Market Plus: Shawn Hackett

Feb 21, 2020  | 11 min  | Ep4527 | Podcast


Yeager: This is the Friday, February 21, 2020 version of the Market Plus segment. Joining us now, Shawn Hackett. Hello, Shawn.

Hackett: Hey, Paul. How are you?

Yeager: We had just a little bit of cold weather for you so I'm glad that we can do that for you Florida folks.

Hackett: My ears tingled I can tell you.

Yeager: He's dressed in six layers and it's 20 degrees outside. You've been dealing with a lot of rain in the South. We talked about that in the main show. But there is something going around called the African locust plague. And that is our first question which came via Facebook. JT in Marion, Wisconsin is asking, will the African locust plague move commodity prices?

Hackett: If it moves into India, Paul, we think it could be a big market mover. And they key month that we're following and the research we have done is that if we get these desert locusts to get infested into India by the month of May that has historically meant failed crops in India and some significant food shortages in the second most populous country in the world. So that would be a big market mover. It's not going to be a market mover today but it could be from May onward if we see India catching it. And right now it just entered Pakistan so we're almost there.

Yeager: And you're saying primarily in the wheat market. Any one of them specifically?

Hackett: It would be winter wheat would be definitely on the docket, things like cotton could be on the docket, rice would definitely be on the docket and rice and wheat have a symbiotic relationship. If rice takes off, wheat takes off given that half the world lives off of either one of them. So it could be a big deal for those two really important crops that the world counts on to feed themselves.

Yeager: A story to watch. Another one has been the wheat market. We talked about it. But Phil in Dresden, Ontario, Canada wanted to know, he said, recent market action in SRW Chicago wheat has been frenetic. When should farmers with SRW in the field look to price that soft crop?

Hackett: Well, we already said in the original program that we would get some of it priced now, prices have had a big rally on the Russian loss of exports and the prices are pretty good. But we want to keep our powder dry and the reason why we want to do that is our natural cycles that we follow suggest that we're going to have an early spring, which means early dormancy coming out, and secondly it means that we're going to have a hot, dry, mid-to-late spring exactly when winter wheat needs that moisture to produce the maximum yield and we think that could create some really, really big weather market concerns once we get to that point and we want to keep some powder dry for farmers to sell that rally.

Yeager: And you're also saying that the hard crop is going to have some issues because of those same scenarios or something different?

Hackett: No, it's for the same scenario, it really is exactly the same scenario. The winter wheat market really, really can be impacted by insufficient rains and at the time that it really needs it and if we get an early, coming out of dormancy early you'll need that moisture sooner rather than later and we think it could be a perfect setup for kind of a move down and then a really big surge probably to new highs. And so that idea means you want to get some price, you want to get some on the books, prices are good, but we want to make sure you can sell that rally because it could be pretty exciting.

Yeager: So what are you watching for when like you said taking off? What are my signals going to be?

Hackett: What we always do, what I always do is we have this smart money algorithm that we follow and when the smart money has a habit of getting long, getting into a buy signal ahead of these big weather snaps, for example last year we had a big buy signal on corn in late April just before the market made that V bottom, so we will be looking for our smart money algorithm to give us that indication that they're seeing a bottom forming or completing and the market to go higher. So capital flows is a big way that we look to do that.

Yeager: All right. We need to keep moving on questions. Louise in Amy, Kansas, she has another thing that maybe would take off the market. She's asking about can China increase U.S. grain purchases and still live up to their WTO obligations to other countries?

Hackett: The big problem always with these big, big numbers is we're not even sure they can deliver the numbers that they're supposed to buy from us and nevertheless any other country. I don't think there really is any way that they can get it all done. But I just think that this agreement was something that was done because both countries just wanted a pass for a little while and I think they're going to come in, I think they're going to buy a lot of our grain. But can they get it all done and satisfy everything else? I think the answer is no.

Yeager: Again, go back to one department saying something different than the other in the administration, at the outlook forum there was even cold water poured on that very optimistic sales mark by USDA themselves and one of the economists yesterday.

Hackett Yeah, people that are supposed to absolutely know what is going on are saying completely opposed things and it really makes it very, very difficult to know what is going to happen.

Yeager: Well, okay, let's crack that crystal ball again. Mitchell in Orange City, Iowa, in the Northwest part, we talked about Orange City earlier today before we started rolling. Will corn ever break out of this stuck trading range?

