Market Analysis: Tomm Pfitzenmaier

Market Analysis: Tomm Pfitzenmaier

Jun 26, 2020  | Ep4545 | Podcast


Widespread rains and moderate temperatures provided near perfect growing conditions sending the bears into the market. For the week, September wheat shed 11 cents while the nearby corn contract plummeted 19 cents. Trade with China keeps weighing on the soy complex while timely moisture didn’t help support prices. The August soybean contract decreased 16 cents. August soybean meal dropped $4.20 per ton. December cotton lost 40 cents per hundredweight. In the dairy parlor, August Class III milk futures declined 34 cents. A mixed week in the livestock sector. August cattle improved 63 cents, August feeders gained a nickel and the August lean hog contract decreased nearly nine percent or $4.67. In the currency markets, the U.S. Dollar index waned 24 ticks. August crude sold off $1.56 per barrel. COMEX Gold gained $27.70 per ounce. And the Goldman Sachs Commodity Index shed nearly 12 points to finish at 318.10. Joining us now to give us some insight is market analyst, Tomm Pfitzenmaier. Hello, Tomm.

Pfitzenmaier: Hey! How are you today?

Yeager: Good to see you. This wheat market, I'd like to say we'll start off with something positive but it's just like all the others. Is this really just a harvest pressure story?

Pfitzenmaier: Well, I think harvest pressure, the July contract broke under new ground to that hit some stops and accelerated the move down. You're at the end of the month so there's some stuff going on with that. July options went off the board today. But it's a pretty good crop, a lot of harvest years this is what tends to happen. You've got wheat priced well above corn so that's some downward pressure in the wheat market. So just a combination of things I think are pressuring the market. I don't expect it to stay down here without some kind of recovery but it was not a pretty week for sure.

Yeager: We have the U.S. wheat right now is overpriced at the U.S. Gulf compared to Russian and German product would you say?

Pfitzenmaier: Yeah, I guess so. I don't know if I can judge that or not to be honest with you.

Yeager: That's okay, so are you making a sale right now or not?

Pfitzenmaier: No. I think you'll see a recovery rally back up at least above $5 on nearby and on the December contract so I guess I'd wait for that kind of rally before I sold anything.

Yeager: So there is some optimism in wheat. I'm pretty sure the optimism in the corn market sailed two months ago, two weeks ago, back in January? This one is a tough commodity. Story of the week, the bears are feasting right now aren't they? Why?

Pfitzenmaier: Well, there's just, we've got the potential here to have too much corn. You've got a good crop condition rating. You've got demand problems on the ethanol side, demand problems potentially on the livestock and export side. But that mostly is because the weather has been pretty good for most people, not everywhere, but for most people it has been pretty good. And we're on track to have a carryout that could reach up toward 4 billion bushels and that is just too burdensome. You've got the South American corn is going to be competitive, is competitive from now through the end of October so that's going to be a problem for exports, although exports have been good up to this point and are probably going to meet the USDA's projections. But going forward it's kind of a problem. You've got strong prices at the Gulf mainly because the farmer hasn't been selling. They've had to pay up to get their hands on corn which in turn makes us less competitive with South America. So it's kind of a mess in the corn market right now that's for sure.

Yeager: We may have to go back to that December contract here in a moment. I do have a question from Mitch in Hull, Iowa and it's kind of leading into what you just said there. It doesn't feel like our typical seasonal rally has materialized. So what is your market strategy in pricing old crop corn?

Pfitzenmaier: Well, yeah, we got the crop planted well, went through June without a lot of adversity, so there was never really much of anything to rally the market ahead of this 4th of July period. As far as what your strategy is going forward the basis is actually pretty good right now so if you're going to have corn to move and need the money you're probably better with getting it moved on any rallies. Now, there is the potential for a little recovery after that report next Tuesday. You've got acreage is expected to drop a million, million and a half, that could be positive, a surprise there. Stocks, a lot of people through the winter were voicing concern that the Dakotas crop didn't get planted or harvested, excuse me, test weights were terrible and some of that could show up on the stocks report to be a little friendly. So I'd watch pretty closely next week. If that gives us a little pop on this good basis I'd get some sales made because after that if this crop gets pollinated well farmer selling is more than likely going to pick up and you're going to see basis problems.

Yeager: So is this one of those issues where you maybe want to beat the crowd? Do you dribble some on Monday ahead of Tuesday's report or do you wait for Tuesday?

Pfitzenmaier: Historically any time you sell off into a report like we've kind of done so far it's pretty hard for it to be bearish. So I guess if there was a big bounce on Monday for whatever reason maybe you would sell some. I don't expect that to be happening in any significant way, but if it did you might want to -- on any rally that comes along seems to have been the right thing to do so far anyway.

Yeager: And rallies are 2 to 5 cents, not 5 to 15 cents right, right now?

Pfitzenmaier: Correct. Much more than that is going to be difficult without some weather adversity.

