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Market Plus: Market Analyst Tomm Pfitzenmaier

posted on January 20, 2012

Market Plus: Market Analyst Tomm Pfitzenmaier

Pearson: This is the Friday, January 20, 2012 version of Market Plus. Thanks for joining us here at our Market to Market website. With us this week on the show Tomm Pfitzenmaier joins us again for Market Plus.

Pearson: Tomm, I have heard from a lot of farmers a bunch of them from the Dakotas and Nebraska, Iowa and Illinois and Indiana and Ohio and they are all saying the same refrain and that is that they are holding on to this corn. Now I assume that is backed up by some numbers somewhere and somehow but their thinking is hey, it's paid to be a holder of cash corn when this marketing year comes to an end.

Pfitzenmaier: Well, you know it is kind of interesting because I hear that a lot too and one of the things that they always site is well there are no piles out this year. So obviously there is no corn around. Well, they are right there aren't any piles, but the conclusion is the reason why is. I think is faulty and there aren't piles because the elevators see a narrow basis and no carrying charge and there is no incentive to have a pile. The last two years there has been. There has been good carrying charge in the market. There has been a fairly wide basis they could see was going narrow up and we don't have that situation. We have got no carrying charge. We have already got a narrow basis. So why store the corn? Why put it in a pile? So that answers that question.

Pfitzenmaier: The second question is how much is in farmer hands and we don't know that. The USDA doesn't. I don't believe have a very good handle on that. I think there is a lot more than people expect. A lot of on farm storage has been built over the last year or two. A lot of storage has been built at the ethanol plants that I am not sure is fully accounted for. I think that there is a lot of corn out there. Guys that have made a lot of money over the last year or two and have been not inclined to what to sell particularly on breaks. So, I think there is a lot of farmer holding waiting for that big move we have had the last two years because they are sure that the pattern is going to repeat itself and I guess I am not as confident of that happening three times in a row.

Pearson: I am in the Atlanta Airport Thursday and I am talking to a farmer that says well, I would rather have corn. I might as well keep the corn than stick it in the bank where I am going to get a tenth of a percent. Almost easier to keep the commodity and deal with that than it is to deal with the cash.

Pfitzenmaier: Well, a lot of them don't like to see the price of corn, but they are more comfortable with the price of cash corn. If they had a commodity account and it went against them fifty cents they would be screaming bloody murder. But if it drops in the bin it doesn't seem to be that big of a problem for anybody.

Pearson: All right. Now you think we should be making some new crop sales at this point? Certainly if we get a rally, twenty cent rally, you would definitely make a sale?

Pfitzenmaier: Yes, absolutely. You can rally back up to those, you know, levels that we got pre-report in that 5.97 area. That is the area that I would be selling against and maybe even a little earlier than that. We are looking at huge acreage in the next year. The question, Mark, is obviously what is going to happen with yield. If we have any kind of, again the same pattern, we have had problems the last two years. Are we going to have three years in a row where we have significant yield reduction? Now I know everybody is crying about the dry weather in the Northwestern Corn Belt but that can be solved with some good rains. We are probably going to have enough moisture to get the crop planted and as much fall field work has got done, if the weather is right they will have the whole Corn Belt planted by the 15th of April. It is going to go in fast. So, you know, the spring we could be off to one of those "plant in the dust and the bins will bust" kind of deals where we get everything planted and the La Nina/El Nino flips around and we could have a great crop this year. So betting your whole crop on the fact that it is going to be because we're going to have a dry period seems a little dangerous to me.

Pearson: Well, we will see what the response is. We have had some responses from our viewers and they have taken the time to send us in some twitters and we appreciate these twitter questions. Joseph from Illinois asked when are you going to talk about energy on the show this week? I am glad he brought this up. Where is the natural gas market headed relative to the markets in oil, corn, beans, cotton, sorghum? Natural gas, I mean, are we going to go below two bucks the way this thing looks?

Pfitzenmaier: I think there is that possibility unless there is some approval that gets put through to export natural gas. That is really what that whole market hinges on. If that happens then it is going to be well supported in here. If doesn't then we are going to continue to drift lower because have got boocoo natural gas around and it is going to be a problem even for the ethanol industry and all the oils because it is a strong competitor. And people are going to over time going to figure that out and start switching over to it.

Pearson: New natural gas fields in North Dakota, of course the Eagle Ford in Texas, I mean, there is just - there is a lot of product out there and a warm winter.

Pfitzenmaier: Yes, absolutely. All that is going to play against us. That is why everybody is projecting this ethanol industry to go on forever and there is some bumps coming in that, and I am not saying this is going to fall apart or anything, but if we get a little tight at the end of the year in corn supplies it wouldn't be a big surprise to see plants take some down times if their margin has got a little negative because of a rally in corn prices which is going to happen a lot quicker than it did the last two years. It is going to be tough to have more than 5 to 5.05 billion bushel of corn used for ethanol.

Pearson: All right. Kent from Iowa sent a tweet in saying what a realistic 2012 corn acreage which we talked about on the show. We mentioned the Informa number 94.8 now that has been one that has been growing. That grew another three hundred thousand an acre.

Pfitzenmaier: Yes it did. I think most people are figuring somewhere in the 94 to 96 range. I guess probably 94 to 95 is a more realistic. 96 to me seems a little on the high side, but if you talk around the country there is a ton of people going to be going to corn on corn this spring. And like I said if we have a decent spring to get it put in there could be a lot of corn acres, and it is hard for beans to compete at these price differentials. So, unless that corrects and commitments were made, I mean fertilizer was put on, field work was done, it is going to be hard for that to be undone even if price differentials change.

Pearson: We had Phil in Canada, who is always a good correspondent of ours, he sent a note in asking about the bull spread in corn and also where is the big hedge money again? Where are those big specs? What are they doing?

Pfitzenmaier: Well, to address the first one, I think that is a function of tightness in that old crop situation versus not so tight, projected not so tight in the new crop. So, that is why you are seeing that bull spreading and that kind of makes sense where you got 846 million bushel carry out old. You have got some people projecting as high as two billion in the new crop. You are naturally going to see some bull spreading there and a lot of pressure on that back month relative to the front. As far as the hedge funds go, a lot of them got chased out with that MF Global situation. A lot of them left and are a little reluctant to come back. It is going to take something significant to pull them back into the market. You know after that report we liquidated almost everything they bought from the end of December to the 1st of January. So, they are easily spooked out of the market if something comes up to scare them.

Pearson: Tomm Pfitzenmaier thanks for being with us on Market to Market and of course joining us here on Market Plus as well, and from all of us on Market to Market thanks for being with us. I am Mark Pearson, have a great week.

Tags: agriculture commodity prices economy markets news