Hackett: Yes, we think it's going to break out two different times. We're going to break down first because of the early spring, early planting, record pace we think is coming. And then we're going to break back out and up because we think mid-to-late season drought in the spring is going to cause those early acres to be compromised. And so we think volatility is going to ramp up like it did last year. But unfortunately over the near-term we think that volatility expansion is going to be to the downside first and then the upside later, not dissimilar to what we just discussed with winter wheat.

Yeager: It sounds like you're saying that it possibly could get to $7 corn. Andy in Earlham, Iowa is asking, $7 corn? Shawn, I'm still waiting.

Hackett: Well, we made that forecast in 2018. We had a three year to four year forecast that we would see $7, $8 corn by 2021, 2022. Nothing that we see, Paul, is dissuading us from that forecast. We see the La Nina weather pattern coming in, in '21, '22. We also are aware, as you mentioned, Elwynn Taylor's Gleissberg Cycle of 100 year droughts happening on an 88 to 90 year cycle coming into that same timeframe. We see the rebuilding of the hog herd in Asia because of this African swine fever vaccine, record feed demand coming in and all this money that has been printed and being printed by Central Banks, is going to have to go somewhere and if these markets start to trend they like jumping on the trend. Everything we see says that that forecast, although it has not materialized yet, is still on the table and we don't feel that we want to back away from that yet.

Yeager: Not yet. What would get you to back away from it?

Hackett: If we get to 2021 and the weather scenario that we are believing is going to take place does not. That weather scenario that we're talking about does need to happen for us to have $7 to $8 corn. We're very confident about that forecast with the research we've done. But if somehow that does not happen then obviously we would have to backtrack. But for now we don't see anything changing with that at all.

Yeager: We did get one more question about corn and you had a little exchange there on Twitter. Darin in Omaha, Nebraska was asking, he says, I would remind Shawn he was correct way back when. But, he says too, I want to ask him what, in his opinion, went wrong? Do you believe the premise of the question, first?

Hackett: Well, if it's 2021 or that '21, '22 growing season that hasn't happened then that would be a question for me to answer. Clearly it hasn't happened up to this point because some factors that weren't in place in 2018, like trade wars, coronavirus, that have now come to the surface, could not have known in 2018 they were going to surface. But those events don't change the outlook. The African swine fever, the coronavirus, the trade deal has just put demand off into the distance, it hasn't taken it away. And so we still feel that demand is going to come at a time when we're going to be producing a lot less.

Yeager: So what you're kind of saying is we're spiraling up, we're building up all of this, so that spring really could fire when it fires.

Hackett: We call it coiling, we're coiling.

Yeager: Coiling, that's the word I couldn't think of, thank you.

Hackett: We're coiling and so the gentleman talked about breaking out of this range and this coiling pattern of the corn market has been in this tight -- we've been doing this for years really when you look at a chart, it has just been years of this kind of -- but the longer you coil the bigger the spring, the Jack in the Box scenario. And so we really feel that when that breakout happens it's going to be fast and furious and people aren't going to know what happened.

Yeager: We talked about corn in the show, like we always do each week. We didn't get into the ethanol side of this discussion and there's a couple of factors both domestically and globally. How does ethanol chew through? And if that the life boat to get us to '21?

Hackett: We feel that of all the markets the trade deal could benefit it's the ethanol market. We know the Chinese have committed to ethanol, we know they have chopped through their government stocks, their garbage corn that they didn't know what to do with that they used to make ethanol. We know that they are trying to clean up their air. And so we would think that once they can start importing stuff again and they get this coronavirus out of the way we think buying ethanol, not corn directly, but ethanol could be the big surprise and buying ethanol means domestically buying more corn from those ethanol producers. So we're pretty optimistic that ethanol could be the bridge that takes us to the Promised Land.

Yeager: However, we still have policy discussions. There's court hearings, injunctions about those exemptions that have happened. That is one of those you talked about while we weren't planning for trade, but those SRE's have really kind of thrown water on that discussion too.

Hackett: They have not been helpful, they've definitely not been helpful. And we continue to get mixed signals there as well about what is really going to happen with all of that. I still believe in the end that ethanol is going to have a renaissance and the Chinese are going to create that and I do think that at the end of the day ethanol will be a bright spot for 2020 that was not the bright spot in 2019.

Yeager: We'll see how it all plays out. Shawn Hackett, thank you so very much for this discussion, good to have you here.

Hackett: Great to be here, Paul, thanks.

Yeager: That's Shawn Hackett. Thank you for watching this program. Join us again next week when we'll explore how a diverse set of western stakeholders are seeking common ground on public lands and Sue Martin will join us at the Market to Market table. Until then, I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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