Market Analysis: Shawn Hackett

Market Analysis: Shawn Hackett

Feb 21, 2020  | Ep4527 | Podcast

Podcast

The commodity markets chopped around waiting for news from the Outlook Forum and then a Friday morning tweet from the President was added into the mix. For the week, May wheat bumped up eleven cents and the nearby corn contract lost a penny. The May soybean contract fell 4 cents as Chinese buying failed to materialize and South American prices continue to be more attractive. May meal dropped $1.80 per ton. May cotton rose 59 cents per hundredweight. Over in the dairy parlor, March Class III milk futures lost 38 cents. The livestock sector finished mixed. April cattle shed $2.08, April feeders added 72 cents and the April lean hog contract put on $2.73. In the currency markets, the U.S. Dollar index rose 19 ticks. April crude gained $1.12 per barrel. COMEX Gold skyrocketed $59.80 per ounce. And the Goldman Sachs Commodity Index added more than 3 points to finish at 400.20. Joining us now to offer insight on these and other trends is our one of our regular market analysts Shawn Hackett. Shawn, welcome back.

Hackett: It's always great to be here, Paul.

Yeager: So we have this tweet and it comes less than 24 hours after the Secretary of Ag said, there won't be another round of MFP, then the President says this. The markets initially bounced higher and then they turned red on Friday. What are we supposed to take from these two conflicting stories moving forward?

Hackett: It has been the continued trend of the Trump administration where one hand is not talking to the other hand and it seems that the President gets very impulsive with what he wants versus what supposedly his Secretaries are doing and so it just creates massive confusion and markets just don't know what to do. And you said, choppy markets, chopping around up and down. What are you supposed to make of a President says one thing and the Secretary of Ag who is supposed to know exactly what is going on is saying something else? It just puts uncertainty at a time when we have plenty of uncertainty to be dealing with.

Yeager: Wheat was hit particularly hard on Friday but this market has been looking, as Chinese interest comes in, but the 90 day weather forecast is cool and wet. What is playing into this market?

Hackett: Well, the wheat market had a big rally because Russia had two bad crops in a row, their exports are way down, export prices started to take off but then all of a sudden we had this capital flight coming into the U.S. dollar and because we are such a global market when that dollar starts to take off we start to become very quickly uncompetitive. And if you look at the dollar rise just in the last week, week and a half, the wheat market has fallen pretty precipitously in direct reverse correlation to that. So we really think this is a very highly correlated currency move than anything else.

Yeager: We'll get into currency in a moment. But the dollar up almost two and three-quarter year highs. So you're saying that is weighing some of the hardest on wheat?

Hackett: It is because when you deal with corn or soybeans it's us and South America and it's not as broad. But with wheat we have Australia, we have Russia, we have the Ukraine, we have the U.S., it's such a broad base of production that the dollar has a disproportionate effect on U.S. wheat prices when the dollar gets going.

Yeager: We're making an 11 cent gain on the week. Are you making sales yet?

Hackett: On soft red winter wheat we want to be making some sales, we really do. Our smart money algorithm that measures capital flows is heavily bearish and we're starting to move up into the upper end of the trading range that has been pretty hard to get through and we don't think it will get through this time.

Yeager: Corn has been a major story. Coming out of the forum, again more acres. We're looking at 94 million acres and we keep looking at this, there is too much corn. Is there?

Hackett: Well, our corn stocks are way down from last year. We did have a small crop last year. But if we do plant 94 or 95 million acres of corn and we have the demand base that we do, the USDA is projecting 2.5 billion, maybe 3 billion bushels of corn, that's a really tough number to get through. And so we need something to change that up, either acres don't get planted like last year or some kind of weather comes into South America or the U.S., but right now so long as that is the forecast corn is going to struggle here.

Yeager: All right, so do you sell now before it goes lower?

Hackett: I think you have to get some on the books now, Paul. Our forecast is a little bit different than the one you mentioned earlier. We actually see an early start to the planting season this year, early spring, some really dry actually conditions in the middle of the spring. What it means is record early planting, record planting pace and we know what that means, it could mean even more corn acres than the 94, 95 million. So we're really worried that the corn market could kind of nose dive like it did last year but for an entirely different reason. So we will get some on the books here.

Yeager: All right. So a lot of acres going to corn. Is it coming from soybeans? I'll get your take on that in a moment. But the other thing that is playing in the soybean market right now, Shawn, is this story with the Brazilian Real. And we got our first question that we're going to use, this one came via Twitter, Bradley in Upland, Nebraska. He's asking, how much cheaper can the Brazil Real get?

Hackett: We are at all-time record lows. So the answer is we have really no idea how far it could go because there's no other point on the chart that says it will go here.

Yeager: And so what does that mean then for soybeans for us here in the U.S.?

Hackett: It just means we are going to continue to struggle. We talked about the price difference, South American being more competitive than the U.S. price, the worse the Real weakens the more it makes that price differential more difficult to compete with.

Yeager: All right. Are we making sales short-term? Long-term?

Hackett: We're pretty constructive on grains beyond the next couple of months so we don't think this is a time to sell it all and be done with it for the year. We want to get some on the books, get some done, I don't think anyone wants to endure what we think it going to be a pretty tough spring, but we think there's light at the end of the tunnel as we get beyond that and we want to save some powder dry for some late spring, early summer sales.

