Market Analysis: Tomm Pfitzenmaier

Market Analysis: Tomm Pfitzenmaier

May 11, 2018  | Ep4338 | Podcast


This week’s USDA Supply and Demand Report surprised traders moving much of the board red. For the week, July wheat plummeted 28 cents, while the nearby corn contract lost a dime. Thursday’s report on soybean carryout was well below trade estimates and impacted much of the soy complex as the July bean contract plunged 34 cents. July meal tumbled $15.10 per ton. In the softs, nearby cotton weakened $2.28 per hundred weight. Over in the dairy parlor, May Class III milk futures gained a 14 cents. The livestock sector was out of sync in the cattle markets this week as the June cattle contract added $1.58. August feeders fell $2.43. And the June lean hog contract increased $1.57. In the currency markets, the U.S. Dollar index was even. Crude oil finished above $70 with a 98 cent expansion. COMEX Gold advanced $6 per ounce. And the Goldman Sachs Commodity Index improved 13 points to settle at 484.45. Joining us now to offer insight on these and other trends is one of our regular analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, we of course had the WASDE report come out this week. When we look at it from a wheat perspective, the production for winter wheat came in higher than what the trade was expecting. Do you think the USDA is going to have to lower that number at some point with the weather that we have been seeing?

Pfitzenmaier: The crop condition ratings have improved a little bit too so I guess I'm not sure they're going to make too much of an adjustment. To be honest with you, I think we spend too much time talking about the production of wheat and not enough time talking about the lack of demand for wheat. Others, especially Russia, are offering wheat at substantially lower prices than we can sell it for so I think we're going to continue to see miserable wheat exports, probably going to be some talk about spring wheat and whether we get it planted or not and whether it's late and what the impact is on that and that might be supportive for a while. It looks to me like wheat is going to pull back a little bit. We closed under $5 in the July wheat, Chicago wheat this summer, on Friday. I would guess you’ll see it pull back another 20 cents or so, around $4.76, should find pretty good support. That rally we had following the wheat tour probably was the rally to get old crop wheat finished up and maybe even start on getting some new crop sold.

Howell: Are we going to see anything here that could add some support to new crop corn? What is it going to take to add a story into the market?

Pfitzenmaier: For corn?

Howell: For wheat.

Pfitzenmaier: Oh, wheat. I actually think that probably corn is one of the things that could give wheat some support. You can put together a somewhat friendly scenario for corn and if that happens I think it will be supportive to wheat. Other than that you're probably going to make a trading range from, like I said, $4.76 to $5.26 and I don't see anything that's going to happen on the horizon to shake it out of that really.

Howell: Okay. So that's just something to continue watching. Let's talk about corn because you did bring it up there just a second ago. The USDA slashed Brazil's corn production to 87 million metric tons. Do you think they're going to have to continue to lower that number?

Pfitzenmaier: They might. We keep thinking they're going to get rain in their safrinha growing areas and it doesn't quite happen. So yeah, like I referred, that's one of the factors that you can plug in as being supportive of the corn market and the reason why I don't think you want to get too negative despite the weak close we had on the corn market on Friday. But yeah, that's something to watch. They lowered the crop but everybody kind of thought they were going to. So the big buzz on the corn market is they dropped that new crop world number to such a great degree. Well, 12.5 million metric ton of that was because of the drop in the U.S. carryout. 20 million of it was because China, some futzing around with Chinese stocks that we really don't know what their stocks are anyway. So I don't know if you want to put too much in that. And obviously the market closed lower afterwards so the market didn't put much stock into it either.

Howell: Absolutely. I want to go back here for just a second to talking about Brazil because you mentioned in your newsletter this week that if we continue to see some of that lack of moisture in Brazil we would see some support in prices. Was there a specific futures month or price level you were looking for some support at?

Pfitzenmaier: Well, I think the support is going to be probably in the July, which is, if the world starts to get worried about supply they always run in and buy the front month. May went off the board so July is it now. We may pull back to a little ways under $4 but I don't think very far and I'd certainly under $4 start to accumulate long positions in corn. We've got a reduction in acreage in the U.S., we've got sort of late planting, we've got the Brazilian situation, we've got export sales that have been quite strong although export shipments haven't been very good. But all that I think is going to be supportive of the corn market. Now, maybe we're not going to go up to the moon without crop problems this summer and I don't want to get in too big of, make too big of a deal out of the late planting because that doesn't necessarily mean we're going to have reduced yields. But it's all stuff that is sort of lurking under the corn market I think.

Howell: Okay. Before we get to our social media question I want to ask one more question about your new crop strategy. What would you recommend for farmers looking at new crop right now?

Pfitzenmaier: On corn -- I guess I'm not in a big hurry to sell. If you're wanting to get started selling I would stay up in that $4.25 to $4.30 area just tucked under last year's highs. The one thing about this corn carryout is the projected new crop carryout is around 1.7 billion bushel. Well that's where we were at from 2014 to 2016, the trading range during that period was $3.25 to $4.25. So you get up, we're all excited because it's so much less than it was last year, but it's still kind of where we've been --

Howell: And we have seen strong yields.

Pfitzenmaier: So that's why you don't want to get too carried away without big weather problems this summer to take us up through those levels. Now, if you start getting above last year's highs then maybe you buy some calls or do something to take some defensive measures of some sort.

Howell: Well, I think this social media question will fit right in here then. Matthew in Napoleon, Ohio said, if the U.S. Corn Belt does see adverse weather around pollination but we happen to plant 1 million more acres of corn than the trade guesses, could we still see a jump in prices?

