Market Plus: Shawn Hackett

Jul 19, 2019  | 11 min  | Ep4448 | Podcast


Howell: This is the Friday, July 19, 2019 version of the Market Plus segment. Joining us once again is Shawn Hackett. Shawn, welcome back.

Hackett: Thanks. Great to be here again.

Howell: Okay, Shawn, let's talk a little bit about the dairy industry because I know that's also one that you cover pretty closely. What's going on there? Anything new to report?

Hackett: Well, the whole thing has been this very, very slow production growth in the U.S. has really been driving prices higher. After two years of just dreadful returns finally the dairymen culled their herds, got the herd down, fed less to the animals and now production was negative for two out of the last three months which was very unusual. So this has been driving the market higher and creating concern that there could be some tightness in the market later in the season. And so we're bumping up against this 5 year high around $18 per hundredweight. We think that's probably going to be it for a while. We do think the herd is going to improve and we think there's going to be some demand destruction at this higher level. So we think this probably is a good place for some marketing to go on at least into the end of the year.

Howell: Okay. And we've got some new government assistance programs out this year with the dairy margin coverage so hopefully that helps with some of the areas if you don't meet your break even costs for dairy --

Hackett: It helps a lot and it's an additional safety net that is really appreciated at a time when they need all the help that they can get. But right now fortunately a lot of the prices for most of the dairymen are good enough that they can start putting a little money back into the business than taking it out of then business which they've been doing way too much of. So we hope it stays but at the same time we're in the business of trying to advise and we do think this is a place to start selling some of your milk here.

Howell: Okay. Shawn, you mentioned in the main program there about the relationship with African swine fever and the beef and the pork markets. You mentioned uncertainty and I want to ask you a little bit to unpack that idea for us a little bit more.

Hackett: The hog market rallied big time earlier in the year. We saw all these export commitments taking off, same thing for beef and everyone got excited, it's here, it's happening and the deliveries didn't happen, we weren't actually sending the product out and so the supply kept backing up and everyone goes, wait a minute, there's no problem, and the market started to cave in and then the trade war escalated again and so we've been in this period of uncertainty of when are we going to start shipping this product, apparently they need it. But we continue to see these commitments in beef and pork go higher and higher and higher and we would feel that would not continue to be the case unless we were going to start seeing some massive shipments as we move into the back half of the year or else they wouldn't continue. We're not just talking about small increases, we're talking about pork commitments of 100%, beef commitments up 40% not only overall but mainly to Asia, which is of course where this would really be gong because of Vietnam and China and everything else. So to us it's just that's telling us it's actually going to happen but the delay in the physical has just been the thorn in the side of the market and they are waiting this time to actually see the physical go out instead of taking it on faith that it will. So right now that's where we're at, the market is waiting for that sign, that signal that it's time for the physical to move and we can go in and really run this market back up and keep it up this time.

Howell: Do you think there will be any signs that the physical is getting ready to move or it will just happen?

Hackett: Well, sometimes it just happens. Other times you can see a very strong improvement in the cash basis at times, product is really starting to move and product is tightening up domestically. And so we're looking at cash basis to see if we see that. If we do it would definitely be a sign that's starting to happen and so we hope we get that signal because it would be nice to get a heads up on it before it actually hits the media.

Howell: And it seems like livestock are very driven right now price wise by what's going on especially in the corn market. I've got a good question here I want to kick it off with from Tommy over in Letts, Iowa. I've got to give a shout out to him, he's one of my hometown folks. But his question is what if there is more than 92 million acres planted and a yield of 163 average?

Hackett: What happens to the corn price?

Howell: Yes.

Hackett: Probably goes back under $4 I would think. We don't have a problem.

Howell: Do you see that happening?

Hackett: No. I don't think that we are going to harvest -- he's asking are we going to harvest 92 million acres. No. We don't really know yet. Obviously the USDA report put a lot of confusion in but I do believe, this is what I'm comfortable in saying, we do know in delayed plantings of the past that we had 4 or 5 million additional acres lost from harvested acres. We would think that for sure we're at least going to see that, which means the number that came out from the USDA needs to come down 4 or 5 million acres just to be what a normal delayed planting season would look like. We're comfortable in saying that and so we don't really -- anything is possible, we'll never say it can't be 92, but we think it's really unlikely that is going to be the case. But if it did we would see sub-$4 corn market.

