Podcast

Howell: This is the Friday, May 11, 2018 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Well, we didn't quite hit feeders there in the end of the broadcast portion so let's make sure we touch on that today in Market Plus. We lost a couple of dollars compared to last week in the feeder market. Are we finally starting to see some of this large supply having its toll, taking its toll on the feeder market?

Pfitzenmaier: I think the feeders have got a couple of things going against them. One is I think the trade in general is fairly friendly the corn market. Higher corn prices tends to drive down feeder prices. And if I'm correct that this $120 cash trade in the fat market is probably going to work its way down toward $110 or lower, both of those are big negatives for the feeder market. So I don't see the feeder market falling apart but I think you're going to continually see that, the price of feeders drift lower here.

Howell: Okay. What should producers be looking at specifically for strategies? What would you be recommending to your producers?

Pfitzenmaier: If I'm a producer that is selling feeder cattle I guess on any rallies at all I'd be looking to find some way to either buy puts or hedge them off somehow. I'd be looking to be a seller. If you're a producer, somebody who feeds out fat cattle and looking to buy feeder cattle I think you can be patient and you're probably going to have a chance to buy them a little cheaper.

Howell: Okay, perfect. Let's move on to cotton. What are you looking for, for support in the new crop?

Pfitzenmaier: I think it will be pretty well supported here just under 80. I don't see it falling apart a lot. There's some dry conditions, particularly in West Texas. Export demand has been fairly good for cotton and I would anticipate that's going to continue. So I think it's going to be well supported and then we're going to watch and see how the weather and the crop condition ratings go. If this hot, dry weather in those southern production areas where they grow cotton persists then I think you could see a little more up in cotton. It's starting to risk pricing itself up, out if it gets much about 82 or 83 though.

Howell: That's really what you're looking for a top end is 82, 83, even with some weather problems?

Pfitzenmaier: Yes.

Howell: Okay. Let's move on here and take some social media questions because we have some fun ones this week as we look at what has been going on geopolitically and in the oil industry. So let's start here with Jon and he wants to know, with the heavy rain, wet conditions and rain in the forecast, do you think prevent planting and/or switching to beans will have any effect on the market?

Pfitzenmaier: Well, standard analyst answers is it depends. If we can get something done in the next week or two by the 20th, 25th of May I don't think it's going to have much of an effect. If you start pushing beyond that then I think you're going to start to see some acres potentially rolled into beans from corn. So that could be supportive for corn, could be a negative for the bean market. Traditionally you can plant beans quite a, pretty well into June and still get decent yields so I think in terms of a negative for the bean market or a price supportive factor we're a ways down the road on that I think.

Howell: Okay. June really is when you're looking for that?

Pfitzenmaier: Yeah, and that prevent planting thing, everybody likes to talk about it and things have to be really bad before farmers take that. And they've kind of adjusted the way that works too a little bit so it's not quite as attractive as it had been so I think that might be a bit of a factor too.

Howell: Okay. Let's take another social media question here. Bill in North Dakota with the increase in oil prices he wants to know, how high will diesel fuel go?

Pfitzenmaier: Well, I don't know how high it will go but I think there's going to be upward pressure on diesel fuel and there's no doubt the distillates have been inventories are down below the five year average on the inventory, demand if the economy is strong like it appears to be that means industrial usage is strong, trucks, tractors, everything that uses diesel fuel is going to be, the demand for it is going to be solid. So I would expect it to continue to work higher. I guess if the question is should I be locking in some diesel fuel for summer or fall I would probably be looking at doing that, yes, because it's more likely to go up than it is to go down in my opinion over the next few months here.

Howell: Okay, so we're looking to lock in those fuel prices or fuel needs now.

Pfitzenmaier: Correct.

Howell: Okay. Another one here from Tony in Manning, Iowa. We had of course the Iran nuclear decline this week. With President Trump backing out of the Iran deal will that further hinder the ag trades?

Pfitzenmaier: I guess it depends on how you look at it. If it continues to push oil prices higher that's going to continue to keep ethanol quite competitive I think and the demand for that should be pretty solid. So in that respect I think it will. In terms of its impact on exports or any of that stuff I don't really see it having much effect.

Howell: Why is it that we've had such a strong increase in oil prices? Is it the Iran deal? Is that what really led the market this week?

Pfitzenmaier: There's a whole combination of things. One is this OPEC agreement to cut their production, they've been quite successful, they have really hung together, Russia and the OPEC countries, to pull back their production so that has been the big one. Obviously demand worldwide, geopolitical demand has been quite strong for fuels. That has helped drive it higher. And then this potential reduction in Iranian exports just sort of adds fuel to the fire here. So the Iranian one is going to be interesting because China, India, Turkey, for example, are probably not going to comply with this and they're going to buy Iranian oil anyway no matter what we saw. Saudi Arabia has said they're going to increase their production to fill in the gap. So I guess we're going to have to see if maybe the oil market hasn't gotten over its skis a little bit too much here and pulls back under that $70 level. I know some of the OPEC nations would like to see $80 oil. I guess I'm not sure if that's in the cards. I guess if the economy and global economy stays strong maybe it is. I don't know, I don't see that that's a hindrance for agriculture, it should be a supportive factor I would think.

Howell: Okay. Let's tread here just briefly into talking economics of the economy. What, first of all, what are treasury yields?

Pfitzenmaier: They're, right now they're just, that's the big issue here is you're bouncing just below 3%, we popped above 3% here recently. That is what we're trying to decide is how strong is the economy? How strong is inflation? Does the Fed need to have two or three more rate hikes this year?

Howell: Because they didn’t have one this past meeting.

Pfitzenmaier: Right, this last one but there's almost 100% chance that we're going to have one in June from everything we read. And then there's a couple more in 2018? They've hinted that they're probably going to have a couple more in 2019 so you're going to start to see interest rates go up and that's going to push yields up. Whether that is a killer for the economy, we're still at relatively low interest rates historically, if we're doing it because the economy is strong and everything is smoking along here like it's supposed to then I don't know that it's necessarily a negative. It does create better for retired people and those who are support of dependent on collecting interest. It's a benefit to them.

Howell: Should we have any concern in the back of our minds that this is 2007 era pre-recession?

Pfitzenmaier: No, I think you always have to have that. It just doesn't feel like an economy that has gotten itself overheated yet. So I'm not, that's probably something to worry about down the road. I'm not too worried about it in the next six months to a year I guess.

Howell: All right. Tomm Pfitzenmaier, thank you so much.

Pfitzenmaier: All right, thanks Delaney.

Join us again next week when we look to the skies for vital aerial applications and Elaine Kub and Walt Hackney will sit across at the Market to Market table. Until then, thanks for watching, listening or reading. I'm Delaney Howell. Have a great week.

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