Pfitzenmaier: It'll be pretty muted. A million acres would make quite a difference. It's going to take a 4 to 6 bushel per acre drop to really get the market too excited. And the trade is still looking at least year saying, we had a pretty wild variety of weather conditions and still grew a record crop. So it's going to take quite a bit to convince them that the crop is ruined. And an acreage increase like that is really going to mute whatever kind of a rally you can get. Now maybe it means you can get to $4.40 or $4.50, I certainly wouldn't say that's not possible, but getting beyond that it's going to be difficult.

Howell: Okay. Let's move on here to talk beans. Let's talk WASDE first here right off the bat. U.S. ending stocks were 135 million bushels below the average trade estimates. Why did ending stocks come in so much below that? And do you think the USDA was correct with that estimate?

Pfitzenmaier: Heck no they weren't. If you look at that, what has been in the news, ever since you started doing the show all we've talked about is Brazil, right, and China and all the demand we're going to lose because of that and then they come in and they increase our exports 225 million bushel for next year. How is that possible? They're going to have to be assuming that everything is going to be rosy with China and that they're going to run in and buy our beans rather than Brazil's for that number. That's why we saw beans down 33 cents. They reacted positively for about two and a half minutes after that report came out and that was the end of it. Everybody kind of went whoa, wait a minute and started selling beans again. So no, I don't believe that new crop number at all.

Howell: And you kind of took the next question right out of my mouth here. But I'm going to ask you to speculate for just a moment because you mentioned the trade problems we've been having, Brazil's problems, and they increased exports 225 million bushels year over year. Is that at all possible for us?

Pfitzenmaier: Yeah, it's always possible.

Howell: Is it likely?

Pfitzenmaier: It's highly unlikely. Even look at this year's old crop, everybody is a little uneasy by the fact that we've got, we've had fairly good sales, their sales aren't that far off of what the USDA said, but we aren't shipping them out. And at some point we're going to have to start shipping these beans out or there's going to have to be cancellations or some of those sales are going to have to be rolled into next year. So I don't know, the crush numbers were good, we're crushing the heck out of beans, meal demand, meal exports are great, so that part of it I think is pretty solid. But that export number I think is pretty suspect, especially if we don't get something resolved with China here in the somewhat distant future.

Howell: Absolutely. Really quick here before we move onto meats I want to talk about crush and bean oil. The USDA has only raised crushing 5 million bushels year over year, but we have had strong increases in exports. What does that say to the producer that is sitting at home?

Pfitzenmaier: I think meal has been the driver in this bean market and meal exports have been great and that is strictly driven by Argentina. Argentina crushes a lot of beans, exports a lot of meal. Obviously their crop was terrible. The peso is dropping. They've got a high interest rate. So the beans the farmers down there are sitting on they're not parting with so all that crush demand is going to the U.S., as a matter of fact Argentina has been a decent buyer of U.S. beans to buy to crush. And that generates a lot of bean oil so you're seeing all this downward pressure on bean oil. Now I think that trade is getting a little overdone. You saw bean meal kind of drop off a little bit on Friday. That bounced bean oil back as they unwound some of those spreads. So I think you're going to start to see that stabilize a little bit. But I think the crush demand for beans is going to be solid.

Howell: All right. Let's jump here and do a lightning quick round with the meats. We've seen pretty soft cash prices lately. With the large inventory we have headed to slaughter do you expect those to continue to soften? And if so, how much?

Pfitzenmaier: Hogs?

Howell: In cattle, I'm sorry.

Pfitzenmaier: Oh, in cattle. Well, the big dilemma in cattle is you've got June cattle down there at $107 I think we ended the week, cash cattle trading at $120 after April went off the board and everybody is trying to figure out how that's going to get resolved. We've got big numbers coming at us but the producer is certainly incentivized to stay current, keep those weights down. Export demand for beef has been quite good. Everything reads as the economy is quite strong, that should help beef demand. So I guess I think June cattle could work their way up toward the $109, $110 range. I don't expect more than that. I think eventually you're going to see the cash market come down to those kind of levels.

Howell: Okay. Really quick let's take the same question in pork because we have seen a huge discount here to the cash prices to the futures but we are slowly closing the gap. What are you looking for moving forward? Continued closing the gap?

Pfitzenmaier: Yeah I think so. I think you're going to see July hogs maybe up in that 80, 81 area. And they had a pretty decent trade this week. So having said that I think those October, December hogs you get them up in the mid-60s and you probably need to be a seller.

Howell: You need to be making some sales. We've also had some high pork cutout values since March 20th. Really quick, where do we go from here?

Pfitzenmaier: I think that's going to continue to be strong too. Again, back to the export demand for pork, better than it is in beef and it's pretty good in beef and domestic demand is good for pork as well so I think you're going to continue to see those cutouts pretty solid.

Howell: And we're heading into grilling season. Tomm Pfitzenmaier, thank you so much.

Pfitzenmaier: Okay, thanks Delaney.

Howell: That wraps up the broadcast portion of Market to Market but we will keep the conversation going on Market Plus where we'll answer more of your questions. You can find it on our website at While you're there, click on the link to our Flipboard Magazine Market to Market Reading Material. Our producers assemble several stories daily into one convenient location for news impacting rural America. Join us again next week when we look to the skies for vital aerial applications. So until then, thanks for watching, I'm Delaney Howell. Have a great week.


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