Pearson: This is the Friday, December 9, 2016
version of the Market Plus segment.
Joining us now is Tomm Pfitzenmaier.
Tomm, welcome back.
Pfitzenmaier: Thanks, Mike.
Pearson: We've got a lot of great questions here
from our folks on Facebook and on Twitter.
And I want to come back to a question we asked you on
the show is from James in Kremlin, Oklahoma.
He's got a second question.
He's asking, what is the upside, let's say we
plant, let's call it 3 million more acres of
beans, La Nina sticks around, causes us to have
a dry spring in the Midwest, would that
dryness offset the acreage increase?
Pfitzenmaier: In the short run it probably won't.
If that in fact happens you're probably going to
get a run, maybe run new crop beans back up to $11,
maybe even a little stronger than that because
think about it, how freaked out we got about
La Nina last year and there never was any, it
was like a figment of everybody's imagination.
So if we actually have a dry period I think they'll
react to it a little bit.
To some extent that may also be tempered a bit by
what happens in South America.
If Argentina also had a problem here and their
crop isn't quite what we thought it was going to be
that's just going to sort of magnify the concern up
here this summer.
So if they have a huge crop and we plant a big
acreage that's going to certainly dampen that.
Pearson: Okay.
Now last year at the tail end of the South American
growing season they had all of those harvest
troubles, constant rains and deterioration of crops
and the loss of so many corn acres.
But it seems like when we get dryness in the Midwest
of course that news is in Chicago that day.
When it's coming out of South America there's such
a delayed reaction to that.
Just big picture stuff, is technology going to allow
us to get that information faster do you think as we
go to the future?
Pfitzenmaier: I don't think there's any question
about it.
I get a more detailed South American weather map
every morning that I do a U.S.
-- there's a lot of information available and
I know the guys in Chicago are watching that as
closely as I am.
So yeah, I think that information gap has pretty
much gone away.
Pearson: We don't have to wait for Conab's reports
necessarily anymore.
Pfitzenmaier: Correct, it's a confirmation and
it's something to watch and their soils are
different so you have to be a little careful about
the conclusions that you reach based on what their
moisture is.
But they also tend to get more of the moisture than
they need on average.
So if their rainfall is diminished just a little
bit it actually in some cases kind of brings them
down to normal.
So you've got to be a little careful about that
too.
Pearson: Okay.
Well, we've got a second question here from Michael
in Story City.
Michael has got a long question.
He's asking, what is your take on the upcoming
January reports?
Given the perceived supply of corn, what are the
chances of corn seeing $4.50 or higher July '17
futures?
Let's tackle the first part.
Are you expecting any surprises on the January
report?
Bean yields coming up again?
Pfitzenmaier: There's a historical tendency once
they're increased on November for them to be
bumped up a little bit in January so I guess I
wouldn't be surprised to see that.
But I don't really anticipate changes that
amount to much.
I guess I was a little surprised in Friday's
report that they didn't bump exports and ethanol
usage a little bit so that could be coming.
But when you've got a 2.4 billion bushel carryout I
don't see any reason in the world why you'd have
$4.50 corn.
Why would anybody pay that much?
You've got the farmer willing to store it,
they're willing to sit on it, just let it sit out
there and let the farmer carry all that for you.
Pearson: Even if this La Nina expands I know that's
predominantly Argentina, Southern Brazil.
Would that give us any reason to get fired up
about the corn market?
Pfitzenmaier: I'm sure they're going to talk
about -- the thing actually what people are
talking about that I talk to are more concerned
about this dry weather in the southeastern United
States and the history of droughts moving from the
southeast up into the central U.S.
Now, probably not going to affect Iowa or anybody
west of the Mississippi but it certainly could
come up and cause some troubles in Ohio, Indiana,
maybe southern Illinois.
So that's really what I hear talked about more
than anything.
Pearson: So he's asking on a scale of 1 to 10 with 10
being very probably $4.50 futures 1 being improbable
you're around a 1?
Pfitzenmaier: 2 maybe.
Pearson: Maybe a 2.
Okay.
Our next question, Matthew in Windsor, Illinois on
Twitter @chief321 has two questions for you.
One of Trump's nomination picks is Pruitt from
Oklahoma to head the EPA and he hasn't historically
been overly outspoken in support of ethanol.
