Market Analysis with Tomm

Market Analysis: Tomm Pfitzenmaier

Feb 28, 2019  | Ep4428 | Podcast


Last week’s trade meeting with China produced upbeat news. However, Lighthizer’s report to Congress only added fuel to the cautious strategy being taken by commodity traders. For the week, May wheat plummeted 35 cents and the nearby corn contract fell 12 cents. Rumors of a trade deal between the U.S. and China were unable to counter worries that any agreement might fall through at the last minute. The lingering doubt helped pull the May soybean contract 12 cents lower. May meal dropped $2.00 per ton. May cotton added 84 cents per hundredweight. Over in the dairy parlor, April Class III milk futures gained 32 cents. The livestock market continued to be mixed. April cattle put on 67 cents. April feeders cut 25 cents. And the April lean hog contract added 95 cents. In the currency markets, the U.S. Dollar index rose 8 ticks. April crude oil bled-off $1.46 per barrel. COMEX Gold plunged $33.60 per ounce. And the Goldman Sachs Commodity Index dropped more than 2 points to finish at 427.70. Joining us now to offer insight on these and other trends is one of our regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, let's start off here with a social media question. We've got Enos in Kansas. Why did we have record wheat exports last week and this week we're down so hard?

Pfitzenmaier: Well, the record exports last week was that cumulative six week number and I think there's a lot of disagreement about whether that really was accurate or not. So I think maybe today, or Thursday's number, was a little bit of a make-up. The wheat market has got problems because Russia and the Ukraine and several others have got fairly good, their wheat export numbers have been bumped up. The U.S. seems to have adequate supplies. Wheat prices have dropped to the level, they're kind of starting to be considered a feed rather than a food and competing with corn, which hasn't been great for corn either. So yeah, I think the wheat market is, having said that, probably bottomed out or is close to it. That's a pretty hard break in a pretty short period of time.

Howell: Okay. So the question I had was the USDA released declining winter wheat conditions in all states besides Kansas. Is it because of the global production that we didn't see that news impact the markets positively this week?

Pfitzenmaier: I think there's two reasons. One, like I said, Russia and the Ukraine exports being bumped. But I also think at this time of the year I'm not sure the trade believes that all that much. I think when it breaks out in the spring is when you have to really pay attention to that. You can hear all kinds of crazy stuff about a wheat crop in the winter and come spring it can be totally different. So I don't think they pay a lot of attention to that. Well, obviously they didn't.

Howell: Right. They didn't this week. But there are other factors. Obviously they put in a new low in the July contract. You think that we've put a bottom in for now?

Pfitzenmaier: I think that $4.40 level is going to be pretty good support. I guess I was pretty pleased with the way we bounced back on Friday. We closed 11, 12 cents I think off those lows. So to me that was a sign that maybe we had some capitulation on Friday, some sort of giving up and some underlying support that brought it back. So I guess I'm going into Monday maybe being a little more encouraged.

Howell: Okay. What about the corn market? What's the story there? We broke key support this week. Are we going to put in a new low reflective of that September low we put in?

Pfitzenmaier: Well, that September low, we came within a couple of cents of that on Friday and once again turned around and came back, closed steady to slightly better, which was somewhat encouraging, maybe a sign that the bottom has been put in for a while there. We broke out of a trading range we've been in for a really long time and when you break out the bottom of a trading range it's tough to regain that without some news. And I think the trade is just getting sick and tired of hearing all this Chinse, U.S. corn business that never actually gets done and I think they're going to want to see some dry ink on some papers before they're going to react to that too much more, I believe.

Howell: Is there anything else for the corn market that could spur us to break to the upside of this trading range besides the Chinese, U.S. trade deals?

Pfitzenmaier: I think as we go into the March, April period there's going to be a lot of talk about planting, planting progress or the inability to have planting progress with all the snow and bad weather we've had. It's going to take a while to dry things out. You add onto that the fact that not a lot got done last fall and I think it's going to make everybody a little hypersensitive to that. So I think that certainly could be a positive. I'm a little concerned that ethanol numbers continue to drag relative to a year ago production levels. Now I know everybody is kind of hoping that we're going to do some ethanol export business, and maybe we will, to China, some DDG business maybe to China, so that's sort of lurking out there, but again we're not crushing the corn for ethanol like we hoped we would. I'm a little concerned that this wheat feed, potentially wheat being fed is going to cut into feed for corn usage. So and exports haven't been, we keep comparing to last year, well last year, and we looked pretty good up to this point, but last year corn exports really took off because of all the problems in Argentina. Well, Argentina is just the opposite this year. So I'm a little concerned that we're going to, as time goes on here that's not going to look as spiffy against last year as it has up to this point.

Howell: Tomm, you opened the gate there on planting and I want to talk a little bit about that as we transition to talking soybeans here. From a corn and soybeans perspective, do you see acres switching this year because of delayed planting? Are you hearing from producers that they're worried about getting into the fields here?

