Market Plus: Shawn Hackett

Mar 5, 2021  | 10 min  | Ep4629 | Podcast


Kohlsdorf: This is the Friday, March 5, 2021 version of the Market Plus segment. Joining us is Shawn Hackett, back for more discussion.

Hackett: Back for more, Brooke, back for more.

Kohlsdorf: That's right. Hey, I'm ready. Okay, so last week you're well aware of some comments that were made by one of our analysts. Sue made a pretty bullish prediction about where prices are headed. What kind of outlook do you have for the next couple of years and strategy for producers?

Hackett: Sure. I will remind everyone that on my debut on Market to Market I made an $8 corn forecast and for '21, '22 based upon China being the largest importer of corn in the world, which they are, inflationary fears coming back, which they have, and extremely increases in volatility of weather, which we're starting to see. So I still hold to that forecast that we'll have a good shot of seeing kind of a retest of those '08, 2012 highs. The other thing that we did as you maybe have seen is that we went back to 1860 and we did analysis of all of these phase transitions. Phase transitions are where you go from one price level in grains to another because of an imbalance. And we found that the average phase transition, which we believe we're in by the way, we believe we're in a phase transition, takes two and a half years. If it began in the spring of last year that would put us in spring, summer of '22 for the timeframe for a blow off phrase transition top. We also looked back, how much did prices typically move during these phase transitions? And they typically moved up four times where they started. So, for example, if corn was $3 it would go to $12. If soybeans were at $8 it would go to $32. That was an average. The low point was 3 times, the high point was 4.8 times and this was going back to 1860 and there were 10 phase transitions that we analyzed. So these are statistics. We don't know for sure what this phase transition will do. But I will remind everyone about Minneapolis wheat in 2008 when it went to $25 a bushel. Unimaginable, anyone would have thought -- you should be fired as a grain analyst if you even thought about predicting that in 2005 and 2006. And yet it happened. And I believe in the environment we're in right now with crazy weather coming and everything else we could see some unimaginable prices and I think Sue's probably, as independent a thinker as she is, probably thinking along those lines that we might see some of those crazy, crazy prices that in hindsight maybe we should have been more thinking about. And so that is kind of where we come from. We're very bullish. Our overall recommendation on this program and to our customers is this, store as much cash grain as you can, sell what you have to. We think cash basis is going to go crazy to the upside over the next 12 to 18 months, maybe even exceeding those in 2012. And we would be very, very light on making cash sales for new crop corn and new crop soybeans. We just think that those discounts in those deferred contracts are unjustified and we don't want the producer to make a mistake by selling corn and soybeans too cheap for a second year in a row that many did last year. And so that is a recommendation. So we're kind of along the lines of still being pretty bullish. I'm not sure I'm exactly on the price level she mentioned. But I can certainly appreciate where she came from on that.

Kohlsdorf: A lot to unpack there. Thanks, Shawn. Let's get to social media. So, Phillip writes in and he asks, does the August 25th, 2020 gap on the corn chart at $3.66 ever have to get filled before new highs above historic top? It was $8.49 on August 10th of 2012.

Hackett: We don't have to fill gaps. The chartists like to have gaps filled because they feel it's unfinished business and that sort of thing. The days where we have trading on the floor, those gap fills were more common to fill. But nowadays we're involved in the electronic trading, algorithmic trading, those gaps don't fill in near as much as they used to. And we just don't think that is something that has to happen. It could happen. But we don't think it has to happen and we don't think it's going to happen.

Kohlsdorf: Okay, there's your answer, Phillip. So, Aaron writes in and he's asking, cattle prices might shoot up next winter, but what are they going to do between now and this fall?

Hackett: I think we touched on this a little bit in the main show, that we still think we could have a runway to some higher prices here in to the spring before we get worried about a high corn price, a high feed price causing herd liquidation into the fall which would then depress the price. So we're kind of feel good about moving into April, May and June maybe, but we get really concerned because this June and July we expect it to be a major drought cycle for corn and those corn prices go up we don't think livestock producers are going to pay to keep feeding those animals and the liquidation cycle begins. And so we're pretty unfavorable to cattle prices for let's say late spring into the fall.

