Market Plus: Tomm Pfitzenmaier

Sep 29, 2017  | 11 min  | Ep4306 | Podcast


Pearson: This is the Friday, September 29, 2017 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: Now, on the program we did not have a chance to really get too in depth on the state of the U.S. dollar. We had a Fed meeting two weeks ago, rates are staying the same for now, it looks like we might still get another hike throughout the year. Where is the dollar going? Are we going to get any tailwinds from a cheaper dollar for exports?

Pfitzenmaier: Well, we have had -- the dollar has really rallied quite nicely over the last couple of months or so here. I think that and sort of had some follow through after Yellen announced that she's still, her intention is still to raise rates, I think at the December FOMC meeting, I think the market now is considering that about a 76% chance that that's going to happen. And then she talked about rates and increases again in 2018. Now, it's questionable whether she'll still be the Fed Chair, but anyway that's the intention and all of that put together in addition to what has happened over in Europe over the last couple of months has given us a nice spark. Now, my chart work shows that the dollar topped out probably Thursday and has started to roll over. So I'm looking for some kind of a correction here over the next two to three weeks and then we'll have to see what the news is whether we can make another run. It seems unlikely we're going to take out the lives that were put this week for a while unless some real news because the dollar strength is mostly related to the differential advantage of the dollar over other currencies and I don't see that differential changing all that much for a while here anyway.

Pearson: Okay. Now, we do have a bunch of great questions from our followers on Facebook and on Twitter. We encourage all of you to send us your questions for our analysts. But this first one is from David in Edgar, Wisconsin and it's bringing back to a topic we touched on in the show. He's asking, how is storage looking for corn and soybeans this year? And how much is carryover? And how will that effect harvest and prices? Tomm, do you have any more thoughts as we think about storage in particular?

Pfitzenmaier: Well, we said the carryout was huge. The farmer really held a lot of last year's corn over and not quite to the same extent in beans so I think corn is really going to be the issue. I don't see how we don't have problems. You and I were talking in the break there that they're already starting to pile old crop corn out on piles outside and I recognize there was some new storage built but not that much new storage built. So I think it's going to be a problem. I think it's going to be a basis problem for producers all winter long, probably into the spring. It just doesn't look like a real great situation to me.

Pearson: So we're looking at tight storage, probably on the commercial side fairly expensive storage if you can get your hands on some, we're looking at terrible basis so we've got every incentive for folks to continue to build bins, continue to bag corn on the farm. Are we just setting ourselves up for this same scenario next harvest?

Pfitzenmaier: Well, the good news is that there's pretty good carryout into July, there's almost a 30 cent carryout into July and I know we have advocated this forever but the best thing to do is stick it in a bin, sell the carry and be satisfied that that's about as good as you're going to do. Now, the problem is I say that but what most people do is say oh, he says wait until July, so they stick it in the bin and then do nothing and the problem with that is there is a tendency for each successive month to go down to where the previous month went up so that carry gets taken out of the market. That's the reason why you want to sell it. But if you're sitting on corn in the bin and not doing that then you're going to see all that nice 30 cent premium erode on you to nothing. So it's a good strategy if you implement it. If you use it as an excuse to do nothing probably not going to work out much better than last year did.

Pearson: Okay. Next question is from Tim in Crookston, Minnesota. And he asks, new crop beans, do we sell off the combine or store?

Pfitzenmaier: If you can get basis November futures $9.80 to $10.17 I'd be selling them. I see no, certainly no rally great enough to offset commercial storage chargers. Now maybe if you can put it in the bin, look for some basis improvement into the end of the year, first of next year, which you frequently get, that would certainly be something to do. And then if you do get those rallies into the areas I talked about because of South American weather problems primarily then make the sales. But I wouldn't just stick it in the bin and forget about it, that's for sure.

