having that ability to control who you are going to sell that to, making them bid up for it when things get tight, I think is going to be a real advantage just like it was last year and you can do that by using some of these option strategies. Same thing for this 2012 crop for these eager beavers that really want to get some stuff sold.  Go out and buy yourself a 6.50 or 6.70/6.80 put, sell a call, sell a July put to pay for it.  You can get that done for twenty/twenty-five cents, have a nice high floor, and then see what happens here. 

Pearson:  Well, it is -- and again like you said in the show we don't want to go overboard.  We don't know what are inputs are going to be.  We don't know what the score is going to be and like I say in 2011 and 12 it is going to be very tight.  So there is going to be volatility. 

Pfitzenmaier:  We've got to plant a ton of acres and as you talk to people and I talk to seed dealers there are a lot of guys planning on planting a lot of corn next year.  So there is that component that you have to take into consideration and you don't want to get wildly bullish here and not do anything.  But having a floor in, having a good floor established, and then work on - work from there, roll the floor up, you know, there is a lot of strategies that give you some flexibility and some comfort too. 

Pearson:  And you mentioned another key thing.  We don't talk about this much on the show because we don't have a uniform cash market.  I guess - the National Cash Index but I don't know how close we play that one.  Local areas have been so wild this year you can merchandise your grains.  So you get your insurance bought.  Then merchandise the crop.

Pfitzenmaier:  And that's what you need to do.  That's where these bins can really pay off.  Not only does it help in flexibility at harvest, it allows you to hold grain into the first of the year when traditionally things tend to improve, but it also lets you - some of these guys have got five ethanol plants sitting around them.  Let them bid up for your corn if things are going to be tight.  Play one against the other.  Play them against the elevator.  There is a lot of things you can do if you have control of the grain.  If you commit it to one person you have given up all that control.  You have given up probably some of your basis negotiation and then there is no reason to do that.  These guys are big operators with big - we are talking big dollars here.  Start treating it like the elevators treat it with - it is a valuable product that you can - that you need to merchandise. 

Pearson:  Talk about soybeans then.

Pfitzenmaier:  Same thing on soybeans.  Granted there is an up side but if the Chinese don't come back in here, if the South Americans have another good crop, you know, $15.00 is probably going to stop it.  So I think as you work up toward 15 and in the big picture we are not that far away, do something.  Again I think you can probably store beans and have some advantage because you know the South Americans are selling every bean they can at these kind of prices.  So at some point when they run out we're going to be back in the driver's seat again this winter.  If their acreage is down that's just going to help accentuate that.  I think you want to try and control at least a percentage of your beans.

Pearson:  All right.  Tomm great to have you with us.  Appreciate you insights.  Thanks so much. 

Pearson:  That's going to wrap up this addition of Market Plus.  From all of us here on Market to Market thanks for being with us.  A volatile week in the commodity markets.  Make sure you tell your friends and neighbors about Market Plus and its availability and for all of us on Market to Market, I'm Mark Pearson, have a great week.


Tags: agriculture cattle commodity prices corn cotton economy grain markets news pigs soybeans