Yeager: Save an opportunity if there is some type of blip whether it's a weather problem here? Is that what you're saying?

Hackett: We think it's going to be a weather problem here. We think it's going to be more of a drought like conditions in the mid-to-late spring that's going to make early planted grains compromised and have the market, who would be trading early planting makes grain, say wait a minute, now all these early planted acres are not going to maybe be as good as we thought, we have to recalibrate. And so we think we're going to get a similar V kind of a pattern when we come out of that and that gives us our opportunity to get a weather rally going like last year and get a chance to sell.

Yeager: All right. Acreage battle, cotton is always figured into that. Cotton up this week but it's wet in the South right now.

Hackett: Yeah, the South is very, very wet. Already the USDA has dialed down cotton acres. So if the weather remains that wet and that unfavorable, the cotton acres are going to be tough to bring in. We, however, just because of what we just said with the grain markets, corn probably getting hit, soybeans coming down, we think that cotton could look a little better a month from now than it looks today. Obviously it's always a moving target. But we're not so sure that we're not going to put some acres in, especially the state of Texas where we think the weather won't be quite as daunting as it is in the Deep South.

Yeager: They're growing cattle in Texas as well. We know today the cattle on feed report came out. Placement was 99% of what was expected. That is below the estimate there. But we also had another number at 102.10.

Hackett: Yeah, the cattle on feed was pretty close to what everyone was looking for. The placement was certainly off. When you look at the whole report I don't think it's going to take the cattle market away from what it is really focused on right now which is the coronavirus and demand issues, especially from Japan. We've seen some pictures that Japan, some cities, some areas that are supposed to be bustling are really, really quiet because people are worried and just staying inside even though the virus isn't proliferating there as it did in China, but the cattle market is worried about that because without Japanese demand that's a big hit.

Yeager: Then there was a story this week that said maybe the Chinese are starting to kick the tires on beef, U.S. beef, or pork. Which one is going to win out here?

Hackett: Well, we think pork will win out. We think at the end of the day they have always eaten pork, that is their lifeline, that is their cultural meat to eat and when we look at pork prices in China making new record highs this week because of the supply shortages getting worse because nobody can feed any animals, nobody can get product anywhere, we have to believe they're going to find a way at least to get U.S. pork into their country.

Yeager: But there was a story this week that the sow herd monthly increased again for the fourth consecutive month. So there is some rebuilding.

Hackett: Well, and remember we supposedly got a story that African swine fever vaccine has been found. It has to be a little more verified, we have to get more ducks in a row, but it does appear it could be available near the end of the year and I would imagine some Chinese producers are starting to get more confident that they can get some investment going, get some herd growth going, because they're going to have a vaccine that is going to save the day for them.

Yeager: So is that the reason to make a sale in hogs right now?

Hackett: We don't think it's the right time to make sales in hogs right now. We think that there's more upside to go. We don't feel there's going to be a supply response until 2021. We think this year still going to be a big shortage and the U.S., if the trade deal is any value whatsoever, the U.S. is going to have their day to get a price move here. So we would be patient on hogs and we wouldn't jump the gun just quite yet.

Yeager: And I did kind of skip over feeders. That number that I gave you, 102.10, was on feed. So we are still seeing more animals go into the lot.

Hackett: We are and beef production in the second quarter is going to be up significantly, beef production in the U.S. from the first quarter. The other thing we do want to kind of let everybody know that the drought has broken in Australia, flooding rains there, and the cattle price has gone parabolic. And so the imports that we usually bring in from Australian beef in the second quarter we feel is going to completely dry up. So that is going to help counterbalance some of this extra supply. So it's a mixed bag but we don't think it's doom and gloom at this point.

Yeager: Well, the Australian story though, there was some improvement after the wildfires. They all of a sudden had a whole lot of rain. But then that also impacts the wheat market. So but you're saying the beef market is going to be a little more impacted there.

Hackett: Absolutely, how much Australian beef we import into this country, without that beef coming in it's going to severely tighten up the lower end of the market, which on the margin is going to be pretty positive as we move into grilling season. If we're correct that the spring season is going to start early that means we're going to get some extra demand this year that we didn't get last year when it was cold and wet all the way into late June.

Yeager: So the early spring that you're referring to, that means I'm going to be grilling sooner?

Hackett: Absolutely.

Yeager: And have an opportunity to eat through some of that supply.

Hackett: Yeah, and that's positive. On the margin that will really help sop up some of the supply that is out there.

Yeager: All right. We're going to talk $7 corn with Shawn Hackett in Market Plus in just a moment. Thank you, Shawn.

Hackett: Thank you so much, Paul.

Yeager: That will do it for this edition of Market to Market. But as I mentioned we will keep that conversation, talk to Shawn about Market Plus, and we'll answer more of your questions. You can find it on our website at MarketToMarket.org. That's where we post a whole lot of things, also links to our Twitter and that allows us to stay in the loop with just a few characters, the Twitter bird that is. We share news, pictures and behind-the-scenes information on our feed of @MarketToMarket. Join us again next week when we'll explore how a diverse set of western stakeholders are seeking common ground on public lands. So until then, thanks for watching and have a great week.

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