Tip:
Highlight text to annotate it
X
Coming up on Market to Market -- supplies of corn, wheat and soybeans decline, but the
market takes it in stride. Partisan bickering on Capitol Hill results in the first government
shutdown in 17 years. And as federal agencies close, services are cut, and the impact is
felt from sea to shining sea. Those stories and market analysis with Tomm Pfitzenmaier,
next. This is the Friday, October 4 edition of Market
to Market, the Weekly Journal of Rural America. Hello. I'm Mike Pearson. After weeks of Congressional
name-calling, finger- pointing and relentless bickering, lawmakers failed to agree on a
continuing resolution funding the federal government by the September 30 deadline.
House Republicans have approved spending bills that maintain current spending levels but
do NOT provide funding to implement the Obama Administration's signature legislative achievement:
The Affordable Care Act. The measure was designed to help nearly 30
million uninsured Americans get coverage. It also prohibits insurance companies from
denying coverage due to pre-existing conditions and imposes other reforms.
House Republicans -- especially fiscally conservative members of the Tea Party -- adamantly oppose
what they refer to as Obamacare and have worked to repeal, defund or weaken the legislation
ever since it was signed into law in March of 2010.
Senate Democrats, on the other hand, insist that the Affordable Care Act be fully funded
and they refuse to negotiate concessions in reforms signed into law three years ago.
Ultimately both parties dug in their heels, and on Tuesday -- for the first time in 17
years -- the federal government shut down. The House is expected to vote on a bill over
the weekend authorizing back pay for furloughed workers. Some top Democrats support the idea,
but so far, Democrats have refused to negotiate on separate bills keeping certain, politically
sensitive parts of the government open. Democrats stepped up the rhetoric Friday,
calling on House leaders to rein in Tea Party members and reopen the government with no
strings attached. House Speaker John Boehner, reacted angrily
to a Wall Street Journal story alleging Republicans don't care how long the shutdown lasts because
they think they're winning, telling reporters quote, "this isn't some damn game."
And Washington went from shutdown to lockdown Thursday after a woman led police on a chase
that ended at the Capitol, where she was shot and killed.
The woman, who had a small child with her in the vehicle, is believed to have been suffering
from depression, and it is unclear what role the government shutdown played -- if any -- in
the incident. But one thing IS certain: the shutdown is
having some very real consequences for millions of Americans.
The Park Service, of course, is precluded legally from accepting private offers to conduct
its day-to-day operations. But gridlock in Washington apparently won't stop the Army,
Navy or the Air Force from playing their football games Saturday.
On Tuesday, the Department of Defense suspended all intercollegiate athletic events at its
service academies because of the shutdown. One day later, however, the DOD approved its
service academies playing football on Saturday. According to officials, all costs associated
with the Air Force at Navy game and the Army at Boston College contest will be covered
by non-appropriated funds. While shutdown casualties garner the most
attention, there were other developments this week with ramifications for commodity markets.
The Agriculture Department is currently closed for business, but prior to the shutdown USDA
bean counters released their latest quarterly stocks report.
Next, the Market to Market report. By week's end, wheat had recovered all of
Monday's loss and then some while corn continued to struggle. For the week, December wheat
gained 4 cents while the nearby corn contract moved 11 cents lower. Soybeans tumbled on
Monday's quarterly stocks report and settled Friday with a weekly loss of 25 cents. Nearby
meal prices, however, eked out a gain of 10 cents per ton. In the softs, cotton continued
its recent rally as the December contract added 55 cents per hundred weight. In the
dairy market, October Class III milk gained 19 cents while the November contract moved
22 cents higher. Over in livestock, December cattle gained 35 cents, nearby feeders advanced
by more than $1.00 and the December lean hog contract posted a weekly loss of 50 cents.
In the financials the Euro gained 37 basis points against the dollar. Crude oil rallied
nearly $1.00 on news of progress on the southern portion of the Keystone Pipeline and the looming
threat of Tropical Storm Karen. Comex Gold lost $21.60 per ounce. And the Goldman Sachs
Commodity Index gained nearly 3 points to settle at 638 even.
Pearson: Here now to lend us his insight on these and other trends is one of our regular
market analysts, Tomm Pfitzenmaier. Tomm, welcome back.
