Market Plus: Tomm Pfitzenmaier

Sep 18, 2020  | 12 min  | Ep4605 | Podcast


Yeager: This is the Friday, September 18, 2020 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, there's a whole lot of soybean questions that we discussed and we'll get into. And for the last three weeks we've talked about weather, wildfires, drought. We did not get to Sally and the rain that was dropped in the South and that really impacted the cotton market from my understanding of what you've been telling me. The market rose, it didn't rise like the other markets. Is that going to change because of some things that are maybe developing there?

Pfitzenmaier: It hasn't risen rapidly recently like the other markets have. The December cotton for example bottomed out at about 50 and it's trading 66 so it has had a pretty substantial run-up over the last few weeks just like a lot of the other markets. The interesting thing that I kind of noted in that market is about 83% of the bowls have opened but only 2% of the cotton is harvested. And with all these storms pulling up out of the Gulf and sweeping over the cotton growing areas it makes you a little uneasy about what the quality of that cotton is going to be. Now, cotton has got a China problem and that is going to probably limit what the upside is. Like I said, we're up around 66. If you get up in that 66 to 70, 72 range I think you need to be a sale-up seller of cotton. But we also need to be alert that there is the potential for problems with the cotton crop as we get into harvest and we're going to need to watch the quality of that pretty closely. So it's going to be an interesting market just to keep your eye on here over the next month, month and a half.

Yeager: All eyes have been on soybeans this week and Aaron in Northwest Iowa, he kind of gave me the background on one question but this is a little more refined version of it. For all of us soybean producers who made sales when they normally should have and have been punished for it now on this overdone rally, in his words, what's better, options or futures? Better to add to previous sales by buy backs or additional futures shorts?

Pfitzenmaier: Well, the answer to what is, as everything else is, it depends. And what it depends on is what your outlook is. If you think there's a lot more on the upside here then you're a lot better off using options, leaving your top side open. Like I said on the show, the options are a little pricey but you know your risk, you know what you've locked in. So if you think there's upside I definitely would be in options. If you think we're overdone and toppy, as he seemed to indicate on that question, then I think you definitely want to be in futures because when the funds roll over, when the Chinese buying stops, these fund traders are all momentum traders, when that momentum shifts and the momentum shifts to down this soybean market is going to have a potentially huge correction. And if you've done yourself damage by being short up into this about the best way to get that back is going to be to ride that down when it goes. And we all know these markets go up relatively slowly but they can drop really fast. So that is how I'd answer it. If you think we're topped out and not much upside potential I'd be in futures. If you're afraid of the upside buy yourself an option at whatever level you feel comfortable with, probably something close to at the money.

Yeager: And that's the thing about this that I kind of wanted to get into the program were some of these options but just trying to make sense of what is happening is kind of the importance that we felt during the broadcast. That's why in Market Plus we can allow you to answer that and I don't have to say Tomm, Tomm we're done. But now that we're talking a little bit of futures let's talk 2021. Matt in Amherst, Wisconsin, he wants to know is it time to lock in some new crop 2021 sales of corn, beans and wheat?

Pfitzenmaier: I'll start with corn, absolutely not. I think you're going to have a shot at some point through the winter of $4.05 to $4.25 on corn. I wouldn't step into any short corn position here at $3.90. I think you'll have a chance to do better. This crop that we had this year was really helped by subsoil moisture and obviously things can change but if we don't get some subsoil and we do get good Chinese demand through the winter, South America has a little hiccup because of La Nina, there's upside potential because they're going to try to entice the U.S. farmer to plant more corn acres next summer. So I would not sell December '21 corn. As far as the beans go they haven't really followed along. They're somewhat depressed because you've got, in the middle of our crop you've got the potential for a South American crop and that has kept that somewhat depressed. So I guess I wouldn't sell that either. We're at $9.74 tonight. Maybe if you get up to that $10.25 or $10.50 area look at it, I wouldn't get in a big hurry here. On wheat, again, you've got new crop wheat getting up to levels where I think you have to look at it pretty hard. Everybody and their brother can grow wheat around the world and will. The U.S. crop is pretty good. You might want to step in and start selling a little '21 wheat.

Yeager: Roger gave me a question and you mentioned it, China is an issue. Is this -- whatever the numbers was 15 or 18 days, 16 of 19 days, however you want to look at this, it's almost a $2 run-up in beans over a 45 day period, almost five weeks. Is this only China? And are they the only ones that can send this down because as you said if the buying would stop? Is this one factor related here than what could send us the other way?