Yeager: Well, the weather adversity isn't there either for the soybean market, again timely rains. They've gotten out of that wet feet situation. You also have another November contract pressure issue. Brazil is the customer of choice for China. There's no real interest in our old crop beans right now.

Pfitzenmaier: The whole China mess is really the problem in the soybean market because you've got the potential for them to do business and a lot of it and yet they haven't. They've bought little dabs here and there just to sort of make us think they're still interested and fulfilling the Phase 1 deal and maybe they will and I hope they do. And if they do that's going to be great for the soybean market. I don't mean to get political here, but I'm not sure China is all that interested in helping Mr. Trump get re-elected. So are they really going to fulfill that Phase 1 agreement? And it doesn't look at this point like they're going to because most of their sales, or their purchases they've made have been in new crop beans, hardly anything in old crop. So that is kind of a problem for the bean market particularly on the old crop side. And this China hook everybody has got in their mouth keeps everybody from selling soybeans because they're afraid to do so for fear China will step in and rally the market on them. So it's kind of a mess when it comes to China market soybeans right now.

Yeager: But China has been buying some of that November new crop contract and not the old crop. So yeah, you've got that going on. So is there either one of these contracts nearby, deferred that you would be interested in selling or a signal of maybe a sell/

Pfitzenmaier: I think new crop beans, I think China will buy enough beans to sort of hedge their bets against the South American crop next summer. But I think getting a rally in November beans much above that $8.70 to $8.95 range is going to be difficult. So you get up into that range and I'd be a seller. On any rallies on old crop I think you have to keep moving it right along.

Yeager: Let's get to livestock. The cattle market has been, it finished positive for the week but there has just not been a lot of news to prompt too much excitement. You hear these stories of a big backlog that is working through. What are you hearing as you're in cattle country today?

Pfitzenmaier: I don't think there's any question there's cattle being backed up. We've got to, pardon the pun, chew through it. There's just a lot of beef out there and historically heavy weights have always been a killer for the cattle market and we've got heavy cattle. Now that is coming down a little bit, it's getting better, we're starting to move those cattle through but we've got a lot to get through here and it's going to take a while and probably through the middle of the autumn. Now, you go into '21 and I think things can get better. --  are going to start to drop off a little bit, we'll get all that mess cleaned up. The underlying demand has been pretty good for beef so they are buying it, they are exporting it, but we just have a lot of tonnage we have to get through here in the next few weeks, months.

Yeager: And we've tried to slow down in some of these feedlots, change rations, you've read, gone out to pasture. But if you're in areas where it's dry, say the Plains, you don't have that pasture option and you've got to go back in so then you're back to the weight add issue on the feeder side?

Pfitzenmaier: That's what I mean, it keeps backing up on us and it just is going to take a while to get that all worked through. These heavy cattle just generate a lot of tonnage of beef.

Yeager: And no real sign -- was there anything on cattle on feed last week that surprised you? I know that was a week ago and played through the market, didn't really seem to have reaction the days after did it?

Pfitzenmaier: It didn't, well it did the first day, it did on Monday and then popped right back on Tuesday so I thought that was, again, somewhat encouraging. I'm not bearish cattle. I think there's maybe some downside potential but there's upside too. I think you're in a trading range, you get to the top of that trading range up against 100 probably in the August contract then I think you have to become a seller. But I don't see it falling apart either with the underlying demand we've got.

Yeager: The hog market had a report of its own and there's a little bit of silver lining but it's a lot of gray clouds there. We're still fewer animals but yet the price just keeps falling. What's going on?

Pfitzenmaier: Well, again, same issue to some extent and you've got heavy hogs too we've got to get worked through. We are slaughtering, the slaughter percentage is coming up pretty nicely so that's encouraging. I guess if you want to be somewhat optimistic you might say they tried to put a down limit on Friday and weren't able to do that. So to some extent that was a bit encouraging to me and I don't want to get bearish hogs either. I think we'll eventually get that worked through. And the one good thing about that hogs and pigs report it shows that breeding and intentions for next year are off quite a bit. Intentions change as time goes on and we don't tend to reduce their intentions as much as they say they're going to but it sure makes '21 look a little better. And again export demand has been decent, not great, but decent. And domestic demand has been pretty good for pork. So I don't think you want to get real bearish. But it's going to take a while to work our way through that too.

Yeager: All right, Tomm. I appreciate your time. We'll talk to you in just a couple of minutes. Thank you.

Pfitzenmaier: All right, thanks Paul.

Yeager:  That will do it for this installment of Market to Market. We will talk more in Market Plus so join us. You can find it on our website of Our Twitter feed is run by four producers of the program. We keep you updated with our stories, re-tweet your posts and try to interact as much as possible. Give us a follow and join our discussion of @MarkettoMarket. Join us next week when we look at turning the gardener into the farmer. Thanks for watching. Have a great week.



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