Market Plus: Tomm Pfitzenmaier

Dec 27, 2019  | 10 min  | Ep4519 | Podcast


Howell: This is the Friday, December 27, 2019 version of the Market Plus segment. Joining us once again is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, I'm going to kick it off here with a question I know about U.S./Chinese trade negotiations because we did get a lot of questions this week about that on social media and it seems like they want your opinion. So I'm going to kick it off here with a question from Jerod in Oklahoma on Twitter. He wants to know, how long after any trade agreement is reached before we realize the impact of incentivizing relationships between our biggest customer and our biggest competition will be?

Pfitzenmaier: Well, I think we're going to have to wait through and see how the South American crop develops. I think that is probably going to be the key to it in my mind. If they come along and have a big crop, I assume Brazil is what he's talking about primarily and Argentina, if they have a big crop that probably is going to mean that their prices are well under ours and I'm of the opinion that I don't know that the Chinese are willing to maybe pay up a little bit to have an agreement with us. They have historically been pretty good traders and I'm not sure they're going to pay up a lot to buy U.S. products if South American products are substantially cheaper. So we've got a window here where we're about the only suppliers of corn. The problem is they don't tend to buy that much corn so it's really in my mind it comes down to beans. And late February there's going to start to be those early planted Brazilian beans available to be exported. Now, they have bought enough beans from us already to sort of bridge whatever gap they might have into that time period so I guess that is what I'm going to be watching really closely in February and March. Lately they have been switching a lot of their buying to South America already in spite of all this trade agreement talk. So if that continues and our exports fall off as we go into that February and March period that to me is not going to be a good sign on the good that may come from that trade agreement. As I said on the show it's a 2 year agreement so it doesn't necessarily anything have to happen. But I think he makes a good point is we're going to have to see how that good supply down there matches up with this trade agreement that we've got.

Howell: So just to clarify, Tomm, we did have a question here and I'm not going to read you the whole thing because you basically answered it, I just want to clarify that you think the more impacting fundamental I suppose you could call it for the soybean complex is what is going on in South America and the Chinese purchasing rather than the signing of the U.S./China trade agreement?

Pfitzenmaier: I do because there's no quantities put in that and if there are they aren't going to be published. So we don't really even know whether they're going to buy beans or whether it's all going to be pork. Is it going to be ethanol? Is it going to be DDG's? Is it going to be cotton? What is it going to be? It's all guesswork really. And if it was me I would buy the product that was the cheapest and if that's South America, fine, plus I'm not sure that they're all that incentivized to help Mr. Trump get re-elected. They're going to sign an agreement because they may think it benefits them but I don't know that they're in that big a hurry to help him out. So maybe they just drag their feet until after the election and see how it goes. There's a lot of moving parts here that need to be watched pretty closely.

Howell: Tomm, another market that has a lot of moving parts is the wheat market as we talked about on the main show. We've got another question here from Glen in Bryan, Ohio wanting to know, the Chicago wheat market is clearly making a move into some unexpected territory on the charts. Other than historic trading for wheat why should we view this as anything different than year end positioning for all the commodities?

Pfitzenmaier: I don't think we should. Like I said on the show, I think you get up in those summer highs on the wheat at $5.73 you have to be a seller. The short covering is going to get cleaned up here and that's what he's talking about. Short covering everybody sort of getting evened up for the end of the year and then wait and see how it goes. Somebody said the other day there's no reason for the funds to be short corn. Well there is because we could have a huge crop next year, demand for corn is lagging way behind. So if it's nice to always be friendly and hope things go up all the time but there is a compelling case to make for corn to not go very far here. And same can be said for wheat, somebody is producing wheat every two or three months around the world and most of the time it's a weed that grows pretty well. So you don't want to get too carried away on the upside in the wheat market here either.

Howell: I think a lot of that is because so many people are putting so much positive sentiment on this January 10th report, Tomm. Not to be bearish or bullish but do you think we're placing too much emphasis on that upcoming report?

Pfitzenmaier: Well, I've said any time you rally in anticipation of a friendly number in a report that means that report has to be even more friendly than we've already anticipated and that is really hard to do. A lot of people think the USDA is way off, historically they're not off by that much. So you lose a couple bushel per acre and a couple hundred thousand acres of ground and that is offset by 100 to 150 million bushel offset in corn on demand, export demand that hasn't shown up, maybe it's a big nothing. If that's the case we rallied for nothing and then we set back a little bit. I'm not saying we're going to completely fall apart but that may be all the rally we get for a while here.

Howell: Tomm, we're about to turn over a new calendar year here so we've got just a couple of questions to wrap us up for today. Looking at 2020 and the crop year that is coming we've got one here from a farmer in South Dakota wanting to know, which commodity do you see as the best bet in 2020?

Pfitzenmaier: To sell or buy?

Howell: Wasn't specified so I'll let you take that one.

Pfitzenmaier: My best bet is to sell new crop corn in that $4 to $4.20 range. To me if all those prevent plant acres come back in, and you have to assume we're going to go back to having normal trendline, 2019 to me was an aberration with all the wet troubles we had, and you think about it, think of all the problems we have in 2019 and still produced a pretty darn good crop. So if we bump that acreage up to what those prevent plant acres pulled it down I just think we're going to be buried in corn by next fall. So to me my big deal would be to sell new crop corn. Beans, I don't know, there's a lot of uncertainty about beans. We've got China in the mix there. Maybe they've got a little more upside. So I'm not quite as certain on that. But my trade would be to sell Dec corn.

Howell: Tomm, we've got one final question here. I guess people must think that you're pretty bearish usually on the show because we've got a question here from Dana in Osceola, Nebraska wanting to know, why you have been so bearish in the past year? And do you see any change in that feeling going into 2020?

Pfitzenmaier: Because the U.S. used to control 70% of the corn in the country, in the world, now we produce 30%. And we aren't what we used to be. Ethanol has topped out, unless China bails us out. Export demand has been awful. We produced the daylights out of corn under a wide variety of conditions, and beans too for that matter. So we're just overproducing and not consuming enough. So I think you're in for five or six years of flat corn prices to give you little opportunities to sell corn above $4, which we almost always have, but looking for moon shots all the time just doesn't add up to me. I'm primarily involved with risk management. Well, being long corn and beans all the time isn't risk management when you're producing it. So that is why I'm perceived I think as being bearish. But my deal is risk management. So that turns out to be selling, which I guess that's a bad, awful thing. But that is the way I come down.

Howell: Protecting themselves for 2020 what would you recommend folks do? You said sell. Do you have anything else to add to that?

Pfitzenmaier: No, I think interest rates are flat, I think you get your long-term interest rates locked in, do whatever you can to get your costs under control. I think that's about all you can do, sell good rallies where you think you can make some money, and then produce a heck of a good crop because it's yield usually that makes or breaks us in the farming business. So that is what I'd work on doing.

Howell: All right, Tomm Pfitzenmaier, thank you so much for joining us for our last show here in 2019.

Pfitzenmaier: Thank you.

Howell: Join us next week when we’ll look at the biggest stories of 2019 in rural America and Ted Seifried is back 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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