Pearson: This is the Friday, April 28, 2017
version of the Market Plus segment.
Joining us now is Tomm Pfitzenmaier.
Tomm, welcome back.
Pfitzenmaier: Thanks, Mike.
Pearson: Now, I wanted to get a chance to discuss
with you the cotton market.
We saw two massive rallies in a row in that market.
This week a little bit of a setback.
Could we just not breach that 80 point?
Pfitzenmaier: I think we can't breach it yet.
Maybe when the April supply and demand report,
I mean May supply and demand numbers come out,
then maybe we can.
I think the market, like you said, it has had a big
jump up, we're banging up against that 80 resistance
and I think you're going to see some profit taking
and some consolidation ahead of those supply
numbers.
If that comes out friendly and export, it's all down
to cotton exports.
If those continue to be strong we may be able to
nudge that out and if we do there's probably a nice
little leg up in the cotton market.
But that is kind of what it boils down to.
We've planted probably all the cotton acres we're
going to so that part of it is, it is what it is,
you're not going to change that much from now on.
So you're kind of down to how does that crop
develop?
And there are no major problems that I've heard
of.
Pearson: This cold weather is not expected to go all
the way into cotton country.
Pfitzenmaier: Right.
So, that stuff is, there's not much there one way or
the other.
I just think it boils down to those demand numbers.
Pearson: And so that export strength for
cotton, we've been on a tear down for six weeks
probably or more in the cotton market with
exports?
Pfitzenmaier: The cotton market really for the last
two, three, four years has swung depending on what
the Chinese demand was for our cotton.
That is what it has boiled down to.
They're the big gorilla in the room in cotton just
like they are in the soybean market.
So right now they have been buying a lot of
cotton.
If that ever changes, and I don't know what would
make it change, well one of the problems is going
to be probably the cotton producers are going to
over produce like we have a tendency to do in
everything else and then that kills the market.
But we're a ways away from that happening I think.
Pearson: Alright.
So yeah, it's more of a next year concern if corn
prices haven't rallied much and cotton is still
around 80 cents guys are going to make that
decision.
Pfitzenmaier: Sure they are.
Pearson: Alright.
Now we do have a question here from one of our
Twitter followers.
This is from Glen in Bryan, Ohio.
He's on Twitter @glen_newcomer.
We had the NFL draft pick this week, NFL draft, and
he's asking you to compare the markets to the NFL
draft.
What is your first round draft pick for market
improvements?
You were not very sunny on the program.
Is there anything out there that could get you
to come over to the bull side on these markets?
Pfitzenmaier: Well, it's really hard for me to make
a case for the grain markets to do much.
We're building world supplies.
I think you have to set that aside and say that's
not a possibility.
The hog market, hog numbers continue to
expand.
We were talking in the break here, they're just
building buildings all over the place, they're
making decent money and I think they're going to
keep expanding.
So the upside there is somewhat limited.
We talked on the show some about the cattle market,
that maybe has the potential for some
fireworks here.
I guess if you're talking about specifically on ag
markets I'd say that or potentially cotton.
If we have a jump in the demand for cotton those
two are probably the ones that have the most upside.
And then there's always the, maybe we do have this
summer it turns 100 degrees and never rains
for a month and a half and the grain markets are
depressed.
That potential always exists every summer.
Pearson: Okay.
But you're saying, that's a pretty remote
possibility.
It's not one to build a marketing plan on is how
you're approaching this summer.
Pfitzenmaier: Right.
Pearson: Okay.
Now I want to come back to the beef markets a little
bit because this has been incredible to watch all
week.
One of the things we've seen, you touched on it on
the show, we've seen these weights come down, we've
seen deferred orders of boxed beef, those 20 day
plus orders be the strongest I think I read
since 2010.
We're heading into grilling season.
When do we expect this historically to begin to
tail off?
Pfitzenmaier: Well, generally this is somewhat
counter seasonal, the high we've had.
So when you don't tail off when you're supposed to it
does kind of make you wonder what the potential
is here.
If you're looking at smaller numbers, smaller
cattle, demand pick up potentially coming here,
all the stars are sort of aligned all of a sudden
for a pretty decent beef market.
Pearson: Can we, can you construct a scenario where
we look at the 2014 $172 live cattle prices?
Is that in the cards?
Pfitzenmaier: I suppose under the right
circumstances, yeah.
Pearson: You heard it here first, Tomm Pfitzenmaier
says cattle are going to $172.
That was a leading question.
Pfitzenmaier: That was.
Pearson: But here's kind of my follow up to it.
We have seen over the past three weeks massive
increases in open interest.
There has been massive movement into the cattle
contract by large speculators.
Does that make you nervous when you see a rally like
this that is really being driven by those large
specs?
Pfitzenmaier: Yeah, the market this week to me had
a blow off feel to it on Thursday and Friday.
So that's why I'm a little hesitant to say we're
going to go shooting up out of here after having
that kind of a move up.
It was like they had a lot of people stuck and they
kept them stuck right into the end of it.
So I think we're going to have to wait and see how
that shakes out next week, how the June contract
reacts, whether this cash strength continues to hold
here.
