Market Analysis: Shawn Hackett

Market Analysis: Shawn Hackett

Aug 28, 2020  | Ep4602 | Podcast

Podcast

Yeager: Demand with a side of weather fed the bulls this week as the market tries to sort out potential crop losses due to a derecho and drought. For the week, December wheat improved 14 cents while the nearby corn contract jumped 19 cents or six percent. China’s buying spree coupled with hot and dry weather is driving the soy complex. The November soybean contract rocketed higher by 50 cents. December soybean meal rose $12.20 per ton. December cotton expanded 80 cents per hundredweight. Over in the dairy parlor, October Class III milk futures rallied with a $1.39 gain. A down week in the livestock sector. October cattle fell $3.65, October feeders declined $1.73 and the October lean hog contract dropped 60 cents. In the currency markets, the U.S. Dollar index dropped 87 ticks. October crude oil gained 71 cents per barrel. COMEX Gold rebounded for a $28 per ounce improvement. And the Goldman Sachs Commodity Index increased almost 10 points to finish at 360-even.

Yeager: Joining us now to give us some insight is one of our regular market analysts, Shawn Hackett. Hello, sir.

Hackett: Hey, Paul, how are you? Thank you so much for having me, always an honor and a privilege.

Yeager: Good to see you. Good to have you here. Like we do with you, we play rapid fire. Let's start with wheat. This is the one that kind of went along for the ride with corn last week and then this week the United Kingdom said, we're probably going to have the worst crop in 40 years. Was that the main market mover or was there something else?

Hackett: I think there was something else, Paul. Generally we're moving into a major La Nina weather pattern which is hot and dry for the U.S., hot and dry for Europe and hot and dry for Russia. We're really concerned that the hot, dry weather for Russian winter wheat planting is going to become the bigger problem and a market mover here. And so we think that was the bigger driver this week because if they get off to a poor start and have poor stands and dry weather over there that could be a big driver as we move into the spring season.

Yeager: We're nearing resistance if we didn't possibly break through it today in trading. Are you selling right now to take advantage of this or are you waiting for this thing to go higher?

Hackett: We would only be selling short-term cash needs, we think there's more room to run in the wheat market. We really try to be patient unless you absolutely have to move bushels and if you do you always want to sell a rally like this.

Yeager: Moving higher, $6 is that on the table?

Hackett: We think $6 is a distinct possibility on the charts when we look at it. So we would kind of take a look at that as a September target for cash sellers to maybe get more aggressive here.

Yeager: Are you aggressive right now in corn? Again, breaking through resistance, $3.57 I think was the resistance going into today. We finished above that on the December contract. What is the upside on the corn market?

Hackett: We're still not that aggressive here, Paul, on selling cash corn. Obviously there's always farmers that have to move this time of year cash corn and we would definitely be doing some short-term needs. We worry there could be a buy the rumor, sell the news here leading into the September 11th WASDE report and so somebody has got to move some near-term corn that would be something to do to avoid having to take that kind of a hit. Intermediate-term though we still think higher prices can be had as the market has to adjust further down yields.

Yeager: Is that because of weather that's adjusting down, dry conditions, what happened in the derecho area? Is there something else weather related that I'm missing?

Hackett: The bigger issue, we've been talking about this all summer, is that we had June temperatures were 3 degrees above normal, July temperatures were 2 degrees above normal, we went back to 1960 and looked at every summer we had temperatures that high and every single time we had a below trendline yield crop that was modulated by moisture. So we never believed the 182 number and we think that's the primary reason why yields need to come down but of course the storm in Iowa just adds a maraschino cherry on top of the cake here.

Yeager: So you're holding right now. How much longer at $3.70 on the March contract?

Hackett: Counterseasonal trends that we're in right now, Paul, tend to top out in the month of September. So we think whatever highs we're going to make here the September month is when we'd be looking for some kind of intermediate high, we don't think we're there yet.

Yeager: You did kind of just steal, I shouldn't have told you what I was going to ask you. Darn it, I'll remember not to do that. I'm kidding. Dan in Northwest Iowa and Nathan in Inwood, Nathan is our question and it is about that countercyclical trend, Shawn, I want to point it out specifically here. It seems like we're doing things counterseasonally this year. Will we experience seasonal harvest pressure on both corn and soybeans?

Hackett: Yes but delayed meaning we'd normally see seasonal pressure from back half of August into the back half of September normally. This year we're going to see it in October after we make the September high. Remember, Paul, we normally make our highs in late June or early July, we made a low, so we're doing everything opposite. This is typical, classical, pre-La Nina kind of weather where we get weather problems later in the season that cause this consternation and counterseasonal trends. So I guess the answer to the question is yes but it will be delayed from normal.

Yeager: So we're holding a little bit on corn. Let's talk soybeans then. There are numbers that begin with 5 and 5 on a weekly gain on the November and January contract. This is a big question. Are we just getting started on this contract?

Hackett: We don't, we actually have been talking about a $9.50 target for quite some time that was our target for what we thought would be a combination of weather and demand coming into play. Our smart money algorithm that we utilize that we put together that uses the COT report on Friday is seeing some very aggressive selling in recent weeks and we're very close to achieving what we call a smart money sell signal and we utilize that tool to kind of pinpoint when we want to get more aggressive on the cash side of the market. So we think cash beans need to be sold a little more aggressively here than the corn and wheat, for example. We think that's more of a pressing opportunity.

Yeager: So since we've broken through resistance you're saying this is different than what you've said with wheat and corn, this is something you've got to take advantage of because this is longer. Are you booking sales past November now?

