Market Analysis: Tomm Pfitzenmaier

Market Analysis: Tomm Pfitzenmaier

Sep 18, 2020  | Ep4605 | Podcast

Podcast

Yeager: China’s buying spree on soybeans lifted the corn and wheat boats. For the week, December wheat jumped 33 cents while the nearby corn contract gained a dime. Contract highs were common in the soy complex this week as more long positions developed while the trade tried to figure out how much more steam is left in the boiler. The November soybean contract rallied another 48 cents. December soybean meal added $17.50 per ton. December cotton expanded 85 cents per hundredweight. Over in the dairy parlor, October Class III milk futures improved 34 cents. The livestock sector was mixed. October cattle added $1.82. October feeders increased $1.85. And the October lean hog contract declined 8 cents. In the currency markets, the U.S. Dollar index fell 40 ticks. October crude oil added $3.69 per barrel. COMEX Gold gained $8.10 per ounce. And the Goldman Sachs Commodity Index expanded nearly 16 points to finish at 357.60.

Yeager: Joining us now to give us some insight is one of our regular market analysts, Tomm Pfitzenmaier. Hello, Tomm.

Pfitzenmaier: Hi, Paul. How are you today?

Yeager: I'm all right. I was thinking coming into yesterday. We were going to easily talk about soybeans as the lead story. But here goes wheat today finishing up and made a 6% gain. Is there more than a sympathy gain going on in wheat? Is there something else other than what soybeans are doing to help wheat?

Pfitzenmaier: Absolutely. I think if you look at the dry weather conditions in Ukraine and Russia, starting to dry out a little bit in Argentina, there's a lot of problems with wheat around the world and I think that's really what caught fire in the wheat market on Friday. Obviously there's some coattails from soybeans too. But I think wheat around the world has got some problems that attracted attention too. U.S. wheat supplies are pretty good. So I don't think you want to get too carried away here and probably need to use this as a selling opportunity. But there are some fundamentals problems that are supported in the wheat certainly.

Yeager: Are you selling with caution, a small percent right now? You've got to take advantage of this I would imagine. If you look at the 4 month trendline it's up there pretty good. But are you saying hold just a tiny little bit?

Pfitzenmaier: You can't see these kind of rallies and not do something to take advantage of them. I'm not saying go 100% or anything, but taking a bit out of this would certainly be prudent in my estimate and I know what's coming is a lot of people sold beans too early and they're in the hole and they're concerned about it. That's been a big problem in beans, maybe not quite so much in wheat and corn.

Yeager: Let's talk corn first here, Tomm. You've got this carryout, you've got this large crop and we're headed into harvest. It is beginning in earnest in many areas. Where is the harvest pressure on this market? Why are we headed up?

Pfitzenmaier: Historically, well a big chunk of it has been fund buying and the other big chunk of it has been Chinese buying or at least the threat of more Chinese buying. So I think that is really what is driving it and then you get a little of the wind storm in Iowa three weeks ago in the mix here and that is generating some buying. Funds are long roughly 70,000 contracts and it's really rare for them to be long corn when we have a carryout projected above 2 billion and even the most optimistic Chinese buyer bulls I guess you'd call them aren't looking for them to buy enough to pull the carryout much under 2.4. So I'm really uneasy about the funds being long corn even though the corn position isn't near as big as the soybean position. I just think you're getting up into the levels here where almost all of the indicators are showing overbought. Like you said, we're heading into harvest. Harvest reports have been pretty light so far. Some have been way better than expected and some have been disappointing, which is about what you get every year at this time.

Yeager: Yeah, there's always that school of thought, is it the early report that is the lowest or is it the highest, you just don't know. So with corn let me as one last question here. Are you buying or are you selling right now on this market? Let's talk December.

Pfitzenmaier: At the top end of this rally I don't have any interest in being a buyer. Now maybe it's going to go a little higher, hopefully it will from the farmer's standpoint. But you're up here in this $3.78 to $3.80, $3.81 area, I think that's a big area of resistance, maybe push through that a little bit more. To go a lot higher you're going to have to have some substantial Chinese buying and that seems unlikely but you never know. I guess I'd use the same statement I said in wheat, you don't go whole hog selling stuff up here but you have to take a little bite of this. And short-term the basis has been quite good so there's maybe some incentive there to move some cash if you need to because I would expect to see basis deterioration pretty substantial going into the end of September, early October.

Yeager: All right, we've delayed it enough. Let's talk soybeans. The easy question comes from Tim in Crookston, Minnesota. He's asking what several of you did on Twitter and Facebook. How much more gas does the soybean rally have?

Pfitzenmaier: It's all I've heard all week so I'm not surprised. I don't know. Every time you think it's about done it goes up another 15 cents so the tricky part on beans here is what do you plug in for Chinse buying. IF they buy an extra 200 million bushels of soybeans and it pulls the carryout down to 200 or 250 then you're probably going to $12. So Chinese buying is really the key to what goes on here and if you know the answer to that we'll make you the host forever.

Yeager: Let's just say that's why I ask you these questions, Tomm. You've done it a couple of years. But I had somebody send me a message today though and they were saying be careful, there are some out there saying this is a long-term situation. Do you see a long tail on this? And when I say long I mean two to three years? Do you see this lasting one to two days, one to two weeks on this run-up?