Pfitzenmaier: Thanks, Mike. Pearson: The topic all over the news, the
topic at the top of our show, the government shutdown. What effect is that having, if any,
on the commodity markets? Pfitzenmaier: Well, it's having an effect
on the trade and having an effect on information because the USDA reports aren't coming out.
I can't really say that it's having any direct effect on any particular markets although
I guess the hogs and pigs report that we had a few days ago came out and said that hog
numbers were a little greater than we thought. So everybody is trying to figure out does
that mean the hogs were pushed back or that the hogs aren't there? Well, the only way
to answer that is the daily slaughter reports which we aren't getting. So in that respect
it is probably having some effect because it's throwing some uncertainty into that market
in particular. The other ones I think everybody is just going to kind of react to private
forecasts and carry on. I think there's a good chance that October report, unless something
gets resolved this weekend, probably is going to get pushed back, the October supply and
demand report, sorry. So uncertainty is never good in the market. It tends to make things
go lower. Pearson: Certainly. And uncertainty, the fear
could be that markets, money is just going to pull out and sit on the sidelines until
we get some reports back. Pfitzenmaier: Yeah, there could be some of
that too certainly. Pearson: Alright. Well, let's take a look
at where we're at today without the government in place. As we look at wheat we're up 4 cents
even after Monday's sell off. What is driving that wheat higher?
Pfitzenmaier: There's some pretty, there's pretty good demand for quality wheat, number
one. Number two, the Black Sea area is having a little trouble getting their winter wheat
planted. So I think the combination of those two things has been pretty supportive. I don't
know that that's got a lot of carry through. I still believe you get up around $7 in wheat,
you've got wheat way above corn so there's going to be demand for wheat to feed is going
to be practically non-existent. So I think we've stretched that rubber band as far as
we're going to be able to here. Pearson: Because that spread did continue
to widen all week -- Pfitzenmaier: Yeah, it did.
Pearson: So eventually we will see some pullback. Pfitzenmaier: Yeah.
Pearson: Advice to producers out there? Pfitzenmaier: Well, I think if you have wheat
to sell I think you use resistance up against that $7.00, $7.05 whatever to start getting
some sales made. Pearson: Okay. Well, now let's take a look
at corn. We had the bearish number come out on the quarterly stocks report, seemed to
take a lot of folks by surprise, 200 million more bushels than the market was anticipating.
And corn languished all week. Are we putting in lows this week do you think?
Pfitzenmaier: Absolutely not. This corn market -- there's too much corn. I mean, if we have
another increase in yields, which we probably are going to have, and we struggle with demand
we could be looking at a 2 billion, 2.2 billion bushel carryout and you aren't going to have
$5.00 corn with those kind of prices. We've had a nice little rally, the market got oversold,
you had a little bounce because of harvest delays possibly over the weekend. But the
upside potential here I think is very limited and the downside is still pretty significant.
So no, I don't think any kind of a low got put in this week. The demand for corn, ethanol
is tapped probably at 4.9 billion bushels. Feed demand, cattle numbers are down, hog
numbers are up but not a lot. Obviously we wouldn't be making new highs in hogs if there
were a lot of hogs around. Poultry is up a little bit. And export demand, we're still
30, 40 cents above the world price on corn. So how are we going to sell corn and meet
the USDA's projections on demand? Now, everybody says, well, yeah, exports are up 30-40% but
the USDA is projecting them to be up 70%. So even that isn't holding up. So, no, if
you're sitting on corn thinking that your revenue assurance program is going to be your
marketing plan at some point you're going to have to sell some corn and develop a plan
on how to do that. Pearson: And probably looking at that supply
of corn that is going to be coming off these combines, probably better to begin marketing
sooner rather than later. Pfitzenmaier: On a downtrend you're always
better -- the faster you can sell stuff the better off you are and we're definitely in
a downtrending market here. Now, there's some strategies you can put together to sort of
enhance that. There's a good carrying charge in the market, probably is going to maybe
even be a little more as harvest goes along. You can sell that carrying charge and capture
that to hold the grain. There's probably going to be some basis plays because the areas in
northern Iowa where all the ethanol plants are isn't going to be where the best corn
is so you're going to have some deficits that give some opportunities there. So there are
things to do but the one thing I would point out is everybody you talk to says, oh I'm
going to store my corn and take advantage of the carry. Great. Wonderful strategy. The
problem is to do that you have to sell the carry. Just sitting here hoping, thinking
that the carry is going to be there, that's not the way it works. The way it works is
each successive month tends to come down to where the premiums went out. So if you want
to sell the carry you have to actually sell the carry. So one of the things I think people
really need to pay a lot of attention to here. Pearson: Alright. So that's good advice and
I think that's important for people to remember that as we're putting corn in the bins trying
to capture that carry. Pfitzenmaier: Yeah, don't put it in the bin
and just forget about it and hope things are going to get better because they did the last
couple of years because a 2.0 billion plus carryout isn't really something that makes
corn go up a lot. Pearson: 2 plus billion, does that put us
in the $3.00 range? Pfitzenmaier: It certainly puts us in the
$4.00 range or possibly slip under sub $4.00. And then the other thing is looking at next
year, we're going to go in on a carry in of 2 billion. Everybody says, well, the corn
to bean ratio favors beans. No it doesn't. If you compare the 2014 November beans to
December 2014 corn it doesn't favor beans, it favors corn again. So something is going
to -- either beans are going to have to rally a lot or you need to be selling the daylights
out of December 2014 corn here up against $5.00.
