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Market Plus: Market Analyst Tomm Pfitzenmaier

posted on November 23, 2011

Market Plus: Market Analyst Tomm Pfitzenmaier

Pearson:  This is the Friday, November 25, 2011 version of Market Plus.  Thanks for joining us here at our Market to Market web site.  We are actually producing this portion of the program on the Wednesday before Thanksgiving and with us this week is Tomm Pfitzenmaier one of our regular market analysts.

 Pearson:  Tomm, I get a lot of phone calls and I know you do too from your clients who are saying hey, I don't think we have sold enough corn.  We might have had a better crop than what we thought.  We are hearing better test weights.  I got more corn to sell.  I didn't sell enough or haven't sold any.  And frankly a lot of people with these rising input costs and increased cash rents are really starting to sweat things.  What should we be doing at this point if we haven't done anything or enough in terms of corn sales?

 Pfitzenmaier:  I would say a couple things.  Number one they should be sweating because there is some pretty good downside potential.  The funds are massively long.  These grains if they continue to take risk off the table there is downside no matter what you might think about where corn should be.  Number two you look at the basis levels.  We are seeing fabulous basis, tight, tight basis levels which is the market saying we want your corn and we want it now.  And the old adage is the best time to sell something is when everybody wants to buy it.  I think holds true here.  So, I know everybody wants to hold until after the first of the year and you have the tax thing and all that but maybe you need to start using some corn. We have had a hard break here so I guess I would look for some recovery but I wouldn't look for much, and then I think you need to start getting some corn sold especially if you could pop your cash bid back up about six bucks.  I think you need to start moving it on that narrow basis.  Now if you think I am completely nuts and I shouldn't be so bearish and all that then go back in and buy yourself a call.  The call premiums have collapse here in the last month.  They have gotten the cheapest they have been in almost a year in terms of implied volatility.  So you are getting a chance here to re-own it that way if you want to.  If you want to re-own the futures and you are really optimistic do that, but get something sold here on this narrow basis. 

Pearson:  Absolutely answers a lot of people's questions.  Now the other question is what about next year?  We have already got estimates out there.  Bob Lissner from Iowa State who is tremendously accurate came out with a ninety-four and a half million acre corn planting number and now we are going to loose some of those acres.  But you take the eight million acres off, we typically loose, and you are looking at a substantial carry out based on where we are today.  So what about 2012 sales?  What should we be doing? 

Pfitzenmaier:  You got to remember that those acres are a little firmer than normal.  We had a fabulous Fall.  People have committed in terms of field work that they have done in terms of anhydrous that has been put on.  Those acres are going to be - aren't going to be switched to beans.  They have committed to corn.  If you can catch a - I think if you can find some strategy that allows you to buy 560, 580 puts, which I talked about on the show, and then go out and sell something to, you know, sell a 660 call to help pay for it or sell an old crop put to help pay for it and get those costs of those options knocked down here and then sit.  And if we rally corn a dollar because we were wrong, great, fabulous!  We are going to sell corn at 660, but if you can sell it at 560 and have a floor at 560, that is not locked in at 560, that is a floor, then you have probably locked in something north of five dollars and it is not great compared to where we were or have been this year but it is the sort of price where people can survive and live to farm again so to speak.  So that's the strategy I would take.  There is a lot of ways to do it and all the little - lot of flexibility in there and how to do, but that is the basic approach that I would take.

Pearson:  Talk about the soybean market and what sort of strategy we look at there.  You look at a little bit better levels for beans?  Bean acres have not been as aggressive?  What do you want to do for beans? 

Pfitzenmaier:  Well, the problem is they are going to produce a ton of beans inSouth America.  I mean, like I said, it is almost all getting planted.   They are going to have a great crop.  We have already seen that if they have good crop that is whereChinais going for their beans.  We are the residual supplier that they only buy from us when there is nothing to buy from anybody else.  So we don't have to raise all that many beans.  The last number I saw was actually there was some people even projecting an increase in bean acres here and I guess I am not sure how that number would actually happen.  But again eleven dollars if you can find a way to lock in north of eleven dollars with some sort of an option strategy, eleven dollars is still a pretty good price for beans, and that is kind of the bench mark I would look for to try and get above on my marketing. 

Pearson:  All right.  Higher costs are definitely here.  We are already seeing it.  We are all ready seeing in bags of seed.  We are certainly seeing it when it comes to fertilizer.  What about oil?  Oil was dropping back this week.  A lot of people were saying well, you know, maybe we are seeing a global pull back here.  Maybe oil will be a little bit cheaper than what we figured?

 Pfitzenmaier:  Well, we need to get that thing worked out because we had this whole mess between Brent Crude being at a bit premium to West Texas Intermediate because we couldn't get the crude oil from Cushing which is where the delivery point is for NYMEX down to the Gulf where the processing is.  Well, that pipeline was purchased.  The purchasers have said they are going to reverse the flow of it.  You know we've always brought it into the Gulf, taken it up to Cushing, and now they are going to reverse that direction. That is going to allow that oil to flow out of Cushing down the Gulf. That has collapsed that spread between the Brent Crude and the West Texas Intermediate.  So now we are back to trading the fundamentals of the oil market.  You look at - the world economies are not all that spiffy.  TheU.S.maybe is a little better than some of the rest. Chinais now starting to indicate that they may be pulling back a little bit.  So I would guess we are going to see - ultimately see crude oil settle back here a little bit.  Now that doesn't necessarily mean that ethanol prices are going to because we have got good ethanol demand domestically as well as fromBrazilbecause they had a poor sugar crop.  They are talking about importing quite a bit ofU.S.ethanol.  So I think ethanol prices are going to stay high.  I think there is a good blending incentive all the way through next year despite the fact that the Blender's Credit is probably going to go away.  So, I think on the oil side a little pull back on crude oil but a well supported ethanol prices. 

Pearson:  Tomm Pfitzenmaier as usual we appreciate your insights on Market to Market and of course here on Market Plus as well and from all of us on Market to Market cornucopia of information available here this Thanksgiving week.  Thank you for being with us.  I am Mark Pearson have a great week!


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