Market Analysis: Tomm Pfitzenmaier

Market Analysis: Tomm Pfitzenmaier

Oct 11, 2019  | Ep4508 | Podcast

Podcast

Weather, optimism over a potential trade deal and Thursday’s WASDE report moved the commodity market. For the week, December wheat jumped 18 cents while the nearby corn contract rocketed 13 cents. Good export numbers, a friendly report and potential sales to China bumped the November soybean contract 20 cents. December meal rose $7.10 per ton. December cotton gained $2.21 per hundredweight. Over in the dairy parlor, November Class III milk futures improved 68 cents. A mechanical issue at a packing plant helped push December cattle $1.37 higher and, despite a rally in the corn market, November feeders gained $2.87. Optimism over Chinese trade added $2.35 to the December lean hog contract. In the currency markets, the U.S. Dollar index moved up 49 ticks. November crude oil added $2.08 per barrel. COMEX Gold decreased $24.70 per ounce. And the Goldman Sachs Commodity Index gained more than 10 points to finish at 409.10. 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, we had a lot of news that came out here right at the end of Friday when we were beginning to tape Market to Market. The first being this alleged, rumored trade deal between the U.S. and China. We've got a question here from Ryan Peterson that came into us via email. He said, what are the potential upsides if China comes back with a trade deal? And what are our resistance points? But I want to add to that, since we do have now this rumored trade deal, what will the markets do to react to this opening up Sunday night into Monday?

Pfitzenmaier: Well, to some extent it's going to depend on quantities obviously. They promised to buy 5 million metric ton of beans up to this point and they've bought 4.8. So that's going to be the question, is this agreement, are they going to go ahead and buy more than that 5 million metric ton? 15 to 25, you hear that talk. Pork, obviously they need pork because of the problems they've got over there with their pork herd. So, again, we need quantity. We had a good export, really good export number in pork Thursday and yet the market didn't react all that much to it and recognizing it was for kind of distant purchases, but still. I think that hog market is kind of geared up for that. We had a nice rally in the grains, particularly on Friday. So it will be interesting to see if that is a sort of buy the rumor sell the fact kind of a thing when we come in Sunday night and Monday. It's going to be interesting. Certainly good news is good news. You can't deny that.

Howell: And hopefully the market rallies at least on positive sentiment from this news.

Pfitzenmaier: Correct.

Howell: But on Friday as you mentioned there all the grain markets closed exceptionally strong. Tomm, tell me what happened in the wheat markets? Why did they close up for the day?

Pfitzenmaier: I think it was a mix of this weather going across, bad weather going across the Northern Plains. It certainly had an effect on the wheat. There's some talk that the wheat yields haven't been what they hoped they would be and then I think the dry weather in Australia and Argentina sort of played into that too. Everybody seemed to be a bit excited about the prospects of this trade deal with China and then the wheat market kind of got caught up in that too. December wheat has got up I think $5.08 is where we closed and $5.10's resistance. So we're right up against it in the wheat market. It's going to be, there's still a ton of wheat in the world and despite all these problems it's going to be hard to make headway. But if we break up above that there might be a little more go to it.

Howell; Absolutely. Tomm, when you look at the corn market they also had a great day on Friday. But Thursday they did not react very positively to the WASDE report. Friday were they trading the WASDE report or something else?

Pfitzenmaier: I think it totally ignored that and we're right back trading, again whether there's a lot of concern that that weather is going to cause some problems for the corn crop, still a fair amount of corn that has not matured yet and there's threats of frost being imminent. So I think that was -- and then for some reason there was talk about China. Well, China is probably not going to buy any corn but they might buy some ethanol, they might buy some DDG's maybe. So I guess it's supportive of the corn market in that respect. If anything reacted, overreacted, it might have been the corn market a little bit on Friday. But we'll have to see. The weather is still an issue, still a lot of people in the farm community that don't believe, the USDA bumped yield in that report on Thursday and a lot of people don't think that was appropriate. So that was probably in the mix. They saw that hard break on Thursday and viewed it was a buying opportunity and came rushing in there to get some stuff, especially end users, get some things covered. So that was probably part of what was going on Friday too.

Howell: So with all these weather issues kind of coming to the forefront now with snow and a lot of rain, delayed harvest, is this the beginning of our potential harvest weather rally?

Pfitzenmaier: It certainly could be. I think there's a little more up in corn for sure.

Howell: How much?

Pfitzenmaier: It's going to take a yield break because that carryout that they came out with Thursday, it shows that there's plenty of corn around. And then you start looking ahead and South America is probably going to have a decent crop. We have to assume they will. And then we've got 19 million acres of prevent plant of corn that's going to have to, is that going to come back into production in 2020? So with a 1.9 billion bushel carryout I don't know how you really need to go, especially there was a drop, 150 million bushel drop in our export, there's a 50 million drop in ethanol production. Well certainly a rally in corn isn't going to help that situation any. So while I think there's probably some up here I would kind of use these rallies as a chance to get it caught up on sales, especially since the basis is so good. I talked to a lot of guys this week the basis was unbelievable, especially if you can get it to them quick. So I think there's going to opportunities going to be presented here and you kind of need to keep your eyes open for them.

