Market Plus: Shawn Hackett

Aug 28, 2020  | 10 min  | Ep4602 | Podcast

Podcast

Yeager: This is the Friday, August 28, 2020 version of the Market Plus segment. Joining us now is Shawn Hackett. You missed the hurricanes, at least the major impact, you might get a little bit of rain but nothing major for you so that's always good. But not good for those in Louisiana and where Laura went. We'll see how long of a tail that system has. But one thing that has come out of COVID is this discussion about inflation. Are we headed up higher on inflation right now?

Hackett: We believe we are. The virus forced money printing like we never could have conceived of in our lifetimes. The government spending off the charts, we have to go back to World War II spending to get anything close to it, Paul. So we are moving down the road of inflation and quite frankly for U.S. agriculture that's good for ag prices, it's good for the ag economy. We always do very, very well when the inflationary forces kick in. And so as much as inflation can be a problem for certain parts of our economy, it's very good for U.S. agriculture. So as far as we're concerned, bring it on.

Yeager: Is that because the dollar is lower? Or why exactly is it necessarily good for agriculture with inflation?

Hackett: It always means a weaker dollar, it always means that our exports become larger, it always means that when you translate international prices to U.S. currency, U.S. price it corrects to a higher price level. So all those factors have always been involved in any major prosperous time in U.S. agriculture. There's not a single example of it not being the case. We have been through a very strong dollar for ten years, Paul, and it has been very difficult for U.S. producers. We believe we're heading into a different arena now and the virus has accelerated that so we're actually feeling good about what's going on for U.S. ag going forward.

Yeager: Okay. We have questions from those who are involved in U.S. ag. They submitted their questions via Facebook, Twitter and sometimes Instagram. The first one comes from Mark in Nebraska and he submitted it via Twitter. He's asking, is it time for puts in the corn and soybean markets?

Hackett: Right now, Paul, like we discussed on the main show we really would be focusing more on short-term cash sales. WE don't think that this is a time for doing those kinds of things right now. We think prices are likely heading higher as we readjust the yields downward and so we just think that this is a moment, hey I have to sell corn off the combine, I have needs, I've got bills I have to pay, we think it's more that kind of an opportunity. We feel corn in the bin is not going to be a sin over the next couple of years with what we see happening with a major La Nina and what that typically means for Northern Hemisphere ag production. So we've been viewing corn in that light right now, not so much from that perspective.

Yeager: So we have the dry conditions in a lot of the Corn Belt. If you look on Interstate 80 on that drought monitor it extends from coast to coast, it's spreading and it's very big in the southwest right now. But Bradley in Upland, Nebraska is asking us, with the current forecast and drought damage can the soybean crop get small enough to have a 300 million bushel carryout?

Hackett: We don't believe that it can, Paul. We think it's going to be very difficult to do that. As much as it has been very hot and dry here late August we had a cooler beginning of August and what looks to us like we're going to get a break in the heat as we move into the second week and third week of September with some better moisture. So we think the crop ratings and the crop yields will be coming down but we do not believe it will come down enough to give us a 300 or sub-300 million bushel carryout. WE think that is being too optimistic right now.

Yeager: However, JB in Central Nebraska on Twitter is asking us, how much do you think those crop conditions will drop on Monday's report? And the background is last two weeks it surprised the market as we've gotten worse than what the market thought.

Hackett: That is true but the market is getting awfully bullish now, Paul. We're getting pretty excited, we're seeing a lot of bullish sentiment, we think we might be ready for a buy the rumor, sell the news or maybe a disappointment on Monday night. Even though that will come down we think the expectations are extremely high because fool me twice, we're not going to get fooled a third time but they may be overplaying this crop condition rating decrease on Monday. We're worried that may already be dialed in or more so, more dialed in than it really should right now.

Yeager: It was a lot of '90s in a lot of that key growing area this week so there was a lot of people watching to see their crop shrivel in a lot of spots. Bullish sentiment maybe in this question from Brad in Hurley, South Dakota via Twitter. If the Three Gorges Dam were to collapse in China, what impact on the markets would that have?

Hackett: 650 million Chinese would be -- 650 million Chinese would be in harm's way, Paul, with lack of access to food. What that would mean, it obviously would mean a catastrophic humanitarian crisis and it would mean the need for the global community including the U.S. to come to the rescue and try to help feed 650 million people. So as much as it is a very unfortunate situation, if it were to occur it would provide additional buying for U.S. ag products beyond what we've seen and it may cause what you said earlier in the main show that demand could actually take these markets higher. Maybe the Gorges Dam breaking down could be that rogue wave. But we actually hope that does not happen, Paul, we really don't want to see that happen.

Yeager: That would be considered a black swan event. Do you consider the weather events, the derecho, the hurricanes, the wildfires, the drought, is that combined to make a black swan in the United States?

Hackett: I don't really believe that it is. It's a black swan event for Iowa, it's a micro-black swan, for Iowa it's absolutely that. But when we're looking at the global picture, the U.S. as a whole, we don't think this raises the bar to a black swan -- the 2012 drought, Paul, is a black swan event for U.S. agriculture. That is not what this is. This is bad but not like that.

Yeager: And it's just a matter of how wide that spreads. There is rain in the forecast but it wouldn't be the first time we've seen a forecast be inaccurate. But the heat is the problem moving forward. We did ask Mitch in Hull's question a little bit about if we were to sell at levels, but this next question -- I want to move on to Boyce in North Dakota. He's asking a little bit more about in year's past, specifically with soybeans, whenever we had a 50 cent rally in futures it seemed like there was also a 49 cent break in basis. What will happen again with this rally or will Chinese buying keep the basis propped up?

Hackett: I think the basis will collapse less than in past years when we had a strong dollar, weak demand and all those sorts of things. But we are going to harvest some soybeans here, Paul, very shortly and that typically does push pressure on the basis even if the Chinese keep buying. So we would have to believe basis is going to widen out. But we believe the strong demand will keep it from blowing out as badly as we've seen in the last couple of years.

Yeager: What is the biggest story here until harvest in soybeans? What is the biggest story we need to watch?

Hackett: The biggest story in soybeans, I really think it comes down to will the Chinese just buy what they've been buying which is back to normal? Or are they really going to take it up a notch because meeting the Phase 1 requirement really means having soybean purchases up a lot more than they have. That's the big story. I don't think they're going to do it but that would be a story to watch. If we start to see the weekly numbers get above what we've seen and they're actually buying more than normal that could be a catalyst for a further rise. So to me that's the big, big million dollar question that we're all going to want an answer to heading into harvest.

Yeager: I'll ask you the same question in corn, biggest story between now and harvest in corn?

Hackett: How low are yields going to fall from the 182? We feel, Paul, and we've been on record as saying that before the Iowa storm that we would see 173, 175 yields based on the extremely hot temperatures that we discussed on the show. If we factor in Iowa, the storm, we think we could actually come down closer to 170 to 172 and that's what happened in 2010, we dropped 11 bushel to the acre from the August to the October report. If we're right about that then the corn market is going to have to start doing some more pricing higher to reduce those carryouts. And so that is to us how quickly will USDA be willing to admit that reality.

Yeager: The reality is we're out of time, Shawn.

Hackett: Thank you, Paul. As always I love speaking with you.

Yeager: Good to have you here, always good to fly through things with you. We'll see you next time. That will do it for Market Plus. And next week on the television program we call Market to Market we'll look at how one operation is adjusting its agritourism business plan during a pandemic. And we'll check in with Elaine Kub as she breaks down the commodity markets. I'm Paul Yeager. Thanks for watching, listening or reading. Have a great week.

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