Pearson: Well, speaking of that, we're not seeing beans rally at all. We're continuing
to see a slide. What is driving us in beans? Pfitzenmaier: I think to some extent you've
got a situation where the funds have been heavily long beans and all of a sudden you're
starting to get bean yield reports drifting in that maybe the beans weren't quite as bad.
Now I'm not sure if we get into later beans if that is actually going to be the case.
But I think that is what is pressure -- the whole strategy for a lot of people has been
to sell beans, store corn so you're -- as they come off the combine beans are being
sold so that is pressuring it some. You have the prospects of the South American crop being
plant -- and planting is beginning, they're starting to think about it and their conditions
are fairly good. So all that I think is coming together. Now, beans in my mind have more
upside potential than corn does just because it's quite a bit tighter carryout.
Pearson: And looking at the world demand just seems so much greater for beans --
Pfitzenmaier: Yeah, the world demand is good and China is sort of always sitting out there
as a potential price supportive factor. And if anything goes wrong in South America that's
going to be price supportive also. So you've got a little different dynamics in the bean
market than you do the corn in my opinion. Pearson: Certainly. Now one of the topics
that has been discussed a lot is whether or not we have just front loaded all of our export
orders or are we on a new export track where we're going to see exports continue at this
current pace all winter? Pfitzenmaier: Well, that's the question. I
would say probably not. One of the reasons why people are selling beans off the combine
and not storing them is there's a negative carry and there's a negative carry because
there is an expectation that all those South American beans are going to get dumped on
the market in February, March, April and so there's no reason to pump up and have a carrying
charge in the bean trade. So I guess I would argue against that as far as I'm concerned.
Pearson: Okay. Alright. Well, now let's take a look at cotton. We have seen cotton come
into a recent rally the past couple of weeks. Is that going to continue? What are some drivers?
Pfitzenmaier: I think it's in a trading range here. Demand has been fairly decent for cotton.
We had that little spike up to 93 or whatever it was a month or so ago but the market quickly
fell back down. I think you're really in a trading range in cotton in 82 on the bottom
side and you bounce up toward 90 you probably need to be a seller of cotton.
Pearson: Get in there and make some sales as it gets close to that 90.
Pfitzenmaier: Yeah. Pearson: Alright. Now, as we take a look over
at livestock, we've seen cattle hot for the past month and we've got live cattle 35 cents
higher this week. Cash trade seems to be following. Where do you see the cattle market headed?
Pfitzenmaier: Well, we've obviously, we've been in an uptrend in live cattle since I
think May 5th. So it has been a really nice, slow, gradually working higher market driven
primarily by numbers and low numbers, feeder market driven by cheaper corn prices. That
has kind of had two things going in its favor. I guess the question is are we going to be
able to absorb and get the consumer to pay up? Are we going to be in a situation where
it's like gas where we kind of got used to, we complained like crazy about $3.00, it rallies
to $4.00 and all of a sudden $3.00 looks like a deal. Maybe we're going to run into that
same thing. There's a certain base of the population that likes to eat beef and we'll
find out here if they're going to be willing to pay up for it. If they are then you could
see those December cattle work up into that $134, $135 range up a couple bucks from here.
