Market Plus: Tomm Pfitzenmaier (July 14, 2017)

Jul 14, 2017  | 11 min  | Ep4247 | Podcast


Pearson: This is the Friday, July 14, 2017 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: Now, we did not get a chance to discuss energy much on the program. We did not talk about crude oil which has been bouncing back and forth but it looks like that $50 mark is kind of the top end.

Pfitzenmaier: U.S. production continues to grow, rate counts continue to go up. I think the new administration is committed to domestic production. They're opening up additional ground for oil exploration. And I suspect, and I'm kind of reading between the lines, this OPEC, non-OPEC oil alliance is starting to sort of crumble a little bit. They see Syria, or Libya and Nigeria who weren't members of that little club continuing to ramp up their production, all these countries are highly dependent on their oil sales for their economy and I don't think they're going to keep the spigot turned down for too much longer. So you're getting a nice rally here, maybe you can get $50, I think you'll have trouble getting above it and if you do you don't sustain it. I think you’re more likely to go sub-$42 than you are above $50.

Pearson: Wow, so at this point as a speculative play, are you interested in just making some sales outright on crude oil futures?

Pfitzenmaier: Yeah, absolutely. I think you get up against that $50 level and I'd be way more inclined to be selling it than wanting to own it.

Pearson: Alright. Now, we've got a couple of questions here from our followers on Facebook and on Twitter and we're going to kick it off with our first one from Jared in Matton, Illinois. He's asking, historically what months would you want to avoid making sales in if you're going to deliver right off the combine in September and October?

Pfitzenmaier: I think he sort of answered his own question. I think those are the two months you have to avoid. That's the reason why we have built a gazillion bins around the world or around the country because everybody is trying to avoid that time, you've got terrible basis, you've got generally prices themselves, net prices or futures prices are low. I think those are the two months you want to avoid. If you have to sell something in that time you better start looking at some sort of a forward contract or something that gets a chunk of that sold before that terrible time rolls around. But those are the two months, maybe on into November a little bit, until the crop gets locked up and locked away, then you can see basis improvement and a lot of times we'll see futures price improvement. But boy, that's the time to avoid, and the bin also you get cheaper drying, it works better when you don't have to wait in line to unload and all that. So there's other reasons for having bins. But that's one of the big ones.

Pearson: Yeah. You don’t sell when everybody is moving to make sales. Hit them where they ain't is what Dad used to say. We've got our next question from Matt in Brandon, South Dakota. He's asking, how much lower will new crop corn and beans trade? And then, what's it going to take to get them turned around and moving back to the upside?

Pfitzenmaier: Well, there's one of the things we seem to forget as U.S. producers is how much production there was in South America last summer. And the other, additionally we don't realize how much we have benefited from their poor crop the year before. I don't know, if we go ahead here and have temperatures that are in the low 90s to high 80s, that's the thing about this rain and moisture is everybody says well it's not raining, well it kind of is, if you watch the map there's a blob here and a blob there and it's my contention that the amount of rain we get isn't as important as the distribution of that rain across the summer and you showed some pretty horrific pictures earlier in the show up in South Dakota and there are areas that are suffering, no doubt about it. But, like I said in the show, we added a million acres that we didn't think we had, we had stocks up a couple hundred million or so, so we've got a little more cushion than we thought we had. Excuse me. To answer his question, I think if everything goes right you can see Dec corn trade as low as $3.30 to $3.40. I think you could see November beans, they got down to $9 a couple of weeks ago, I think you could see that area retested assuming you have decent weather through August.

Pearson: Okay. Alright. Our next question is from Rodney up in Edgar, Wisconsin. And he asked us this a little earlier in the week so we did kind of see it turn around. But he's asking, is there hope that the cattle markets will turn higher? Will they continue to run higher throughout the summer? Or are we in a downward trend?

Pfitzenmaier: I don't think we're in a downward trend. I think, like I said, midweek we had that limit day up, we got the structure of the cattle market is good with the futures at a discount to the cash market, feedlots are staying relatively current. I don't know, I don't see us shooting out through the top although I suppose we could under the right circumstances. But I guess I don't see any reason to get real down in the dumps on the cattle market right now.

Pearson: All the news that has come out is either neutral or bullish it seems like in livestock, or in cattle anyway.

Pfitzenmaier: Correct.

