Market Plus: Tomm Pfitzenmaier

Oct 11, 2019  | 14 min  | Ep4508 | Podcast


Howell: This is the Friday, October 11, 2019 version of the Market Plus segment. Joining me once again is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, we didn't get a chance to discuss the cotton markets during the main portion of the program but they had a $2 plus gain this week. Was it all just because of positive trade sentiment with China?

Pfitzenmaier: I think cotton has benefited from the rising tide lifts all boats kind of a situation. Yeah, I think there are some dry conditions down in cotton country, which may be adversely affecting their crop a little bit. But I think mostly it has just general enthusiasm. China does buy a lot of cotton, although cotton hasn't been mentioned in anything I've ready anyway as being purchased. But you're up against, there's some initial resistance at 63, you break through that maybe up to 65, I'd really be surprised if cotton could get any firmer than that. But it has had a nice little uptick here for a few days anyway.

Howell: I'm sure cotton producers appreciate that if nothing else. Tomm, we've got a lot of questions in this week coming to us on Facebook, Twitter and Instagram talking mostly about this weather, this weather that we're seeing move in here, this weather front. First question starting off from Matt from Amherst, Wisconsin. He said, has the market put any value on the low test weight corn in at least the north half of the Corn Belt that isn't 100% mature yet with this killing frost coming any day now?

Pfitzenmaier: Well, obviously the USDA has been forced and all of us have been forced to make certain assumptions about the maturity of the crop and what the crop is going to look like. Every time you get a crop progress report you have to kind of make a calculation, okay how many acres haven't reached maturity? If it frosts now what is the impact of that? So I think that has kind of been a rolling evaluation that the market has been making. So to some extent I think you have to say yes, that's probably part of the reason why December corn is trading just shy of $4 rather than being still down at $3.50. There's a perception by the farmers that I talk to that things are worse than the USDA said and maybe that's true but I guess I'd be surprised if the USDA cut the yield more than 2 to 3 bushel per acre and if they do that still leaves us a carryout that is pretty substantial. So if it's on your farm and it's a product you're trying to sell it can be a problem. I'm not sure it's going to be that big a deal for the overall market trend.

Howell: With that being said the USDA probably hasn't factored in this weather pattern into this last WASDE report. But will they factor it into November's? Or is it going to be pushed down further?

Pfitzenmaier: Well, I'm assuming they're almost going to have to. You think about it, North Dakota is the number 4 soybean producing state so you get snow all over that soybean crop and you have some significant problems there it's going to affect the size of the soybean crop to some extent. How you quantify it at this point is kind of hard to say, it depends on if it warms back up and all that stuff, but it could potentially whack another half a bushel per acre off the potential yield of the crop in soybeans for sure.

Howell: Okay, Tomm, since you said quantify there we've got a question asking you to quantify the impact that this is going to have on the corn and soybean crop from Bradley in Upland, Nebraska. How many bushels of late corn and soybeans were lost from this recent high plains winter storm ending the growing season too soon?

Pfitzenmaier: Again, I don't know that for sure and it depends on what happens after this. But like I said, I don't think it's going to affect the overall corn yield by more than 2 or 3 bushels per acre and probably the bean yield by a half. So it's a factor and it's a problem but I'm not sure in the big picture and it's going to be a pain in the rear for the guys trying to harvest it for sure. But the big picture I don't know that it's going to have that much effect.

Howell: So you said --

Pfitzenmaier: We like to talk about supply all the time, we've got to remember our demand is awful. That's the problem here. It's nice to talk about supply and it's easy to look out the farm window and see the impact of supply but our demand is awful. That is the thing that is hurting us. You can talk about supply all day long but if we don't get this demand situation dealt with that's what is hurting us.

Howell: I'm glad that you brought up demand because we have a question asking about that just here from Ellen in Morton, Illinois. She said, USDA was pretty aggressive lowering corn demand for ethanol exports thus far. Will this continue? Because the markets do seem to be focused more on supply but the USDA attacked demand in this latest report.

Pfitzenmaier: It's going to have to. Argentina, Brazil and pretty soon the Ukraine are all going to have a lot of corn to sell. So their prices are well below ours into the early February period. So the U.S. has got an opportunity to sell corn February, March and maybe early April and then they start kicking in again with competition against us. We rally corn prices here and it's just going to continue to hurt our demand. The blending rate for ethanol is really low. This rally in corn prices certainly hasn't helped ethanol producers to incentivize them. The last couple of week’s ethanol production has been terrible. If that doesn't start to improve I don't know, it looks to me like the USDA may have to continue to cut at least some in exports and maybe a little in ethanol production as well.

Howell: Yeah, it seems like you or somebody else wrote this week about the impact or the increase we'd have to see in weekly export sales to meet the USDA's demand and it was like 34 million bushels?

Pfitzenmaier: Right, it has to be substantially above what it was a year ago and the trend hasn't been to be above a year ago, the trend has been to be below. So I know everybody is a little shocked by the drop in the demand numbers but we may not be done with that and especially if we rally prices anymore.

