Market Analysis: Tomm Pfitzenmaier

Market Analysis: Tomm Pfitzenmaier

Feb 7, 2020  | Ep4525 | Podcast

Podcast

The USDA says it will not include Phase 1 projections in next week’s WASDE. Commodity traders are expected to subtract China’s projected purchases and recalculate carryout numbers. For the week, March wheat rose a nickel and the nearby corn contract gained 2 cents. Predictions of heavy rain in South America and evidence the coronavirus scare is fading, helped add a dime to the March soybean contract. March meal fell $1.70 per ton. Cotton expanded a quarter per hundredweight. Over in the dairy parlor, March Class III milk futures lost 37 cents. The livestock sector finished mixed. April cattle put on 12 cents and March feeders cut $1.75. An announcement by Tyson’s CEO that their pork exports to China were 600 percent above the same quarter last year helped the April lean hog contract add $4.65, an increase of nearly 8 percent. In the currency markets, the U.S. Dollar index skyrocketed 136 ticks. March crude oil lost $1.19 per barrel. COMEX Gold plummeted $15.80 per ounce. And the Goldman Sachs Commodity Index fell a little more than a point to finish at 385.40. Joining us now to offer insight on these and other trends is one of our regular market analysts Tomm Pfitzenmaier. Welcome, sir.

Pfitzenmaier: Thanks, Paul.

Yeager: We have to start with the dollar. I said 136 ticks. We got a question that came in via Twitter this week that we thought was a good one. This came in from Former Farm Boy @ruralmidiowa. He says, I don't see any weakness in the USD anytime soon. So, what he's asking, why should we expect an increase in exports? So, you can answer either part of that first. Why is the dollar going up?

Pfitzenmaier: Number one, I think the dollar is going to continue to get higher. The dollar's value is based on differentials, interest rate differentials, and Germany had negative interest. I think that as long as the interest rate in the U.S. stays strong, which I don't really expect any big change there, possibly even could be moved higher if they think the economy gets a little too hot. I would expect the dollar is going to continue to be strong. As far as the second part goes, I guess you have to make the assumption that the dollar value makes a big difference. And I'm not totally convinced that within a fairly wide range if people need our products they're going to buy them and I'm not sure the dollar value changes that much. We may be more subject to the currency changes in Brazil and Argentina than we are to the U.S., changing the dollar value of the U.S.

Yeager: We'll get into the cheapest one at the Gulf here in a minute when we talk corn. Let's start with wheat though, Tomm, because there's all those TV shows on NBC, Chicago Hope, Chicago whatever, it was Chicago wheat that was leading. Is that going to continue to be a star of this market?

Pfitzenmaier:  I think so. That is the one everybody trades, that's where the volume is so I would expect so. We've kind of been in a trading range, bounced up a little bit. I think there's another 20 cents up in that Chicago wheat contract up in that $5.65 to $5.85 range. If you want to be a seller, I think you need to be, I guess I'd scale up somewhere up in that range and start to make sales. Export sales continue to be not that great. There's plenty of wheat around the world. There's a lot of, as we always have this year, is it too dry in the wheat countries, is it too wet or is it going to come out of dormancy too quick? All that stuff that goes on every year is going to give us little bounces. But in the end I just don't think we can go that far.

Yeager: All right. So you talk about moving up sales. How long of a period do I have to do that?

Pfitzenmaier: I think probably into the spring, probably pre-harvest.

Yeager: All right. That's on the wheat market. But on the corn as we were talking about just a minute ago right now the corn market is struggling to be, it's not the cheapest at the Gulf and it is the cheapest in the world at the Gulf right now, so why is that?

Pfitzenmaier: It's the cheapest until April 1st when Argentine corn becomes available and then that's the cheapest. So we've got a window here and we had good export sales as a result this week, are probably going to have another three or four weeks of good export sales as long as we have that price advantage. When that goes away then I'm expecting you're going to see a pullback in exports. Now, the China thing is the big wild card in there so we don't really know. The USDA said that they're, I guess I'd correct a little bit what you said in the intro in that they have said that they're going to incorporate what we know publicly. And there's a lot we don't know that is not public. So that is why I think people aren't looking for all that much change in the export estimates in the report next week is because there just is a lot of unknown and from what we do know there's probably not a lot of reason to change it much.

Yeager: Are you surprised at how much frankness sometimes the USDA has been on making statements like this like, you know what, we're only going to talk about this? They didn't always do that.

Pfitzenmaier: A little bit. They tend to be a little quiet about what they're doing and kind of leave a lot of uncertainty. So it's kind of a little bit refreshing in some respects to have them tell us that.

Yeager: That is surprising when you see that. You do have a report scheduled to come out on Tuesday. You've got some concerns about the 2020 crop size when it comes to corn.