Pearson: And that was one of the things, I wanted to pick your brain a little bit. You were talking about the hog market when we wrapped up the program and how that market has gone from what almost appeared to be an excess of euphoria. We're up north of $90 on the front month, now we're sub-$80, we're looking at, as you mentioned, some chart points that could be fairly catastrophic. Could you expand on that a little bit? What happens if we break down below there?

Pfitzenmaier: Well, I guess it's under 62, 62.50 on that December contract. I think you take it at least down into the mid-50s. I mean, you drive around northern and northwest Iowa, you've got to look before you cross the highway or you'll get run over by a cement truck.

Pearson: And they're not building roads.

Pfitzenmaier: No, they're not building roads.

Pearson: They're building barns.

Pfitzenmaier: They're building barns. So at some point I'm just a little fearful of market saturation. Now, like I said, exports have been quite good and that’s probably going to continue. Weaker dollar helps. But I just think we're going to get a little overloaded on the pork side here.

Pearson: Okay, so you're looking at making some sales not just in these nearby, you're willing to make some sales pretty far out through the end of 2017?

Pfitzenmaier: Yeah, I'm more concerned about fourth quarter than I am third quarter I guess.

Pearson: With lean hogs does it make any sense to look out to 2018 for some sales already?

Pfitzenmaier: Yeah, the prices aren't all that great. I can't imagine anybody is going to step in. I'm just not excited about going out that far. It seems like every time I do that some crazy factor comes up that burns me. So I'm a little reluctant to do that I guess.

Pearson: Once bit, twice shy.

Pfitzenmaier: Correct.

Pearson: Okay, now we've got a question from our buddy Phil in Ontario, Canada. He's on Twitter @AgriDome. And I'd just like to get your perspective on his thoughts. He says, it seems to me the fundamentals of grain are more bearish in 2017 than they were in 2016. What do you think? Is that an accurate setup?

Pfitzenmaier: Oh, I think what I said a little earlier about the South American crop, if you look at the world situation with the disaster they had in Brazil and Argentina last year we were the beneficiaries of that. Well, that had a great crop through this winter, that's why we have no export sales now through October and we're having maybe not a great crop but probably a pretty darn good one. So yeah, I think he's absolutely right. The world is awash in grains much more than they were.

Pearson: Now, with South America we had seen farmers fairly reluctant to make sales at least of their soybeans, they've been sticking them in bins, they've been sticking them in bags down there, given all the political turmoil. Is that going to continue? Could that be a saving grace? Or eventually they'll need money.

Pfitzenmaier: No, at some point they're going to need money and they're going to have to move product. So, a lot of times when you read the reports in the morning, you say well there's big farmers selling in the U.S. and South America, so their farmers aren't reacting all that much differently than the U.S. farmers are. When they see a rally they're taking advantage of it too.

Pearson: Alright. Now, before we let you go, Tomm, we are still taking questions from ag students across the country. We encourage all of you if you're a student get out that phone, send us a video. We are talking to an Iowa State student today. And you can learn more about this project if you listen to the MtoM podcast #143. So, Tomm, here is our latest question.

Craig: How feasible do you think it will be for young generations to start farming with little equipment and little land?

Pfitzenmaier: Hardly feasible at all. If you don't have a family member that you can piggyback on -- historically getting started in farming almost always the only way to do that was substitute labor, capital for labor. And it used to be you could find a place, have a few hogs, work hard feeding hogs and sort of work that up. But with this mega hog situation nobody wants to buy your 50 hogs that you're growing in the barn behind the house. It's just very difficult. Now, there's a few people doing it with cow-calf operations if you can afford to buy a few cows and sort of grow the herd that way. Otherwise I think buying land is prohibitive. You have to be pretty well heeled to be able to do that. And even some of the well-heeled people aren't that excited about doing it. So it's tough.

Pearson: I have also, since you were talking about hogs, I have heard of young folks who are able to purchase some piece of land, go into contract feeding, put up a hog barn, try to build it out that way, spend your labor cleaning the barn and power washing.

Pfitzenmaier: Correct. Yeah, that’s what I mean, you've got to have something where you're going to be required to work pretty hard.

Pearson: Right, it's not an easy way to get started. Well, Tomm Pfitzenmaier, as always thank you so much for taking the time to join us.

Pfitzenmaier: Thanks, Mike.

Pearson: Join us again next week when Elaine Kub will sit across from me at the Market to Market table and we'll look at how a plan set in motion decades ago is paying it forward to a new group of farmers. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week. 

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