Market Plus: Tomm Pfitzemaier

Dec 28, 2018  | 11 min  | Ep4419 | Podcast


Howell: This is the Friday, December 28, 2018 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, we teased it pretty well right there at the end of the show. We've got to talk about the lean hog market or continue to talk about it. Why the choppy trade lately?

Pfitzenmaier: Well, we've got a lot of hog numbers coming out. I think people are assuming that China is eventually going to buy some pork and I think if they do that will be supportive. And like I said on the show, I think the hog market is trying to bottom out. It's very oversold, really in need of a correction, which I think is going to happen. However, if we break out through the bottom of this thing and these lows don’t hold then I think you've got some real negativity in the hog market, especially if there's not any big significant Chinese buying that comes in here. You hear daily, hourly about the swine flu and the impact it has had and the devastation from that and everybody in their mind thinks that's got to eventually feed into our demand for pork and it has to some extent but I don't think it has to the degree that it could have or maybe should have. So that is kind of where we're sort of teetering on that edge here. And having said the market is oversold it is, but sometimes in a bear market you can stay oversold longer than really would seem reasonable. So I'm trying to be optimistic at these levels, the low 60s on the Feb contract for a bounce back up around 65 and then I'd probably be turning back into a seller again.

Howell: The thing that we can't really predict right now is export sales numbers aren't going out so we don't even know if China is or isn't buying U.S. pork. Is there any other way to see any indicators that that's --

Pfitzenmaier: Yeah, well there's privates that are doing, have better knowledge about that than probably you or I would have. So there are people that know that that's going on. But yeah, again, transparency through the USDA and the government is really kind of crucial for this, for the man on the street so to speak on trying to make decisions in any of these markets.

Howell: We've got a question here from Jim in Worthington, Minnesota. I think you've pretty much alluded to this but just to throw it in here for Jim. He said, will we see a hog rally after the holidays are over? Again, we're just depending on that teetering line, right?

Pfitzenmaier: I'm in the camp that thinks we're going to.

Howell: Absolutely could see it. Never know for sure. Let's talk a little bit here about cotton. We lost 99 cents on the week from last week. What is going on in the cotton markets? Anything to get excited about for 2019?

Pfitzenmaier: Well, lost 99 cents last week, but we dropped from high 70s down to 72 in a fairly rapid period here. I think it relates back to everybody thought China was going to buy cotton too and they just haven't to any significant degree. And so the optimism from that collapsed the cotton market. Now, I still think you're going to see March cotton move back up into that 20 day moving average up around 77, 77 and a quarter. So I think there is a $5 or so bounce here in the cotton market. Having said that, if you get up into those levels I'd certainly turn back into a seller in the cotton market, somewhat similar to hogs, when you get those nice little rallies you've got to be a seller against those resistance levels.

Howell: Out of the four main, they're not all grains, we've got cotton which is obviously a soft, but corn, soybeans, wheat and cotton, which of those four has the best story acreage wise for 2019?

Pfitzenmaier: I don't know what the cotton producers, I had thought cotton was going to get a nice share of the bean business. I guess I'm not sure with the break we've had in cotton that that's necessarily going to be true. I don't know, I guess I'm still a little bit optimistic about wheat. So some of those northern producers they have historically been wheat growers so I would guess they were going to track some acres out of cotton, I mean out of soybeans.

Howell: Out of soybeans into wheat. Absolutely. The other big story we've still got going on that we have to talk about is of course the oil markets. Are the crude markets reversing or are we still continuing to head lower from here?

Pfitzenmaier: I don't know that reversing is the right word, maybe stabilizing. Russia came out this week and said they're not going to, they have no intention of changing their production going into 2019, the Saudis apparently are going to continue to produce, obviously the frackers in the U.S. have been pumping out oil like crazy. Now, everything I read says when you get crude oil under 50 the fracking thing doesn't work as well so maybe you'll start to see that back off a little bit as we go through the winter and that's going to be a stabilizing force. But there's just a lot of oil being produced in the world and I'm guessing we're going to stay in a trading range here of 43 to 53 widely. And then you get in the mix are the global economic problems going to affect the demand for energy? Are we going to have a global recession? Is the U.S. going to go into a recession next year? I don't think so but it's probably, it's pretty obvious that the economy is going to cool a little bit.

Howell: Right, which is indicated by the Fed saying they're probably not going to raise interest rates in 2019.

Pfitzenmaier: Exactly. And so all of that is a negative on the energy side. We're going to have corrective rallies and bounces but having said that I don't think we're going to 35 either. I think you're going to stay in that bounce on either side of $50.

Howell: So if I'm an end user, a producer, a hauler, etcetera, using oil, using gasoline, how far out should I be looking to lock in those fuel needs?

Pfitzenmaier: I guess I'd be looking on these hard breaks I'd be looking to lock in fuel needs certainly for spring planting and your summer needs. I don't know if I'd get in a big hurry about going all the way out to harvest needs. But spring needs I think you need to look at it.

Howell: All right. Absolutely. Tomm, we've got kind of an interesting question to end on here, a social media question. Taylor in Appleton, Minnesota said, what is the future like for computerized, high speed trading? There's been some rumors trickling around that maybe that's why Wall Street has been so volatile the past couple of weeks.

Pfitzenmaier: I don't think there's any reason, or any question that's been the reason. The high frequency trading, the algorithmic trading, computer trading has all I think exaggerated the moves. Now, those algorithms that they have developed have been based on, somewhat on human emotion and the way humans react to it so it's not like when humans were running things we didn't overreact on stuff too. I think there's some real changes they can make. The uptick rule got eliminated. I wouldn't be surprised to see some talk come back about that so that shorting the market is not quite as easy and you can't be quite as aggressive doing that with your computer programs. So yeah, I think people are going to start taking a look at it. There's no way in this day and age you're going to go away from it or eliminate it but maybe you can do some things to sort of moderate its effect a bit.

Howell: So from the past couple of weeks you said we absolutely have seen computerized trading playing some impact in what has been going on in the stocks and equities market. How much of an impact really though does that have?

Pfitzenmaier: I don't know how you quantify it. Just as you observe the markets have done stuff that I don't think human run trading programs would probably do. So they've got things set up so if you trigger certain things happen, make news lows, whatever their algorithm is plugged into continues to make the market go and so the guy that is willing to step in and maybe test the markets, see if the lows are in or if the market is going to stabilize, he's standing back going I'm not going to get in front of that. So I guess, like I said, I think it exaggerates the moves, just my opinion. I don't have any way to quantify it but it just appears that way.

Howell: Absolutely. Tomm, I'm going to give you one last final question here. It's kind of a softball question for you. But looking into 2019 what is a couple of factors or a couple of things that you're following that producers should be following as well?

Pfitzenmaier: I'm scared to death of the soybean market. A billion bushel bean carryout with the South Americans producing a record crop, with demand as soft as it is in the U.S., that shifting of acreage and how farmers are going to handle these high carryouts in beans it looks to me is a big problem. If we don't have Chinese buying you're going to see $8 or less bean prices. So you better be aggressive and start getting these beans covered. If you're planning on growing beans you better use rallies to take advantage. So that is the big one for me. If you're going to do a lot of switching you better start look at selling some new crop corn to cover that on any rallies that come along. So those are the two biggies for me. I'm just a little uneasy about the ag economy if we don't get this thing straightened out in the next few months.

Howell: As I'm sure many people sitting at home are as well. Tomm, thank you so much.

Pfitzenmaier: All right, thanks.

Howell: Join us again next week when we'll look back at the year that was 2018 in rural America and Sue Martin will join me 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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