Market Plus: Sue Martin and Shawn Hackett

Nov 13, 2020  | 15 min  | Ep4613 | Podcast

Podcast

Yeager: This is the Friday, November 13, 2020 version of the Market Plus segment. Joining us now, Sue Martin and Shawn Hackett. Good to have you both here. Technology works where I can put Shawn and Sue in the same room and you don't have to be in the same room. Sue, right at the end, it's not fair again for me to say 15 seconds on hogs and you go and disagree with Shawn. That's not what we're supposed to do here. Our guest from Florida and you disagree with him. Okay, let me set this up. We were talking hogs and Shawn thinks hogs we've hit it and I've read what he had read saying, hey they're producing a good amount of animals in China. You see it differently, Sue. Why?

Martin: Well, I think first off we have to remember a lot of those animals on the ground are small, they're pigs. And in the meantime, China supposedly, unless they show us something different, they are getting their feet back up to speed where this year going into their Lunar New Year, which is later than normal, it's February 12th, I think they're going to be importing pork like no other and making sure that their consumers have pork on the table this year. Last year they didn't get a chance and in the meantime they had to stay in shelter in place and what have you. This year is different and I think they're going to try to make sure that this is a very joyous Lunar New Year for their people. As far as technicals go, the indicators we're watching are just turning positive on very long-term data but it is done on December, year in, year out hogs. And I can't sell it when it's doing that. It tells me that the pullbacks here are actually opportunity long-term. So as a producer I would probably suggest utilizing put options and laying a floor under your cash market and then trying to ride this thing out.

Yeager: All right, Sue, thank you. Shawn, I want to ask you the first question that came in via Facebook, Twitter and Instagram. You can also send us an email at markettomarket@iowapbs.org. This is from Steve in South Dakota. Is the possible future loss of ag production due to COVID-19 issues, talking labor, parts, service availability, etc., is that already being factored into the ag markets?

Hackett: Some of it is. It's no longer a shock that we have a COVID issue and we had a shock to the system last year. The question is how long is it going to last? Is the Pfizer vaccine going to be the panacea that solves everything? The answer is we don't really know what we're factoring all in, but we are factoring some of it in for sure.

Yeager: So, the thing about the vaccine that we've got to remember is Pfizer is not the only company that is doing this, we have others, four or five at least that we know are working this. So there is a possibility of somebody else breaking through, learning what someone else has done and adding to it, so there's that possibility. But it is still a virus and that's still a concern that we're dealing with. Sue, do you think the markets, let's not talk commodities here, you can open it up to the equity markets. Do you think the equities have factored in a resurgence of COVID-19?

Martin: Well, I think they have but I also think the market is looking beyond, futures are the future and I think they're looking beyond the issues that we have here. They're believing that -- they understand, like flu, COVID was probably going to get worse as we got colder and temperatures and people are staying at home or doing whatever more and not traveling around as much. So I think that they expected this to happen but I also believe that they're more focused on the presidential situation rather than COVID right now. I think the market is a little concerned as to if we shut the country down for six weeks. However, you get beyond that, I don't care who is President, this economy is going to come out flying and when it does demand is going to be very good for commodities.

Yeager: Well, like anything, a campaign we see ideas floated and sometimes the rumor is worse than the fact and sometimes it's the other way around. It doesn't matter which party, I'm not trying to be political in that statement. We do have a political question so I'm going to get to that in a moment. I'm just going to tease politics. But Sue, I need to ask you -- or Sue talked about it, Shawn, so you get this first crack at this one. Rob in Devlin, Illinois asked us via Facebook, if it stays dry in South America and we're short of moisture going into spring, I know it's a reach but in some parts of the world we are seeing that, in the United States, what can we realistically see in the markets? Barge rates are already high.

Hackett: Well, we do believe we're going to have dryness in South America, especially in Argentina, that is what our work suggests is going to be a real problem, the real issue and Southern Brazil and our work definitely believes that we're going to have a very dry low subsoil moisture spring, which we have not had in a very long time. So you put that in together and it just means that the market is going to continue to have to ratchet up demand rationing with the idea that we don't know what kind of production we're going to have, we have to assume the worst and hope for the best instead of what it has been for eight years, which is hope for the best and assume the worst.

Yeager: And that could be some of this, there has been I won't call it panic buying, but there has been some supply enhancements going on in lots of countries who are afraid that they might get stuck if something happens that they're not going to be able to feed their people. We might get to the point where we're like, it's not a problem anymore.

Hackett: The stockpiling ethos, which has really captured the market over the last six months, is real and it's that fear factor. Let's get a little more on hand just in case, but if everything seems to be going well and right then everyone is going to say we overbought, we can ease back now. But that is what the market will be wrestling with between now and springtime.

Yeager: Trying to sort all of that through. All right, let's sort politics, Sue. Dean in Rake, Iowa is asking us, with the change in leadership in Washington looming, what do you see the future of USA agriculture markets, especially with USMCA and the sale of our ag products to China?