Pfitzenmaier: I've got tons of concerns about it. If we come back in, plant most of those prevent plant acres, bring them back in, and these reports that the USDA does this outlook thing in February, that's probably going to use a trendline yield, that is kind of what they always do, which is quite a bit higher than last year's yield. So if you use a trendline yield, a big jump in acreage and demand that doesn't change all that much unless you're one of these that think China is going to buy us out of corn, it looks to me like you could be looking at a 2.7, 2.8, 3 billion bushel corn carryout next year. So it's another reason to me that I'm a little less than optimistic that China is going to run in here and buy corn because they can look at that too. They could very well stall here, wait for prices to drop and then step in because there's no real time restrictions, immediate time restrictions on the buying they do. And as far as I understand they're not even going to check them until July or August. It takes four months to do the paperwork. So why wouldn't you just sit, wait, see if we sag a little bit and then maybe step in and do some buying.

Yeager: And the Chinese might be doing that whole wait game too, right? They want to push the U.S. price down.

Pfitzenmaier: Exactly.

Yeager: So do you see China a bigger story in the corn market or in the soybean market when it comes to phase one with us twiddling our fingers and thumbs waiting for something to happen?

Pfitzenmaier: It depends on how you want to define the story. There's potential in corn and beans with the size of this Brazilian and Argentine soybean crops coming on here I don't see, I know the bean carryout is half of what it was a year ago and all that and that gets everybody kind of excited, but it's still we're probably going to be looking at a 400 to 450 million bushel carryout on beans. And once again if you pull those prevent plant acres in, use a trendline yield in beans, that could be a pretty good chunk too. Again I think soybeans in Brazil are a lot cheaper than U.S. beans. China historically doesn't tend to buy stuff that is expensive if they don't have to. So why wouldn't you, if you were China why wouldn't you buy the cheap beans to fill what you need for a while, wait and see if we do plant all these acres, do have a decent crop, which we have a pretty good tendency to grow crops under a wide variety of conditions, we've proven that the last couple of years, wait for U.S. bean prices to sag and then step in and buy them after that's done. So the near-term it's really hard for me to get all that excited. I don't want to be negative and I don't mean to say they're not going to buy anything but they could play us a little bit, like that's never happened before.

Yeager: I'm going to say let's move onto meats now shall we, Tomm, before we both get in trouble with a comment. The cattle right now the packer and the lots are kind of far apart on these markets.

Pfitzenmaier: I think the cattle market maybe got a little bit overdone. We have had exports are down 4.4% from a year ago so that is disappointing. On the other hand I think we've probably peaked out our numbers in cattle and they're going to start to contract a little bit. So it's hard for me to get bearish cattle down here in this $119, $118 is a 50% retracement in the April contract so we came kind of close to that this week. I guess I'm expecting that we're probably still going to have some weather issue, some demand issue, something that comes along to give us a pop in cattle. So if I was a producer I'd be staying open on cattle. I wouldn't get too concerned about that.

Yeager: Speaking of pops, hog market. Last week, it's been falling like a rock, not sure what the reason was there. What is the reason for this rise back up other than what Tyson said? Is there more in this story?

Pfitzenmaier: Well, we got wildly oversold. The other thing you've got to be a little careful with this Tyson comment is we had practically no exports a year ago so first grade math --

Yeager: Fun with percentages is what to call it.

Pfitzenmaier: Yeah, it's maybe not as significant as that sounds when you hear that 600% number. But we need, I've been saying this for a year, if China doesn't buy significant quantities we're producing way too many hogs. That is the reason hogs have gotten depressed. Part of it I think too is a lot of people have over the last year been trying to be long hogs and I think this was a week where they threw in the towel and said the heck with it and got out and that drove us down to lower levels. So I think it's going to stabilize. You could pop April hogs back up in that $75 range and it wouldn't surprise me just because it got so oversold. But don't get excited about going much beyond that without some huge quantity purchases by China.

Yeager: Yeah, because limit up on Thursday, triple digit gains again on Friday. All right. That's all we have time for, Tomm Pfitzenmaier. But we will keep this conversation going on Market Plus because I have a whole bunch, I actually did homework for you. This isn't the B team. I'm trying to be legit and everything. So Tomm, thank you much. That does wrap up the broadcast portion of Market to Market. And as I said we will keep this conversation going in Market Plus. That is where we answer more of your questions which come in through several different channels. You can find the show and submit questions to us on our website at MarkettoMarket.org. And one of those social media channels is Facebook. It allows you to keep track of your favorites including those from rural America. You can find our links and photos under MarketToMarketShow. That is a new Facebook name for us, MarketToMarketShow. Join us again next week when we'll look at how a group of beekeepers are using groundbreaking methods to fight colony collapse disorder. So until then, thanks for watching and have a great week.

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