Pfitzenmaier: Well, it's the predominant factor, I don't think there's any question about that. You've got the dry weather in parts of Iowa and some places around the country, that's a little bit of a factor. There's a lot of talk that maybe some of this money in the equity markets is rolling into the commodity markets as an inflation hedge because of the Fed's new policy on average 2% inflation. That is probably a bit of a stretch. I think these commodities are probably more driven by their individual fundamentals. I think the inflation thing probably tends to go to crude oil and precious metals and that sort of stuff more than other commodities. Having said that though, beans are something the funds like to trade so that has helped them attract a lot of attention. There's some stuff going around that are supportive of the soybean market no question. I'm not sure any of that compares to the importance of Chinese buying. And that is government buying. That can end, they're out to find stuff for December. You get into January and South American beans start to become available and U.S. beans are higher priced than every other bean in the world now finally. It could come to a screeching halt here at any moment. So you want to be a little careful up at these levels.

Yeager: You mentioned a couple of things in that answer that were important and Craig in Minnesota asked us via Twitter, what are crude and the energy markets doing? This week crude jumped almost 10%, some of that was on closing of refining capabilities in the Gulf, but we have huge amounts. Are we locking in fuel needs right now?

Pfitzenmaier: Some of that value in the crude also came from weakness in the dollar, some of it came of a meeting of OPEC saying they're going to do all they can to control production and keep prices well supported. So there's other things going on in the crude market besides production problems in the Gulf. I don't know that there's any big, I wouldn't get in any big hurry to lock in fuel. I think fuel is going to be a problem. Obviously the U.S. drivers aren't, demand for gasoline just isn't coming back. People are staying put. It doesn't look like things are going to get opened up too quickly. So I don't know that I'd get in a big hurry to lock in fuel prices, costs.

Yeager: We didn't get a chance to discuss ethanol. But do you think ethanol, the President had a couple of announcements, there was the movement from the E10 pumps to E15 and then you have the small refinery waivers that from a certain time of the last few years those exemptions were waived off. Ethanol production, we're still making a lot of it. Are we going to keep making it? Are there going to be some plant closures here as we try to figure out and chew through demand? What is ethanol's outlook over the next few months?

Pfitzenmaier: Well, in the short run the margins for producers has been pretty good so they're probably going to continue to produce. The thing that concerns me I guess is the fact that ethanol prices continue to run and bouncing 10 to 20 cents above gasoline prices. So the incentive to blend certainly isn't great. We've been talking about bumping from 10% to 15% for four or five years I guess and there's some infrastructure issues there, they're gradually getting blending pumps developed so that you can do that easier and I think ultimately that is going to help be supportive. But the ethanol industry is going to take a while to get up to where it needs to be or even where it was a year ago and I think it's going to struggle to be where the USDA is projecting it to be. So I thin producers are making enough money that I don't see plant closures, but the industry is not going to pop back real quick here until people are out driving around burning up gasoline.

Yeager: Well, we'll see when that is. One way to burn through corn is in the livestock sector. Our last question, at least the last subject is in the livestock market here. And of course I've lost my place on where it is on the sheet -- where did I put it? Ross in Frederick, South Dakota, he's asking, with the corn prices pushing higher do you see the feeders staying in the mid-$140s being demand is strong from plenty of feeding capacity or possibly going higher or lower? I know we kind of covered this a little bit in the discussion.

Pfitzenmaier: I've been impressed with how well the feeder market stayed in with the corn and meal price going up. I guess I think feeders are going to hang in there fairly well. Like I said on the show, I think you have a chance of running those back up to that $148 area, probably struggle to get much beyond that. But I guess after the way it has performed for the last month I'm not all that negative on the feeder market.

Yeager: Anything else in livestock because I did kind of cut you off there in a couple of those? Is there anything else you wanted to say?

Pfitzenmaier: No, I think we hit it about as well as we could.

Yeager: Appreciate it. Thanks, Tomm, good to see you. Hopefully we'll get you in studio here but stay well.

Pfitzenmaier: Okay, thanks Paul.

Yeager: Next week we'll be back and we will look at the impact of weather on the crop as harvest begins in earnest and Angie Setzer and Chris Swift will talk livestock a little bit more. They'll break down the markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have yourself a great week.

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