Martin: I think first off the U.S.-Mexican-Canada agreement in replacement of NAFTA was a very good thing and I don't think the Biden administration will change that, I think that they'll leave that in place. I think it's the China agreements that will maybe have more politics involved, what have you. But I think when you look at phase 1 it is my contention that phase 1 is not going away, that China will honor that, only because they need it. But you get beyond that and that's another reason the markets could at some point fade away next year is to be thinking okay, now that China has bought most of what they need and we're looking a year out, what now after phase 1 is done? That's only a two year program. So we have to kind of keep that in mind. That said, we also have a weather service that is saying, of course weathermen are like commodity brokers, they all can be wrong, but we have a weather service that is saying 2022 they're looking at a very major drought in the U.S. and as far as La Nina goes, the prediction center here in the U.S. is saying 90% odds La Nina lasts through March, 65% that it lasts from March to May. I don't know. It's unusual to have a weather issue in the U.S. and South America at the same time. But when I look at the market here I think -- I've done my year study on the corn, I haven't gotten the beans done yet -- but years of a 1 they tend to be seasonal and they tend to be, so more times than not you'll have a break into November, but they also tend to give you a high around June, July, maybe August which would be pushing the envelope a little late. That would also be the opposite of this years.

Yeager: Shawn, politics wise, you come from the state of Florida, politics was front and center there too. Different issues in your neck of the woods versus say in maybe all of rural America. Do you see any changes happening?

Hackett: Well, beyond the agreements I think in terms of actual ag policy it has a lot to do with what the Senate turns out to be here on January 5th.

Yeager: It's only a 20%, I think 21% chance that the democrats take both seats, so likely to see a republican-led Senate.

Hackett: Correct. So if the republicans likely get that majority and keep that majority then most of what I would consider to be the Draconian ag policies that many are fearing at least in the next two years are not likely to occur so I don't think much will change unless some bigtime changes occur in the midterm elections.

Yeager: I'm going to put you both on the hook for some prices. I really kind of let you off the hook during the show. So I'm going to ask Aaron in Ocheyedan, Iowa, Northwest Iowa's question. He was looking for some price targets. Shawn, I'll start with you. What are some price targets for this seasonal strength? And you can pick one. Cattle, corn, soybeans. He's asking about cattle specifically but he also sent another tweet asking about corn and soybeans.

Hackett: When I look at the April cattle contract and I'm looking at we had this really significant smart money buying in the market. We have a really good technical picture of the market and it looks like we're getting a big overall, we think the weather could be another factor that helps the cattle market. We see a clear possibility of going to the $130 area, major resistance area on the April contract. We think that is a possible target. Obviously it could be off by a little bit here and there but we think that once this pause around $120 is over we think we could make a run to that area by springtime.

Yeager: Sue, do you see that number higher or lower?

Martin: I wouldn't disagree with Shawn. I'm kind of more general. I think the cattle market this next year is going to be a very good year. I'm really liking the last half of the year even better. But this last we had a horrible cattle market into April, that's abnormal. I think this year we are going to be more on target because this last year we had COVID to deal with and packing houses were dealing with a labor issue with COVID and now they've got all those protocols in place to keep it safe and I think that is going to allow the packer to continue to process animals. And boy the packers had a wonderful year, I've got to say that. But I think the cattle market for next year is overall going to be decent.

Yeager: Sue, I'll let you take first crack, corn market next 2 months, what is your price target?

Martin: The next 2 months, that gets me into the turn of a year. I'm going to have to say you take out this high that we put in here on this government report and the market is going to get pretty darn enthusiastic. So, I'm fearing because I just don't like that bullish sentiment index at 90%, that really bothers me, it makes me think that this market is going to if nothing else be wild and chop around. The last break we had was 29 cents and I think, what have we had here in this one, 26 cents maybe, something? And it did it the last one in 5 days, well Sunday night, Monday would be five days in trading. We've got to see this market hold together and try to move back higher and take another good hard look at that. It seems like we have doubting Thomas' in this corn market.

Yeager: So $4 -- what have you got? $4.15? $4.20?

Martin: Well, I have to say, we exceeded that both in the March and December contracts we have an outside range year, lower low, higher high. And that should open the door for an opportunity to still push higher. I think we could have very easily an opportunity for $4.86 to possibly $5 corn next year.

Yeager: Shawn, do you agree?

Hackett: I would say right now if we going to look into the next 3 months that $4.50 level that we hit during the floods of the summertime, highs when we had some pretty frenetic emotional trade, that is going to be a very, very difficult one to get through. I think in order to get through that one either we're going to have much worse weather in South America than I'm anticipating or we're going to really have to get into a weather market here in the U.S. and that is a little bit down the road a bit. So I think corn got into that $4.25, $4.30 area, $4.50 is going to be really tough in my opinion unless there's a really, really big change for the weather for the worse in South America.

Yeager: Quickly you two because I have put Tiffany on notice that I've gone over 12 minutes. Sorry, Tiffany. Soybeans the next two months, what is your range?

Hackett: I think soybeans cane come down to $10.80 on the low side, on liquidation. I think $12 is going to be very, very difficult to get through which was a 3 year high.

Yeager: Sue, same question, same amount of time.

Martin: Well, I have to say I so agree with Shawn on this. I think that $12.03, $12.05 area on Jan beans is a wave 4. Wave 4's we've seen a lot of them this year. And now that we have January as a lead contract this market is primed. The only problem it's got is it's trying to ration that 1.9% stocks to usage ratio and that is where the concern is because if we let the market drop too far back all of a sudden you're going to get too cheap --

Yeager: Prime ration, that will be the word of the day, or the phrase of the week. Sue Martin, thank you so much.

Martin: Thank you.

Yeager: Shaw Hackett, good to see you. Thank you.

Hackett: Thank you, Paul.

Yeager: That will do it for Market Plus. Next week we'll look at the balance between rural, urban and downstream parties on an innovative nutrient exchange and Matt Bennett will join us to analyze trends in the commodity markets. For all of us here at Market to Market, I'm Paul Yeager. Thank you for watching, listening or reading. Have yourselves a great week.

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