Hackett: We’re not doing it past November because we're concerned about South American weather being an issue with LA Nina. But we absolutely believe that we would want to be taking care of our cash sales into the November timeframe right now. We really do not see that $9.50, $10 area being exceeded. We see some very cool temperatures coming here in a few weeks in September with some moisture and that is going to take a lot of this weather excitement off the table we think.

Yeager: So that is the weather story on that one. But then there's the story that came out of China this week where they said, China may buy 40 million tons. That would be 25% above year one, Phase 1 amounts. That maybe is a fundamentals piece of news saying we're going higher. You don't buy that?

Hackett: We heard a lot of talk, Paul, over the last couple of years from the Chinese and so we tend not to believe much of what they say, we only believe what they do and right now all they've done is buy back to normal levels from arguably horrible levels from a year ago. So it's always possible that maybe they could come in and run the market higher but we don't think they're quite ready to do that.

Yeager: Okay. You're saying show me the money. Got it. Cotton wise, there's some money this week. This storm, Laura, kind of missed a lot of the cotton area, there was a little bit of concern that maybe that was the run- up but we missed it. What more does it play in this market?

Hackett: China has been buying a lot, like they've been buying everything, Paul. But we're worried about the cotton market, we're trading at a hefty 10 cent premium over the national price, our domestic demand is not very good and we think that unless we were to get a hurricane that were to come into more of what we call the core cotton growing areas that this one missed, this 65, 66 area, Paul, is concerning to us and we're getting some pretty bearish readings on our smart money algorithm. So we are a cash seller here.

Yeager: Dairy wise, there was some contraction in the price over the last three or four weeks, this week we reversed course. Which way are we headed now?

Hackett: Government buying, government buying, government buying. That's really the story, they announced the one billion food box plan and came in and bought the market aggressively, especially the cheese market, and so we've been dealing with this, Paul, since April and they come in with a blaze of glory and then they pull back like they did over the last month and prices crash so it's a really volatile market right now. But as a producer we would be looking to sell government-led rallies because we think that we're going to continue to see production improve and get ahead of the government buying program.

Yeager: Up 8.5% today, or for the week, and $1.39 up to $17.72. That's quite a move. In the livestock sector, let's talk cattle first. In the live market again this is about China. They made a large purchase on august 20th, the week ending August 20th that was the largest weekly buy on record dating back to 1999. On the surface I'm going to say that's a big deal, but of course there's more to the story. What is it?

Hackett: Well, they hadn't bought from us for years and years and years and only a few years back did they agree to buy beef from us again. So we don't really have a long history of them buying U.S. beef. So even though we'll take it, its good news, we would kind of downplay that as being a big market driver at this point. It could be a market driver in the future but we don't think it's a major market driver at this moment in time.

Yeager: Wednesday we marked four out of five days lower, we continued that streak as the week went on. That trend is heading down, is it going to keep going down and how much?

Hackett: We think there's a little more room. We kind of got bearish with our customers and recommended cash sales at that $110 area in October and we're just worried about demand here, Paul. We think the U.S. economy although we're rebounding beef is a high priced item and we're concerned and we think the $1 a pound level is achievable on the October contract before we might dig our heels in and say that's enough for now.

Yeager: Because the consumer ultimately decides and that battle between pork, chicken, poultry and beef, which one is cheaper is what they're going to go with and that's what you're telling me there's still room to go. So let's talk feeders then in a sense we still have, we're coming out of this ridiculously bearish report last Friday and the market initially didn't respond the way we thought it would, but then it caught steam. Why the change?

Hackett: I just think sometimes it's hard for the bulls to give up a trade that they've been bullish on for a while, that they're making money on, and so everyone looks around and as long as everyone is still buying into it they're good and then all of a sudden someone decides to sell and it causes a cascade on selling. Markets are run by computers a lot of times nowadays, the algorithms trade a lot of our markets and they don't think like you and I sometimes and it takes them a little while to get the program to say sell and we think that had more to do with it than anything else.

Yeager: So the question becomes though if you’re a producer looking to expand your herd right now are you?

Hackett: We would not be. We would not be looking to do that right now. The cattle on feed report was a warning sign that maybe we're doing too much of a good thing. Prices rallied but not enough to really cause a good margin on the farm. We'd be very careful, cautious and if the corn market were to continue to head higher as we move into the South American growing season, high corn prices are not good for feeder cattle prices.

Yeager: So maybe that will be what puts any idea of expansion in the live market. Hog wise, China is selling reserves, lower cold storage in the United States. Are the Chinese buying U.S. pork?

Hackett: They are, they have been buying U.S. pork all year long. We have never had a pork demand problem, Paul. We had a too many animal problem and we had a too less through put program at the packing houses. We've remedied the packing houses, I believe we're remedying the too many animals problem and we're just starting to get to where this strong demand can overcome endless supply in the U.S. and that is why October prices have started to respond a little it even though they came back a little bit today.

Yeager: So the question then is we were down 60, is it going to go much lower or are we going to hold here?

Hackett: We think we're going to hold here. We think we've made a bottom and we're heading higher. For cash sellers of hogs we'd be patient. We think there's more room to the upside before we might play out this imbalance that we see coming.

Yeager: All right, Shawn Hackett, rapid fire, love it, thank you so much.

Hackett: Great to be here, Paul. I'd love to come back again, in-person next time.

Yeager: Let's hope so, very soon. That will do it for Market to Market. We will talk more on Market Plus so you can join us there. You'll find it on our website of MarketToMarket.org. As many of you are returning to school drop by our virtual Market to Market Classroom for information on the science and business of agriculture. You can look it up at markettomarket.org/classroom. Next week we'll look at how one operation is adjusting its agritourism business plan during the pandemic. Until then, thanks for watching. Have a great week.

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