Matthew's questions are, do you have any worry as
him as an EPA head as it pertains to biofuels?
Pfitzenmaier: Yeah, there's a couple -- number
one, he's not real keen on RIN's so I think those are
in danger.
As far as ethanol production, I think
ethanol is standing on its own.
Export demand I think it probably going to pick up
and I think ethanol is going to be, I'm not sure
he can do much to touch it.
Maybe he can mess with the mandates but we're already
using more than the mandates, so what.
I think it's the RIN's and I think it's the
potential, he could do some stuff that I think
could hurt the biodiesel side of it, that's where
the trouble is and that's where I think there's a
risk on the bean oil side.
Bean oil has certainly been elevated by this
problem with the Malaysian palm oil market but it has
been also supported somewhat by the EPA's
attitude about biodiesel and diesel fuel.
That could be a problem from him.
Everything I've read says that's one area to be
cautious.
But I'm not all that concerned about ethanol.
Pearson: Okay.
If the RIN's go away how would that change the
industry?
Those are the renewable identification numbers
that are created whenever ethanol is brewed, right?
Pfitzenmaier: Again, I don't know that it will
have any effect on it.
It's just, it's a game that people play in the
oil industry -- Pearson: Shuffling their RIN's
around to meet their targets.
Pfitzenmaier: Yeah.
Pearson: Alright, interesting.
Matthew's second question is talking about something
you mentioned on the program, the spread or the
ratio between new crop beans and new crop corn is
higher than it has been historically.
Matthew is asking, is the 2.65 to 1 bean to corn
ratio going to narrow?
Pfitzenmaier: Well, I would guess it will narrow
if people go out and plant a bunch of beans.
If you plant 3 to 5 more million acres of beans
that's going to tend to be supportive of corn prices
and negative to beans.
So I would guess it would pull it back into that
2.4.
That's what I was alluding to on the show when I said
if you're going to go out and plant beans, and as he
said the incentive is there to do so with new
crop beans up at $10.40 or $10.50, wherever they get
to, but in order to take advantage of that you've
got to make the sale, you can't just plant the beans
and hope.
Pearson: Because if everybody is looking at
these numbers and everybody plants beans
that number is going to change.
How aggressive would you be, for those that have
revenue insurance, would you be selling up here at
these prices, call it $10.40, call it $10.50,
$10.30, would you be selling 50% of your
guaranteed bushels?
Pfitzenmaier: I thi8nk you can do that, yeah, because
you're up at levels where if you kind of work the
basis a little bit you're going to be getting pretty
close to $10 cash beans in a lot of areas.
And if you have any kind of yield you can kind of
make that work.
So I think you'd have to look really hard at that.
I know guys that are going a lot stronger than 50%
and I'm always a little uncomfortable with that,
but the numbers kind of make sense.
Pearson: If you go north of 50% of guaranteed
bushels would you do any kind of a call to reown it
or would you wait and see what happens a little bit?
Pfitzenmaier: I guess if you're making a sale and
you can't stand it then I guess going on -- spending
some money on a call probably isn't too bad an
idea.
Pearson: Okay.
Only use it as a tool to make the sale if you need
to.
Pfitzenmaier: If you can't sleep and night and you
can't stand it and you're afraid you're going to
miss the move back to $17 or whatever, yeah then
spend a little money on a call and feel better.
Pearson: One of the things that I hear a lot in the
countryside and I know you hear a lot is this push to
bean acres is going to be driven by profitability
looking at the numbers, but also as bankers look
at spreadsheets, look at balance sheets and say
hey, it's a little riskier out here, we don't want
you spending all that money.
You talk to a lot of folks.
Is that a valid reason you think to see some --
Pfitzenmaier: That's the one I hear all the time is
well, these guys won't have enough money to plant
corn but they're going to plant beans.
And I was like, how does that conversation go when
you go into the banker and go, Mr. Banker, I don't
have enough money for planting corn but I'd like
some money for planting beans.
I'm just afraid the Mr. Banker is going to go,
nah, maybe we just won't give you any money for
anything and give it to Fred down the road.
That argument sort of bothers me I guess because
I'm not sure those meetings with the banker
actually go like that.
Pearson: Right.
The banker is going to be just as willing to find
somebody else who -- Pfitzenmaier: And if
people are in a rotation how do you do that anyway?