Howell: Make some sales it sounds like in the corn market. But in the soybean market it seems like there is some upside potential there. Are you recommending folks to make sales at these levels? Or do you think we have some room to go to the upside?

Pfitzenmaier: There's a big carry from November to July so we've been looking at selling the July. There's a 45 to 50 cent carry out that far, which is a nice carry. So I guess we're thinking that if you can get July soybeans up in that $10 maybe $10.25 area, which I think we close around $8.85, something like that, or $9.85, I think that kind of a 30 to 50 cent rally from here is something that needs to be sold. The Brazilian farmers have been selling heavily into this rally. All this does is incentivize them to plant more acres of beans. So there's some headwinds coming. And we have to remember 460 million bushel carryout substantially lower than what we had a year ago but still the second or third highest carryout we've had in history. So it's still plenty of beans. I don't think you want to let yourself get too caught up in this. Like I said, we've rallied almost a dollar off the September low so to some extent some of this has been factored in. Now, if the Chinese come in and buy 25 million metric ton then there's probably going to be some more up in it.

Howell: Monday's trading day as we mentioned is going to be an interesting one with if nothing else this psychology for the market. How much of a rally should we reward coming into the trade on Monday if we see that in the soybean market?

Pfitzenmaier: I don't know if that will happen Monday but 35 to 40 cent rally I'd certainly be making some sales on.

Howell: Okay, Tomm, let's talk about the meat markets. Live cattle, I've got to ask, how much higher will they go?

Pfitzenmaier: I think you can see February up in that $120 to $122 which would be$3 to $5 higher than this. At some point we're probably going to have a correction. The market has gotten a little ahead of itself. I'm looking for a one to three, maybe four dollar correction and I certainly would want to be a buyer of cattle on a correction like that. But I think overall we're going to tend to work higher in the pork and the beef market. We've got pretty good fundamentals in terms of demand and the pork market not so good because there's a heck of a lot of pork being produced, but I think beef is going to be all right.

Howell: With these potential rallies and some of the rallies we've already seen in the corn market the feeder cattle market still continued to push higher this week. How much of a cap though are we going to see with corn prices potentially rising?

Pfitzenmaier: Well, if corn prices rise -- feeders have, like you said, the corn market hasn't done anything for the feeder market. It has really been the fat market that has drug it along. If that starts to stall out, unless corn prices drop sharply I think you're going to get November feeders are $144, $145, you get them up in that $148 to $150 range I think they're going to struggle to go much farther than that.

Howell: Tomm, the other question I wanted to ask this week about the feeder market is, it looks like there is a premium being built into the cash market right now with the deferred contracts below the price of cash. Why is that going on in the feeder cattle markets?

Pfitzenmaier: Apparently there's some optimism that corn prices are going to stay weak, the only thing that makes sense to me. And like I said, there's, I think you can't discount the fact that China is in the mix of this cattle industry too and the deferreds on pork and beef are up a little bit and I think that is incentivizing and encouraging the feeder market as well. It doesn't take much to encourage those feeder cattle guys anyway. So you get a couple of good things like that going on and it's going to be supportive.

Howell: It seems that the lean hog market, as you mentioned, has not found a lot of support from the recent Chinese purchases. Tomm, do you think that we will factor those in at some point? Or has the market factored all of that in for now?

Pfitzenmaier: Well, we have factored a bunch of it in, I think that's part of the reason you see the responses being muted. It's kind of a conundrum in the pork industry because we're producing a ton of pork, a lot of it, and we had record production the other day, there's a lot. So the industry is geared up for sales to be made to China. If that doesn't happen or gets drug out we've got the futures market substantially above the cash market --

Howell: Because of the Chinese trade stuff?

Pfitzenmaier: Absolutely it is, they haven’t bought enough to boost the cash market but the traders are anticipating that they will and have rallied up the futures market. So at some point that's going to have to get reconciled. Now, it keeps getting, everybody thought well in October. Well, it hasn't really happened to any great degree in October and it keeps getting pushed back here. I don't know. Obviously timing is everything in all kinds of markets and that's certainly true in the hog market here.

Howell: And which do you see happening, cash coming to meet the futures or vice versa?

Pfitzenmaier: Well, if the Chinese demand shows up the cash market is probably going to have to come to the futures. If it doesn't, futures are going to drop to the cash market. Basically it's a pretty simple equation and if the demand comes, perfect, if it doesn't we've got problems in the pork industry.

Howell: And it's all Chinese dependent you think?

Pfitzenmaier: I think it is, yeah.

Howell: Okay. Tomm, we're going to continue this discussion in Market Plus. Thank you so much.

Pfitzenmaier: All right, thanks.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Facebook allows you to keep track of many interests including those in rural America. You can find our links and photos at Iowa PBSMarket. Join us again next week when we’ll profile Simon Groot, the recipient of the 2019 World Food Prize. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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