If it does and June starts to move up then we
probably have some decent up move here.
Pearson: Okay.
Need to see some confirmation before you
get too excited.
Pfitzenmaier: Yeah, I do.
Pearson: Okay.
Now, that being said, we do have this incredible
discrepancy between cash and the June contract.
Is it a lot harder to pull the trigger on hedging the
June contract when it is that far below cash?
Do producers generally want to hang on until we
see a little bit more of a convergence?
Pfitzenmaier: There's two ways of looking at that.
You can look at it and say wow, if you're going to
maintain those kind of premiums of the cash
market over your futures hedge that's awesome.
But maybe that thing is already out as far as it's
going to go and you're going to see it collapse.
So I guess the answer to your question is, it makes
it really hard to sell the June contract, even if
they're up at relatively high levels, even if
they're profitable like I talked about that decision
making matrix that you have to set up.
Yeah, I don't know, ideally when you have
upside potential like that you probably want to use
puts.
The problem with puts is they're pretty expensive,
even for puts that are quite a ways out, simply
because people are going through that thought
process going, I don't know if I want to be in
the futures but I want some protection and so
they tend to jack up the puts a little bit.
So that's the tradeoff.
Pearson: To find an affordable put we had the
June contract close at $124 and change.
Would you have to go down to $115?
Pfitzenmaier: Probably $114, $116.
Pearson: Get something substantially out of the
money, okay.
Now, we did talk on the program, we saw a little
bit of weakness in the U.S.
dollar this week.
We also saw weakness in the gold market and I
don't track the metals all that often.
Doesn't seem like we see those two move in tandem
very much.
Pfitzenmaier: Well, I think inflation fears have
-- it's kind of a risk off trading the gold there
where they were buying gold over fear of who the
heck knows what was going to happen with the
administration and now that that has kind of
settled out a little bit that has helped.
And now all of a sudden you're in a situation too
where with Brexit and with the French vote you're
seeing the Central Bankers and Bank of Japan and the
ECB have said and they said this past week that
they're going to continue with their Kiwi or
whatever their program is.
At the same time there is a little unease about
whether the Fed can raise interest rates as fast as
they thought they were going to be able to.
So you've seen a pretty nice sort of pull back on
the dollar, which tends to be supportive to our ag
exports, although when the dollar shot up I didn't
see us drop off that much either.
So I'm not sure how well correlated those two are
right now.
But gold may correct a little bit more.
There's a certain crowd that likes to buy gold and
I think they're going to keep it well supported
because there is all this concern about geopolitical
risk and U.S.
administration risk with taxes and all that.
Pearson: North Korea and the nuclear missile, the
amount of Armageddon talk out there is more than
I've seen in my lifetime, which yeah probably would
help support the gold market.
Pfitzenmaier: Correct.
Pearson: One of the things we didn't get a chance to
talk about that just occurred to me, the
Brazilian real.
Is it continuing to find some strength?
Are we getting more competitive versus Brazil?
Pfitzenmaier: It actually we watch that pretty
closely and it hasn't really changed in the last
six weeks.
It kind of bounces between 31 to 31.2 to 32 and it
just kind of stays in that trading range and it
really hasn't reacted much.
Pearson: Alright.
Well, Tomm, before we let you go we have been asking
for questions from ag students around the
country and we encourage all of you if you are an
ag student either at a university or at the high
school level and you've got a question you'd like
to ask our analysts, get out your cell phone, shoot
a little video.
This week we are featuring a question from an Iowa
State student.
Learn more about this project by going to the
MtoM podcast #143.
Here is the fourth installment of our college
level agricultural student question.
Craig: What is the biggest hurdle for someone
starting out?
Pearson: Short and sweet, Tomm Pfitzenmaier.
Let's talk about trading.
Pfitzenmaier: I guess that's about the only
thing I can really assess because there's a lot of
hurdles to about anything you want to start out and
do.
I guess knowledge is the most important thing and I
think that is followed up pretty quickly by having
the right mental attitude because you talk to
anybody that has traded much or been involved with
the markets or any farmer that has to market grain
and the mental aspects of that are really, really
difficult.
So you've got to structure yourself in ways that you
can deal with the stress that comes along with
that.
Now, until you've done it a little bit it's hard to
know where those sort of pressure points are going
to hit you.
But I think that's something you have to be
prepared for, you have to put some thought into,
you're probably best to ease your way into it,
maybe buy puts, maybe buy a call where you have a
defined risk and sort of work your way into it that
way, charging right into a futures contract may be --
there's certain people that they have no problem
with that.
But you just need to sort of assess where your head
is at in terms of your ability to bear risk and
stick with things.
And I mean stick with things when they go bad.
When they go right that's easy.
Anybody can do that.
Pearson: Alright.
Well, I hope that helps.
Thank you, Tomm, so much for taking the time to
join us this week, really appreciate it.
Pfitzenmaier: Thanks, Mike.
Pearson: And please join us next week when Walt
Hackney and Elaine Kub will sit across from me at
the Market to Market table and we'll explore how
heritage breed farmers are producing pork with a
purpose.
Until then, thanks for watching or listening.
I'm Mike Pearson.
Have a great week!
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