You're not going to plant beans on beans.
So you only have a certain amount of flexibility in
that anyway.
Pearson: Although I was talking to an agronomist,
this was last year in southern Minnesota, he had
a number of clients growing beans on beans and
they were pretty excited and pretty pleased with
it.
So I don't know, talk to an agronomist, don't take
my advice for it viewers.
I am not an agronomist.
I can barely keep plants in my house alive.
Another question for you here, Rodney in Edgar,
Wisconsin wants to know, what is setting up to
drive the cattle market in 2017?
Pfitzenmaier: Well, I don't think there's -- the
basics, the numbers.
How are these numbers going to shape up?
We've had fairly low placements but that's
going to change in the next cattle on feed report
I think and you're going to start to see placements
really pick up.
You had all these calves that were doing, like we
talked out in wheat ground and out in pastures held
up, we had an awesome fall so there was no reason to
bring those calves in, let them sit out there, put on
weight, so they're going to come in with some
pretty nice weight on them.
So I think you're going to start to see those numbers
pick up through the winter.
If we have a quasi-mild, maybe not mild but sort of
average winter, the cattle should do okay.
And then you have to look at demand.
I mentioned it on the show and I guess it's worth
repeating is this strength in the dollar is a giant
headwind for all of us involved in agriculture
and there's particularly true with beef exports.
So that's something that I think you need to watch
really closely.
And then you've got this differential between high
beef prices and pork and poultry that's quite a bit
cheaper.
So all that is going to be a problem for the cattle
market.
And we're up at the top end of the trading range
that maybe you should be taking a look at some of
that.
Pearson: How far out in the future would you be
willing to pull the trigger on some sales?
Pfitzenmaier: We've mostly been going through April,
although I have had a few guys that go out to
August.
That August is pretty heavily discounted and
that's a little hard for me to get excited about.
Pearson: Right around $100 isn't it?
Pfitzenmaier: Yeah.
But April cattle are getting up to levels,
$112, somewhere up in there, I think it's worth
taking a look at because most of the people I talk
to can make some money if they're selling those
cattle at that level.
Pearson: It's interesting on the cattle market, I
read a report by Urner Barry that of the 41 weeks
in the year, however long ago that was, lean ground
beef had sold cheaper than boneless, skinless chicken
breast, 37 of those 41.
So they're finding a market for that low end,
it's the high end cuts of beef that we're having
trouble competing with poultry and pork.
Pfitzenmaier: Grind up those dairy cows and you
get some pretty cheap hamburger.
Pearson: I've sold a couple of cows that, they
made delicious burger, but yeah there weren't a lot
of T-bones, not a lot of high quality ribeye.
We've got a question here for you to help us
understand the futures markets in general, Tomm
Pfitzenmaier.
Our ask the analyst question today is, what
are the pluses and minuses, the drawbacks or
opportunities, of selling in December as we approach
the end of the year?
Anything extra to think about this time of year
when you're making sales?
Pfitzenmaier: In terms of futures sales?
I don't really -- I think all the issues revolving
around year-end are pretty much cash oriented whether
you want to take the income, not take the
income.
It used to be structured tax wise that there's some
advantages to some things you could do in the
futures but that has all gone away.
So I really, unless you're using it as part of some
sort of a tax strategy on the cash side to reown or
whatever then maybe, but other than that no.
Pearson: And you don't see any big movements by the
hedges as we approach end of the year because their
fiscal years are probably already over?
Pfitzenmaier: There's always rebalancing and so
you have to try and figure out, okay what has made a
good move and what hasn't and sometimes you'll see
-- but everything has kind of been moving up.
Maybe you'll see a little selling of beans and
buying of corn because beans have gone up a
little more than corn has but I don't, again, I
don't see rebalancing being a big deal this
year.
Pearson: Not a factor to keep people up at night.
Pfitzenmaier: Correct.
Pearson: Okay, well Tomm Pfitzenmaier, thanks so
much for joining us.
Pfitzenmaier: Okay, thanks, Mike.
Pearson: Be sure to check out this week's M-to-M
podcast as Peter Tubbs tells us about why young
veterinarians are working in remote, underserved
regions of the country.
And join us again next week for our feature story
to see how it all plays out.
So until then, thanks for watching.
I'm Mike Pearson.
Have a great week.