Howell: Tomm, I want to go back then to something that you just mentioned about your yield estimates. You said maybe 3 conservatively bushels lower in corn and a half a bushel lower in soybeans. So where does that put your yield estimates?

Pfitzenmaier: Well, what are we 48.6 or something, so around 48, high 47 on beans. I think you could see the corn yield down in that 165 range. I'll really be surprised to see it under there because they were like 168 or 169, something like that. So maybe 3 to 4. I don't see it going under 165 on corn.

Howell: But, like you said, if the demand doesn't increase for us it doesn't give us much of a window.

Pfitzenmaier: The thing we tend to forget and I've dealt with this for 20 years is that we always underestimate our capability of growing crops in this country. We have technology, we have seed, we have methods of growing that have allowed, tile that has been put in, all that stuff has helped us continue to produce and everybody every year is surprised at what a good job we can do and it's shaping up that that may be one of these years again. Now maybe this will be a 1993 huge surprise but I guess I don't see that at this point.

Howell: Tomm, I've got a scenario here coming from Craig in Kansas. He said, which crop to store or sell between corn, milo, beans or wheat assuming that you have the farm storage capacity/

Pfitzenmaier: There's no doubt beans are number one.

Howell: To store?

Pfitzenmaier: To store. With that carry, sell the carry and store the beans no doubt about it. The corn carry is maybe not that great, wheat carry when you have ample supplies you have decent so I guess, I don't know much about milo so I can't address that, but I'd say beans and then wheat and then probably corn.

Howell: That's the order you'd recommend storage?

Pfitzenmaier: Correct.

Howell: Okay. Tomm, I've got just a couple more quick questions here for you. With another one here attacking the USDA. I know some people hold them with more weight than others. But Ruben from Kewaunee, Illinois wants to know, with today's move back up in corn does the market show that USDA reports are less than accurate?

Pfitzenmaier: They are what they are. It's the USDA's best guess given their methodology. Maybe they're right, maybe they're wrong. I think they would admit that. It's somewhat of a guess. Most of the farmers I know can't tell you what their corn is going to yield out their back door and you want the USDA to guess the whole United States and then be accurate with it. It's just not possible. So as the months go by and years go by here we're going to gradually get a better handle on it. Obviously last year's crop wasn't really reconciled until that September quarterly stocks report. So we may be almost a year away from really knowing what this crop amounts to and in the meantime you kind of have to trade what you think it is. So like the USDA, hate the USDA, whatever, you've got to come up with your own estimate or what do you think it is. They can give you a hint but maybe you've got a better method that is more accurate. Okay, use that. But most people are using the USDA numbers as a base.

Howell: Okay, I like that answer, it's very political, even minded there. One final question for you and I know we were discussing this a little bit before we got started from Nathan. He wants to know, will the QE4 help prices? And maybe you had something to add about whether or not we were in fact using QE4.

Pfitzenmaier: The 4 number I guess is what threw me because I'm not sure that many people are using that term. But there's no doubt that there's QE going on, quantitative easing by the Fed. So while they're not lowering interest rates they are doing some things that has the same effect. So that should be supportive. It should be overall supportive to prices. Now, we've had some pretty good economic news. We had a very good consumer sentiment report this morning, this is Friday we're recording this so Friday morning. And it gave the stock market a substantial bump which has some people wondering, questioning whether the Fed will actually raise rates a quarter of a percent at the end of October like we previously thought. They may be considering what this fellow called QE4, whatever their QE nomenclature is, as enough for the time being and then wait until December to see if they need to make another rate cut. So certainly lowering interest rates, lowering interest cost is certainly supportive for the overall economy I would say.

Howell: Which is likely they are doing it to keep us from heading into an economic recession? Is that the thought behind that?

Pfitzenmaier: I think there's some concern and the media has played this up quite a bit about a potential recession shaping up here and so they're trying to take a bit of a cautionary approach without actually cutting rates at this point just to see how things develop. The labor market has started to show a few cracks. That has caused a little bit of concern. Certainly the manufacturing sector is struggling. So there's some things that they're watching that I think they're trying to take a cautious approach to that and QE is one of the ways they're doing it and ultimately interest rate cuts could be another.

Howell: But if we do have this alleged trade deal in place with China will that also give us some economic stability that would maybe lure them away from cutting interest rates again?

Pfitzenmaier: Oh I think so. It should be, it should stabilize the global economics situation and I think that is certainly positive. Again, everybody benefits from more trade rather than less trade. So yeah, I don't think there's anything about that that's negative that I can see at this point anyway. I guess we'll see when we know more. But it looks positive at this point anyway.

Howell: It does. Hopefully we see some positivity for producers heading into Sunday and Monday.

Pfitzenmaier: Yeah, for sure.

Howell: Tomm Pfitzenmaier, thank you so much.

Pfitzenmaier: All right, thanks.

Howell: Join us again next week when we’ll profile Simon Groot, the recipient of the 2019 World Food Prize and Dan Hueber 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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