Pfitzenmaier: Well, they're worried about it but they're always worried. I've never met anyone in February or March that wasn't. So yeah, it's talked about just because this high price of anhydrous is sort of playing into some people's thinking a little bit too I think. Up to this point I don't know that particularly in the main part of the Corn Belt there's going to be a lot of switching done. We've got the ability to plant a corn crop in a pretty short period of time and if you're committed to do that I think they're going to try to do it as late as they can. So I guess at this point I'm not seeing that as an acreage shifting issue. But it certainly could be as time goes on here.

Howell: Absolutely. Let's talk about export sales for the soybean markets. USDA reported this week 1.8 million metric tons sent to China but they didn't report any flash sales for the week or sales of 100,000 or more. How is it possible for them to report those export numbers without flash sales?

Pfitzenmaier: Well, that's the question. I don't think it is. I think those big numbers were make-up numbers, catch up numbers of some sort. So I think it's going to take another week or two before we're really sure how our exports are stacking up, whether China really bought the numbers that we were sort of expecting that they would. And then going forward did that 10 million metric ton that they agreed to buy, is that really going to happen? Is it old crop? Is it new crop? Is it going to happen next summer? Is it going to compete against South America? There's a lot of unknowns on all that demand stuff on the soybean side.

Howell: Absolutely. There definitely is a lot of uncertainties. Let's talk about the May soybean contract. They settled below the 50, the 100 day and the 200 day moving averages for the first time since December 27th. Where do they head from here, Tomm?

Pfitzenmaier: I've been harping on this for months now. I don't know how you can have a carryout in the 800 to 1 billion plus, wherever it lands, and not have a lot of downward pressure on beans, particularly with pretty decent crops in South America. And I know Brazil is less than what we thought it was going to be a month ago but it's still a pretty darn good crop and Argentina is a little better, which offsets that to some extent. So even if we cut acreage some, you go back to that USDA outlook report, they came out with a pretty conservative yield number for the U.S. to come out with that 845 million bushel carryout. If you come up to what has kind of been normal recently and add a couple of bushel onto that then you're right back up to 950 to possibly a billion if we don't have the exports that they sort of projected we might have. So to me there's downward pressure in beans that is coming, it broke out of the bottom of the trading range, it ended the week looking fairly negative. I think you could see 60 to 70 cents down in beans yet under the right circumstances. I'm not saying that's going to happen next week but if things kind of continue this way there is that downside potential.

Howell: Yeah, 60, 70 cents is a lot for folks. Let's talk about strategy in Market Plus. We're going to save cotton for Market Plus too. Folks, you can find Market Plus on Tomm, let's talk live cattle. What factors at this point are getting figured into the live cattle market? We had a pretty strong week, I think 65 cents up from last week's close on the Friday.

Pfitzenmaier: 65 cents on top of a market that has moved up pretty well already. I think there's three things. Number one, I think you started to see peak numbers. I think you're seeing numbers back off a little bit. Number two, weather has really been hard on these cattle the last month, six weeks. I'm not sure gains have been all that great so that's certainly a factor. And then demand for beef has been really quite good. Most of the economic data has been pretty good. You've got rising wages, which is certainly helpful for beef demand. So I think all three of those contributed. I think there's a good chance you'll see that April contract peak up above $130 before it's done here.

Howell: $130, all right. What about feeder cattle markets? We put in a close this week around I think $147, we haven't seen that close really since the end of December. Was this just a flash in the pan reaction or a sign of maybe some stronger trends?

Pfitzenmaier: I think it's going to work up toward $150. Again, the things I talked about, lower numbers is going to play right in and the feeder market is going to lead that and if corn prices continue to weaken that's always a positive for the feeder market along with wheat, cheaper wheat prices. So I think there's pretty good underlying support in the feeder market as well as the fat market here.

Howell: Tomm, let's talk just briefly here about the lean hog market. We saw significant buying finally in U.S. export sales to China this week of pork. Are we finally at that point that we've been talking about for so long of yes, in six months or seven months or on down the future we're finally going to see China importing U.S. pork?

Pfitzenmaier: Well, the volatility we've seen in that April contract I think is an indication of bottoming action. So technically it looks like it's trying to put a low in. You can certainly make the case that the swine fever, the spreading of that, spread into Vietnam, more cases showing up in China from what we read, it's got to be supportive especially if that translates to U.S. exports of pork. So yeah, I think that 55, 56 we sort of overshot it down in the 52, 53 range for a while on April but that popped back really fast. The summer months already have a pretty good premium. I guess I wouldn't be surprise to see the June, July contracts work back up toward high 70s, 80.

Howell: And for the let's say the front month contracts really quickly here, Tomm, how early or how soon can we expect those contracts to head out of this bottom range?

Pfitzenmaier: I think it's going to be slow because the cash market is trading quite a bit under that and I think that's going to be a drag on that front end April contract.

Howell: Okay. Tomm Pfitzenmaier, thank you so much.

Pfitzenmaier: Thanks, Delaney.

Howell: That wraps up the broadcast portion of Market to Market. But we have got lots to talk about during Market Plus where we'll answer more of your questions. You can find it on our website at Twitter remains our first social media love. 280 characters help us share links of our stories and photos several times a day. You can also leave us a question for the analyst of the week. Give us a follow @MarketToMarket. Join us again next week when we explore developments in the U.S.-China trade war. So until then, thanks for watching. I'm Delaney Howell. Have a great week.




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