Market Plus: Tomm Pfitzenmaier

Feb 28, 2019  | 9 min  | Ep4428 | Podcast

Podcast

Howell: This is the Friday, March 1, 2019 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, let's start out talking here about the cotton market since we didn't get to talk about that. And they had a pretty exciting week this week, put on 84 cents since last Friday's close. Was it just because of kind of the excitement revolving around the U.S.-China trade talks?

Pfitzenmaier: I think so. I don't know and I don't think it's going to go very far. Maybe another buck, two maybe, on a corrective bounce but I don't see it doing anything. I just think this China thing has continued to hang over the cotton market and I think there's a perception that we're probably going to let it see a little shifting of some soybeans to cotton this summer. So yeah, I don't see the cotton market doing much on the upside.

Howell: Is the longer-term trend then for cotton still pretty bearish?

Pfitzenmaier: I don't know that it's particularly bearish. I just think it's more sideways I guess in my mind.

So still staying within that 73 to --

Pfitzenmaier: 76 on the upside, maybe.

Howell: And if we do get a trade deal in place what is that going to do for the cotton markets then, just a small bounce, or could we expect to see prices back up around the $80 mark?

Pfitzenmaier: No, you won't get it that high. We've been talking about this bounce from this trade deal forever. It has a high probability of being a buy the rumor, sell the fact thing. So I'm hoping that's the bounce that gets us to 76. Going beyond that is going to be, it's going to have to be a really big surprise.

Howell: Okay. Let's talk a little bit about strategy specifically for soybeans. You said you could see, not in the near future maybe, but 60- to 70 cents lower in the soybean contracts. What strategies should producers be taking with that in mind that maybe at some point in the future uncertainty but we could see another drop that low?

Pfitzenmaier: Well, we've got two strategies we've been implementing. We're doing scale up selling on the November contract for new crop beans starting at about $9.60, figuring we're going to be done probably up against $10, so scale up in whatever fashion you think you're comfortable with there. If you're not real comfortable selling the future hedge to arrive, whatever futures type contract, and you want to use options then I guess I'd look at buying $9.50 puts. If that's a little pricey for you go out and sell $10.40, $10.60 calls to help pay for it. And I guess those are the two main strategies we're implementing and within that range whatever you use depends on how comfortable you are with those particular positions I guess.

Howell: Okay. Tomm, when you look at the futures contract out right now I think November closed around $9.45 on Friday. Is that enough for producers to make money? Or should they be waiting to see better prices? I hate to even ask that because it's like we're in this uncertain period.

Pfitzenmaier: Well waiting for $9.60 to $9.95 is waiting for better prices I think. The downside potential here with this huge carryout is big. And we were sort of bailed out last year by that $1.65 whatever you want to call it, compensate for the tariffs and I seriously doubt we're going to see that this year. So you're kind of going to be on your own. We haven't heard the official number in terms of what the February average turned out for price support but it looks like it's going to be pretty comparable to what it was last year for both corn and beans. So we're sort of back to whatever you feel comfortable with, whatever you think you can make work.

Howell: Okay, whatever works for your balance sheet.

Pfitzenmaier: Correct.

Howell: Okay. Tomm, we've got a question here from Dean in South Dakota, a little bit of a softball question. I'm interested to hear your answer. What do you think about seeing $5 cash corn in 2020?

Pfitzenmaier: Well, you can never say never. You can always put together a scenario where that's possible, where China buys a big chunk of corn, where we do have planting delays like we kind of talked about possibly on the show and you see acreage shifting, all this subsoil moisture that we've got that looked great going in the spring dries up and we have a crop problem this summer. Barring all of those things,  livestock numbers aren't going to change all that much so feed is kind of somewhat set, if you get to $4.30 or $4.50 you better thank your lucky stars and be making some sales. I just think we're a year or two away from having those kind of big numbers. And Argentina is having another big crop this year, which we really benefited from last year that's going to be a problem this year. So you never say never but it seems unlikely to me.

Howell: Well, and I want to talk about that from a bigger picture here. We had the kind of years of '12, '13, '14, we had a drought in there, are we at a period now with technology and production in other countries where we probably won't see $5., $6 corn again because of the technology that we have in place now?

Pfitzenmaier: See, that is my point. I had somebody tell me the other day well we've had five good years of corn production, we're bound ot have a bad year this year. Well no, we're going into a good subsoil. All the things you mentioned, technology has improved, seed technology has improved --

Howell: They have the drought resistance corn.

Pfitzenmaier: Drought resistant hybrids and all that stuff. I think the bar is higher and it's harder to have a crop problem and then you add into that how good everybody else in the world is at producing corn and it's just tougher. I think.

Howell: And ethanol hasn't been doing relatively well. We talked about it just a little bit on the show but I want to kind of pick your brain about that a little bit more. We've seen ethanol margins remain tight, we've seen facilities close down or limit production. Wednesday's prices, however, this past week traded to the highest spot price since August. Does that give you any --

Pfitzenmaier: And the blending rate is as good as it has been in several months too. So hopefully that means they're going to start to do some blending. The problem is the RIN market and that is sort of the end around that allows the reduction in actual blending of ethanol and until that issue gets resolved I don't know, I think the ethanol industry is going to struggle. Now, everybody has got high hopes for this E15 year round business and maybe that certainly having it is better than not having it, but we need to see some response here from ethanol producers because they haven't been and stocks have continued to be strong. So we've got to get some of that worked out before that's going to be once again, it's probably stable, probably isn't going to go down much, but the big moves up are probably stalled out for quite some time.

Howell: You mentioned E15 year round. This week we saw some discrepancy between what Secretary Perdue said in his meetings in D.C. and what EPA Administrator Wheeler said. It sounds like the USDA thinks we're not going to get E15 by June 1st and EPA thinks we are. How much is that going to change the ethanol or corn market if we do or we don't?

Pfitzenmaier: Well, there's a little politics there. I think the EPA is trying to make it look like they're really for us and they're really working hard to get it done as fast as they can and that sounds good, I hope they're right, but I guess I'm a little skeptical.

Howell: Does it really change the corn balance sheet though if we do get E15 passed by June 1st?

Pfitzenmaier: Well, there's not that many pumps. Here in Iowa there are several stations that have started introducing it so it seems like it has come a lot but if you get outside of the state there's hardly any blender pumps. So you've got to have the pumps to be able to do that and there just aren't all that many of them yet.

Howell: So really it might be more of a long-term thing of manufacturers or car folks or gasoline companies switching to E15 in the future now that they have the ability to do it?

Pfitzenmaier: Well, they're using these RIN's like crazy to avoid blending now. What would change to make them not want to do that? That's what I get back to. I just think you're probably right, it's going to help, but it's going to be really slow going and not a big boost to the market like you'd like to hope it would be.

Howell: Tomm Pfitzenmaier, thank you so much.

Pfitzenmaier: Thanks, Delaney.

Howell: Join us again next week when we explore developments in the U.S.-China trade war and Elaine Kub will join me 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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