Howell: Okay. That leads into this question we've got then from Phil in Dresden, Ontario talking specifically about the prevent plant acres that we've seen this year. Phil's question is this. He said, how many corn and soybean acres will ultimately end up in prevent plant? I assume this is already dialed into the market for what is planted. And will USDA dial back yield further in the August 12th report or is it about heat at corn pollination and rain in August?

Hackett: Well, USDA already said that they have no idea what the yield is and they're not even going to try. They came out with a report and said look, we can't do our normal analysis because we're so far behind so we're not even going to try, we're going to do a little satellite picture, try this, try that. But basically I don't see them making any major changes because they have no reason to do so. The September report would really, really be the report where they're going to make some really calculated adjustments to yield and say, we think this or we think that. And of course by that time pollination will be done, we'll know how the weather took place and we'll have a better idea. But I do not see either acres or yield really having any major change in the August report.

Howell: And then prevent plant what are you thinking we see for some final numbers there?

Hackett: Well, given that we would normally see 4 or 5 in a normal, garden variety delayed planting you would have to think that we would see another 4 or 5. One would have to believe that's a reasonable expectation in the marketplace to eventually see that. Now, when does the USDA actually come through and recognize that? Our concept is it will probably be closer to October before we get a better read on that. And maybe they don't come all the way down there because they're just being more conservative, it may take a little longer. But we think ultimately an 8 to 10 million acre number would be consistent with what we believe took place this year and what is consistent with the delayed planting from past years.

Howell: Okay. So we've got September, maybe October until we really see some of these final numbers. Does that mean we're probably not going to see some sort of a rally until that time when we continue trading in this range?

Hackett: Taking trade off the table, taking some crash in the dollar off the table, the only thing that we can see that would move the grain markets and the corn market up before we get that clarity would be hot, dry weather in August like we saw last week. If that had continued for longer than the market was expecting we probably would continue to drive the market higher so we would have to be going back to hot and dry in August. Absent that we're going to have to wait for clarity and that means 1993 like we said on the major program, first half of September is a really, really interesting time to be looking for a bullish turning point based upon the facts of the case coming out.

Howell: Okay. Shawn, I think this is a good question because you're located down in Florida and you've got customers really all over. We've got another question from Phil in Dresden, Ontario, he's very busy this week on Twitter asking questions for you. But he said, where are the best crops in the U.S. Corn Belt, where are the worst and was the early hype on how bad things were in the Eastern Corn Belt overdone or is it justified?

Hackett: We don't know if it was overdone because we still have so much weather to go to know how it's going to turn out. I don't believe that the worry is overdone. When we look at satellite vegetative health maps that we do all the time and we try to look at where are things looking really, really bad compared to last year, the state of Illinois, Indiana, the Eastern Corn Belt is way, way down from what it was last year so the satellite picture, and this is not perfect, but it's telling you that the conditions in the Eastern Corn Belt are really, really bad compared to last year and that's real. What the yield ultimately turns out we're still going to try to figure that out but I don't believe it was overblown, I just think the market needs more time to actually figure out and quantify what that actually means.

Howell: Okay, Shawn, you've hit on a lot of different topics here. You've talked about a strong dollar, we've talked about trade wars, higher prices, and I think that sets us up nicely here for this last question from Bradley in Upland, Nebraska. He said, a strong economy has led to a strong dollar coupled with trade wars and higher prices has crippled our export markets. Could it be years before these levels recover?

Hackett: Anything is possible. But when we look at the long-term dollar cycles, ever since we came off the gold standard in the early 1970s we have followed a very consistent eight year pattern from high to low, low to high and that cycle topped out in 2017 suggesting that we're in an eight year bearish cycle for the U.S. dollar. It doesn't mean it has to happen immediately, it doesn't mean you can't have periods of up, but we are in a period where the dollar cycles are pointing towards a weaker environment. we're already hearing about the Federal Reserve wanting to lower rates, potentially printing more money, all these things will be indicative -- and the U.S. President, President Trump is up for re-election and presidents when they're up for re-election tend to do a lot of things to pump up the economy and extra spending that a lot of times creates needs greater debt creation which tends to be negative for the U.S. dollar. So we think the odds are favorable that that's not going to be the scenario and that we actually will see a sustainable dollar decline, which as your listener mentioned is very, very important to getting exports going and to getting a better competitive environment for our product.

Howell: Okay, Shawn Hackett, thank you so much, always a pleasure.

Hackett: Thank you.

Howell: Join us again next week for our sit-down interview with the U.S. Secretary of Agriculture and Sue Martin will join us at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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