Market Plus: Tomm Pfitzenmaier

Jul 12, 2019  | 10 min  | Ep4447 | Podcast


Howell: This is the Friday, July 12, 2019 version of the Market Plus segment. Joining us once again is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thank you.

Howell: Tomm, we've got to talk about what's going on in the cotton market this week. Bring us up to speed.

Pfitzenmaier: Well, the cotton market was already sort of suffering from the trade conflicts between the U.S. and China and then this week our President came out and made some comments about our trade relations with India and threatened tariffs on there and they were the other major users of our cotton. So that whacked it again. So we're back to trading cotton in the low 60s. I think there's pretty good support in that 60 to 61 cent range assuming nothing else happens to disrupt our exports and hopefully that will stabilize there and maybe can build from that. But cotton has really had a rough few weeks here.

Howell: They really have.

Pfitzenmaier: And a big part of our cotton is export demand. So when that starts getting messed with it's really a problem.

Howell: Let's talk about some export demand that may potentially feel the impact here from this tropical storm Barry. Oil goes out through that port quite frequently, so does corn, I think I read something like 60% of our corn goes through that port in New Orleans, or through those ports. What are you expecting to see here with the tropical storm impacting especially those two commodities?

Pfitzenmaier: Well, this week they started abandoning and moving off the oil rigs down in the Gulf and that supported oil in the middle of the week. Now that sort of gets counterbalanced by the fact that we produce so much oil and OPEC has been producing a little more than we thought they were going to so there's a lot of oil in the world and I don't expect rallies to go very far but certainly that is a supportive factor at least until Tropical Storm Barry is going to be a bit of a problem until that sort of gets worked through. In terms of the exports of corn we're not shipping out that much corn now so interruptions I think are probably only going to have a minimal effect. The corn market is totally concentrated on supply and I don't think they care that much at this point all that much about exports.

Howell: Why have we seen such poor exports here really over the past couple of months in the corn market?

Pfitzenmaier: Our price of corn is substantially under Argentina. They just wrapped up harvest and now Brazil is just beginning to harvest. Again, their prices are way under ours and so we've got trade issues anyway around the world and then they've got a product for sale that's a lot cheaper. So I guess it kind of makes sense that U.S. exports are going to struggle.

Howell: Yes, they will struggle hopefully not for too long. Tomm, how far do you see this export struggle lasting?

Pfitzenmaier: I think it will last at least until our harvest because that Brazilian, their second safrinha crop is the one that they export and that is what is being harvested now and those supplies are probably going to linger on into early fall and then we've got a window here where we're the primary supplier between fall and whenever the next Argentine crop is available.

Howell: But will we still see a pick-up in exports during that window if we see corn respond to some of these supply issues we're having domestically and shoot higher?

Pfitzenmaier: Well, that is going to be a potential problem. If we do shoot higher, as you say, it's going to make it difficult to be competitive because there's a good chance that some of the European countries are going to produce corn too. Ukraine has been a big producer of corn, Russia has been improving in that regard. So I don't really know whether the heat that has affected their wheat crop is also adversely affecting their corn, that could be a bit of a supportive factor. But they have been exporters and we're competing, that's why I'm a little reluctant, people like to make analogies between now and what happened this spring and 20 years ago. Well, South America and these European countries weren't the competitors on the world market that they are today so I'm not sure if those analogies quite hold as well as they used to.

Howell: Okay, that's true, I never thought about that before. Tomm, let's take a couple of social media questions here. We talked about this a little bit during the main show but I want to make sure we work in Dave's question here from Madison, South Dakota. He said, the corn market showed a bullish response to a bearish WASDE report. Is that a sign that this market is ready for another corn run?

Pfitzenmaier: Yeah, I think at the bare minimum you're probably going make a run at that summer high at $4.73. I think w only closed like 15 cents below that on Friday. So we aren't that far away. And if we break out through that 73 and take that out then I think there's a little run that we can make on up toward $5. Getting above that is going to take something serious, something more serious is going to have to go wrong I think or that August report is going to have to have some big bullish surprise in it to get us much beyond that. But yeah, that was a bearish report but I don't think the bearishness of it was that big a surprise to most people that knew the methodology on how that was put together. So I guess I minimize that to some small degree.

Howell: Tomm, I want to also ask, technically it looks like we're putting in an interesting formation in the corn charts. We've got Jacob here in West Central Illinois that said, do we have a head and shoulders coming or do we break out above that?

Pfitzenmaier: Well that's probably something we're going to find out in the next week or two. Before Thursday basically we kind of thought that's exactly where we were headed. Now the rally we had Thursday and Friday has sort of muddied the waters and that and if we're higher again Monday and Tuesday then I think he's right, we're probably going to negate that head and shoulders.

Howell: Tomm, I know most people hate speculation but I'm going to ask you to do a little speculating for me today. On that next August report we've got coming out what do you think we're going to see for acreage numbers for corn?

Pfitzenmaier: I don't really care all that much about planted acres. What I'm concerned about is harvested acres and I think we're going to see harvested acres down around 80 million and I also think we're going to end up with a carryout for new crop down in that 1.1 to 1.2 billion bushel range. Now that depends on who you talk to, maybe that is conservative, maybe it's not, but that's kind of what I'm looking for given what we've heard about what is planted and how the crop looks and crop condition ratings and all that stuff. So that's kind of what we're looking for.

Howell: Let me ask you then what are you looking for harvested acres as far as soybeans go?

Pfitzenmaier: I don't think we're all that -- their planted acreage was 80 so I suppose a little bit under that. We tend to harvest a good percentage of what we plant in soybeans. I don't think prevent plant acres were quite as significant in soybeans. Certainly the program was set up so that farmers were incentivized to plant beans. So I don't look for a number that is that far below 80.

Howell: Okay. Tomm, let's wrap up discussions here with what's going on in the interest rates and then of course the U.S. dollar. We've speculated or Jerome Powell has speculated they will not raise interest rates and may potentially cut interest rates at the end of this month. Does that signify to you a weakening U.S. dollar?

Pfitzenmaier: Yeah, I think there's an expectation that there's going to be -- a month ago we were talking about a 50 basis point drop and after his testimony and the way the markets reacted, the markets in general have reacted, I think now everybody is looking more like a 25 basis point drop. But what happens with the dollar is really dependent upon interest rate differentials between the U.S. interest rates and everybody else's. And you see a slight drop in the U.S. interest rates, the German currency for example has been creeping up, amazingly it's a negative but it's not as negative as it was three weeks ago. So you see those differentials start to change and that is going to continue, I think that trend is probably going to continue and probably continue to put pressure on the dollar and I don't see it falling apart but I think the highs are in for a while and we're probably going to continue to see a pullback which is a good thing for our exports, anybody who is exporting anything out of the U.S.

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

Pfitzenmaier: Thanks, Delaney.

Howell: Join us again next week when we’ll explore how one seafood company is using strong community ties to thrive and Shawn Hackett will join us 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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