Kohlsdorf: Okay. Roger in Blooming Prairie, Minnesota, he is asking on Twitter, what is a sign or two that we are close to a top or that the top is in for the corn and soybean market?

Hackett: There's always two things that we always try to look at looking for major tops. First of all, we would like to look for cash basis weakening in a rising market. So, usually in a bullish market the cash market gains on the futures, like we've been seeing, so that means a scarcity of supply. But we've seen the corn market starting to go up, for example, but the cash is not following, it's widening out, that is a big problem that you might have a demand side problem kicking in. Second thing, we don't like to see declining open interest. So if the corn market is going up, as an example, and the open interest is falling, it is showing that money is actually coming out of the corn market on a rally when it's supposed to be going into it. And the last thing is we have what is called a smart money algorithm that we created that looks over capital flows. And if we were to get a really strong, what we call a level 5 sell signal that has been very, very strong and causing indication of sell signals of tops in corn or soybeans or what in the past, if we got that then that would be another sign. So those are the 3 key factors we'll be looking for as an amalgamation of things to say hey, we might want to get a little more aggressive with these sales, maybe this is the time to go out and sell that new crop or sell the next year's crop. We'll be looking for those signs right now. And right now none of them are in place.

Kohlsdorf: Okay. Got it. We're going to hear from Cody. So he wants to know, how will potential renewable diesel quota effect ethanol dense states like Iowa?

Hackett: Well, this is the whole idea of we're moving away from fossil fuel, but when we really analyze how fast that is going to come in and when all these alternatives are going to come in, which by the way this diesel, renewable diesel, which doesn't need to be blended in by the way, it just goes to the refinery straight in, these are all substitutes. So we're not going to be trying to replace gasoline demand. But we don't see gasoline demand peaking until about 2030 even with all these factors moving in and taking demand away. Demand is going to slow but we're not going to actually see a downswing in demand for gasoline until 2030 the way that we look at it, what our research says. So because of that, we don't think that any of these alternatives like this renewable diesel is going to make a major impact to an ethanol centric state like Iowa. We think the bigger issue that corn prices get too high and we can't afford to make the ethanol at the ethanol plant because that's going to be more of an issue for Iowa than whether or not these quotas are in place for renewable diesel.

Kohlsdorf: Okay. Well, speaking of fuel, where do you see oil prices going?

Hackett: It's kind of a double edged sword. We know the vaccines are coming in, we know more and more people are starting to get a little more comfortable to get out and about and around. That's good for gasoline demand. So that to the demand side factor post-virus is going to be strong. At the same time we also know that Middle East, OPEC have been keeping the supply constrained. So we look at their concept of they don't want the U.S. to become this massive producer like they were a few years ago, record setting production. I think they want to keep us in check. $70 a barrel, maybe low 70s. We don't think they will let that market get any higher if they can help it and I think they'll put on the flood gates of production and keep the market capped. So that means from where we are right now maybe another $5 a barrel higher. But probably most of the upside is behind us because of that reason.

Kohlsdorf: At what point though will that impact oil prices? Where will it have to go for it to possibly have an impact on economic growth?

Hackett: When we look at the world, we're still very fragile, even though things are improving, very, very fragile the global economy still is. We think if we got materially over $75 a barrel then we have a negative effect, meaning the price now starts to take away from disposable income not only here but elsewhere, and that does more damage to global economic growth than the help that it does to the oil centric countries and to those that produce a lot of oil. So we look at $75 as the line in the sand, shall we say, before it does more harm than help.

Kohlsdorf: Okay. All right, good place to end. Thank you, Shawn, for joining us on Market Plus. All right, for the next two weeks we will be part of an important part of public television, it is pledge time. So if you value the work done on this program, please consider supporting the work we do with a financial contribution to your local PBS station. Paul Yeager returns next week and he will be joined by Don Roose to break down the markets and we will check out the long-term effect of damage done by the snowstorms that hit the winter vegetable crop. Thanks for watching us and have a great week.

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