If they can't we run into big resistance, they all start running out and buying pork
and chicken then it's going to be a problem. Pearson: How are the exports looking on the
beef side? We did have trouble earlier with Russia and China and ractopamine. Did we get
that squared away? Pfitzenmaier: I think that's getting squared
away. I think that is one of the sources of the positive on demand. I think you'll continue
to see that help sort of underlie, give underlying support to the market.
Pearson: Okay. So basically we're just looking at continued consumer demand, we're going
to need the economy to continue to stay strong to keep those people buying. Now, where have
we seen box beef values going? Have they been staying relatively elevated?
Pfitzenmaier: Yeah, they have been and they have been well supported. That's why I'm saying,
I'm wondering if the consumer isn't maybe getting adjusted to some of these prices and
willing to accept them and help keep that supported here. I guess I'm fairly optimistic
although, like I said, we've already had a pretty good run and a lot of this has been
anticipated by the market. So the upside isn't great but I don't know that you want to rush
out and make hedges until we get into that dollar or two rally from here.
Pearson: Okay. Alright. We're possibly getting close to the ceiling on fat cattle. Now, as
we look at feeders we have seen a tremendous rally, set off a contract high this week I
believe in November feeders. That is primarily driven by corn?
Pfitzenmaier: I don't know. You're kind of forcing me here to put my boots and hat on
and I'm not sure what motivates those guys that are buying those. I know there's a lot
of bad corn around and people are buying cattle to feed out to get rid of that corn which
may turn one bad problem into two if they don't make money on the cattle. But that is
one of the things that has been a driver behind that feeder market being strong I know.
Pearson: And we've always been worried about that, the crush between the feeder price and
the fat price but now that the fat price is rising maybe the guys have a little bit more
breathing room to chase those feeders a little higher.
Pfitzenmaier: And, like I said, it's a double whammy because you've got declining corn prices
and the perception that that's going to continue and so they're going to build that into the
feeder price too. Pearson: And is there decent carry in the
cattle market in general?
Pfitzenmaier: Not particularly. The deferred months aren't that much higher. They are up
front here but beyond that, no. So there's some incentive to hold cattle in the short
run. I don't know that there is farther out. Pearson: Looking out nine months to a year.
Well, now let's take a look at the hog report. You mentioned the hogs and pigs report that
came out last Friday and it was bearish on the market. We did see a little bit of a downturn,
down 50 cents. Are we going to hold at this level do you think or are we getting started?
Pfitzenmaier: See that is the question that could be answered by these slaughter numbers
in that, okay, why are we where we are? Do we have reduced numbers because of the swine
virus? Or was that no big deal, it's been thrown up? Or were there heat problems that
hurt the way the hogs produced this summer? The deferreds are a little higher than the
nearby so has that incentivized hog producers to hold hogs a little longer, put a little
more weight on so all of a sudden you have a little hole here? And if those hogs start
to show up or don't start to show up kind of answers those questions. So that is why
I said earlier in the show how this slaughter thing shapes up over the next three weeks
is probably going to be kind of important. Pearson: Now, heading into the government
shutdown we were seeing reduced slaughters 10-12% below year ago levels. So that's the
question. Pfitzenmaier: That's the, yeah. Is it the
disease? Is it the hogs aren't there? Did they not do well? What answers that reduction?
Pearson: So, producer advice in
this time of uncertainty, without those reports how do you handle it?
Pfitzenmaier: We've, again, we've had pretty good prices in pork. I think you get December
hogs up in that 89, 90 cent area I think you'd have to be a seller of hogs too. That's a
pretty fancy price for hogs. If we do start to see those numbers show up that market could
top out at any moment here. So I'd want to have some, you know, if you think what I say
is completely full of bologna then buy yourself a put and leave your upside open a little
bit. Pearson: Wonderful. Thank you so much, Tomm,
appreciate you being with us. That wraps up this edition of Market to Market. But Tomm
and
I will continue our discussion and answer some of your questions in our Market Plus
segment on our website. You'll also find audio podcasts and streaming video of our program
as well as links to our Twitter feed and Facebook account exclusively at the Market to Market
website. Be sure to join us again next week when we'll examine the market impact of a
highly anticipated supply and demand report, if the stalemate in Washington is resolved
and USDA releases it. Until then, thanks for watching. I'm Mike Pearson. Have a great week.
Market to Market is a production of Iowa Public Television which is solely responsible for
its content.