Pearson: When you're thinking about let's say we're getting those prices, we're going to just go ahead and market right off the combine, haul it to town, open up some cash flow and all of that, given the uncertainty that we're looking at right now with South American weather plus the fact that we continue to grow huge crops in both countries, Brazil, Argentina and North America, and demand has stayed relatively strong, is there a play to be made in reownership of those beans?

Pfitzenmaier: Possibly, especially if they'd happen to beat it up pretty hard. We never talked about this in the show but you're right, the demand particularly from China has been phenomenal, the export sales number this week was the highest we've had on record, not necessarily totally on record because we had two years when there was a big rollover from old crop to new crop that it made it look like sales were bigger and then we had one year when the government was shut down so the sales announced were a three week accumulation. But in just terms of a regular old week this was a record week of export sales. We're lagging a little bit behind last year but we're really catching up. So demand for beans is quite solid and we're going to be in the driver's seat for a few months here until South America has some. So that's going to be a supportive thing for beans for sure and if you want to reown that depends on how you're wired. Obviously the best thing to do is buy the futures on the low and have them rally. That's the ideal thing. If you're a little more of a scaredy cat on that the option premiums have been cranked down, volatility is down on them, so you might want to look at buying some sort of an option or a bull call spread or something, a sort of chicken way to reown it a little bit without tying up a ton of money.

Pearson: Right, without having to worry about a margin call.

Pfitzenmaier: Right, exactly.

Pearson: Next question, Andrew in Oneida, Illinois wants to know, and it's kind of similar to what we've been talking about. He says, with very depleted subsoil moisture, which historically precedes the worst droughts, is there a relatively safe speculative play to build a long position in 2018 crops?

Pfitzenmaier: Well, I guess I'd defer to what I just said.

Pearson: Well on the bean side, yes. What about corn?

Pfitzenmaier: Corn, again, option premiums are down there pretty low, volatility is low, if that's something that you think is a possibility that would be the way to play it. If we get prices back down toward the lows, December corn in that, December of '17 corn in that $3.45, $3.44 range I think you can probably own the futures in whatever month you feel most comfortable with and probably can catch a little bit of a rally. I don't know, I'm always a little nervous about buying corn on a depleted fall subsoil moisture since it could rain for the next two months and then it could rain all of April and May and all of a sudden the subsoil is fine. So that's a bit of a dicey play but who knows, sometimes he's right, sometimes when you're dry in the fall it does precede a dry summer the next year. So it certainly can't rule it out.

Pearson: Okay. And I believe you mentioned on the program,. we could see, well we have seen this dryness in Brazil pushing back soybean plantings which then pushes back the second crop safrinha corn, and that would possibly be favorable to corn if it gets pushed bask sufficiently that now it's pollinating in the heat of the Brazilian summer.

Pfitzenmaier: The thing I question is what is acreage going to do next year because the price differential between new crop corn and new crop beans doesn't favor one or the other is the way it looks to me. So what's a farmer going to do? Are they going to plant beans, try to plant beans because it seems like the price is better than corn? I don't know. People don't tend to like to have beans on beans, which to me means we're probably going to bump corn acres next year, which offsets some of that weather concern. So there's a lot of balls in the air here on that strategy.

Pearson: It is a little riskier strategy.

Pfitzenmaier: Yeah, but he's right, if you go into the winter dry, you come out dry, and you don't replenish then it's going to be supportive next June, July for sure.

Pearson: Alright. Well, Tomm Pfitzenmaier, thank you so much for taking the time to talk to us this week.

Pfitzenmaier: Alright, thanks Mike.

Pearson: And we are having a bit of a drought, ladies and gentlemen, of our own when it comes to questions about the basics of trading or trends in the marketplace. So we'd like to get a few more questions in video form so we can use them right here on Market Plus. Direct message us on Twitter or send an email to for the details. So join us again next week when Walt Hackney and Elaine Kub will sit across from me at the Market to Market table. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week. 

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa Public Television which is solely responsible for its content.

Grinnell Mutual Insurance