Pfitzenmaier: What's the strategy -- my question is what's the strategy? Are they buying beans to put in inventory as a hedge against a La Nina problem in South America this winter which is certainly shaping up to be a possibility? Are they accumulating inventory so that if we get another dust-up with our President and he threatens more tariffs they've got more inventory to sort of ride that out? What is their long-term strategy? That's the question. Certainly this rally in soybeans is going to incentivize the daylights out of South American to plant more soybeans. So even if they have a little bit of a La Nina hiccup in their yield, some of that is going to be compensated for by an acreage increase. So there's a lot of moving parts here and the big unknown is what is China going to do. Now, the U.S. crop is probably going to be the second largest we've harvested. It's not as good as we thought it was six weeks ago but it's still going to be pretty darn good in all likelihood. There's going to be dry areas where it's not going to be very good but there's a big chunk of the country that is going to have pretty darn good bean yields. I know that wasn't a very good answer, but there's a lot of unknowns here.

Yeager: There are. And there's a question here and we’ll probably dive more in Market Plus but I just want to read a little bit of it. Farmers were punished last year for being sell hesitant during the seasonal rally when the crop didn't look very good. Then this year every analyst, we know it's not every analyst, was bearish, crop looked amazing and now you're punished for being diligent and heavily sold. You can't win.

Pfitzenmaier: I've got a customer that always likes to say it's hard to be right. That would be a perfect example. It is hard to be right. And those people that were bearish were right six weeks ago when the crop looked excellent and when the Chinese hadn't started buying yet. So the circumstances change and you have to adjust with them, that’s kind of part of the deal unfortunately and I know a lot of farmers don't like that, don't like to have to make those adjustments, and I don't either but that's kind of what you have to do.

Yeager: We'll talk strategies in Market Plus. So I'll ask you before we leave soybeans, are you selling right now or are you holding?

Pfitzenmaier: Well, I guess I'm cautiously optimistic but then again you put $2 on soybeans. How much more do you have to put on? The basis is somewhat decent in a lot of places. I think you have to take advantage of this a little bit, especially if you're going to have storage issues. So I'm not going whole hog selling things. But you just have to take a piece of it. And if you're scared to death of the futures go buy yourself a put. The price of those is elevated a little bit. But at least you know where your risk is.

Yeager: Here's another one that is a head scratcher this week, the live cattle market. There's a lot of fundamentals that are screaming how on Earth can this thing rally but yet it goes and puts another rally. There's a discussion among futures and cash people right now about one being better than the other but we still are trending higher. Are we going to keep trending higher?

Pfitzenmaier: The cattle markets are getting pretty toppy. I think longer term it could. But I'm not sure there's a whole lot left in this in the short run here. I think it's starting to act a little toppy, not that I Think there's going to be a huge pullback, but I think you could start to turn sideways. I guess I disagree with you a little bit in that I think domestic demand has been pretty darn good for beef. It has continued right into the fall here which is great. Export demand has been okay. I just think the cattle market is probably all right longer term, don't get too shook up if it has a pullback because I think all that is, is just a normal correction of a market that is tending to move higher. I know you're probably going to ask -- go ahead.

Yeager: I was just going to say, there's a debate about what that consumer is buying right now and you read different parts, retail sales were down, that's not food, but there's always that concern about what does that consumer have to spend and beef is one of those that usually trends down but that is conventional wisdom and 2020 has told us conventional wisdom is out the window. I need to move to feeders here for a minute. Is there any incentive for a lot to fill up pens right now with feeder cattle?

Pfitzenmaier: Boy, that's the one that has really been confounding in my mind is historically when grain prices rally like corn and meal have it really hurts the feeder market and yet the feeder market has hung in there quite well. We're not that far off the highs. We're up again today with everything, all the grains being higher. So I think you have to be somewhat impressed with apparently somebody thinking they can buy feeders at these prices and make some money off of them. That strength in the fat market is probably helping incentivize that to some extent. So given the way it has acted if corn and soybean meal should happen to top out I think you could be setting yourself up for a nice little pop here in the feeder market back up into that $148 area which I think is what we were talking about the last time I was on the show with you. So I don't see any reason to get real carried away on the negative side given how that market has reacted here in the last week or month really.

Yeager: The hog market we had a pretty good run-up and then declined 8 cents on the week. Is this a breather or are we headed back up higher?

Pfitzenmaier: You've got two different things going on. The October contract, the cash market has been quite strong. The fundamentals aren't quite as positive for the December contract. We have more hogs going to head to market later in that fourth quarter. So I guess I'd be a little cautious on how much is left in that December contract. You get that up another couple of bucks and I think you want to start to be a seller there. October contract it doesn't have that much time left and that's pretty much a cash market so I don't really know about that much.

Yeager: All right, Tomm, we'll talk a little more livestock, get into that a little bit. Tomm Pfitzenmaier, thank you so much. That will do it for this installment of the TV show we call Market to Market and we will talk more in Market Plus. You can join us there. We'll answer your questions. You can find it on our website at MarketToMarket.org. As harvest gets going you may be away from your TV when our program airs in your area. So just hit up our YouTube channel to get full videos of our stories, program and that segment we call Market Plus. Subscribe now at youtube.com/markettomarket. Next week we'll look at the impact of weather on the crop as harvest begins in earnest. Until then, thanks for watching and have a great week.

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