Market Analysis: Shawn Hackett

Market Analysis: Shawn Hackett

Jul 2, 2021  | Ep4646 | Podcast

Podcast

The excitement from a bullish acreage report faded at week’s end as an appeals court vacated an EPA rule on selling E15 year-round. For the week, September wheat added 12 cents while the nearby corn contract jumped 62 cents or nearly 12 percent. The soy complex responded with substantial moves higher on an unchanged acreage report before giving way to some profit taking. For the week, the August contract gained $1.31. August meal increased $32.60 per ton. December cotton shed 21 cents per hundredweight. Over in the dairy parlor, August Class III milk added 11 cents. A mixed week in the livestock sector. August cattle fell 80 cents. August feeders shed $2.50. And the August lean hog contract rebounded for a 45 cent gain. In the currency markets, the U.S. Dollar index improved 38 ticks. August crude oil expanded $1.36 per barrel. COMEX Gold added $11.60 per ounce. And the Goldman Sachs Commodity Index increased by more than 11 points to finish at 535.75.

Yeager:  Now here to provide insight is market analyst Shawn Hackett. Hello, sir.

Hackett: Hey, Paul. How are you? No better place to be than with you talking ag and weather.

Yeager: And we welcomed you with good humidity but only 90 degrees. We've been a little bit warmer lately.

Hackett: Yeah, I need a sweater.

Yeager: The weather has caused all sorts of problems. We've talked about it on the show before with several analysts. When a story becomes front page news in say a national media outlet that food prices are going higher because wheat is going higher does that mean we've hit the high of prices, the top for wheat?

Hackett: Often times that is the warning sign that the psychology of the market has priced it all in. We may disagree and think, well it hasn't. But often times when it gets to that level of awareness that is when the market has priced it all in and one has to be worried that maybe we are going to be shifting gears to something else and that is always a thing to be looking at.

Yeager: We're in the middle of harvest in the Wheat Belt right now, bushels looking good, if you can get it out. Parts of Kansas are so wet they can't roll right now. Is that going to have any impact?

Hackett: Any time you really need a supply -- right now feed wheat is in high, high demand around the world and in the U.S. because of the corn shortage that if you can't get it out when you really need to and the market wants it, it just backs the system up. It also hurts the quality of the crop. So we know the minute spring wheat crop is in trouble, high quality wheat, we know that there is a downgrade in the KC wheat crop, low quality wheat is going to be in pretty good supply. But the shortages in the higher quality part of the market, that is where we think the story has not been priced in yet.

Yeager: So what are we doing in wheat then to protect ourselves?

Hackett: We think that the spring wheat market is the best way to look at this and that the KC market will be a follower to that. But when we look at everything we see, the worst crop rating since 1988, and if we keep going the way we think we are we may actually tie the crop ratings from 1988, that was a half a crop that year, 50% down from what was expected. I'm not forecasting that for sure. But the next two to three weeks if we don't see a material change we could be looking at something like that and I don't think the market in the 8's has priced that in yet despite some of the media talk about it.

Yeager: The big talk this week was USDA acreage report. We have been pointing at this June 30 thing for a long time. It's finally here. Below the expectation, market responded limit up on Wednesday. Was the response to Wednesday's report a bigger story to you or what happened Thursday/Friday?

Hackett: I was not surprised that the market reacted that way, at a time where we already have very tight stocks to lose that kind of acres in the expectation of the market justified that kind of a move. I'm really not surprised we pulled back. There is a trend with these reports, you go guns blazing when the report comes out and then you have the buyer's remorse fade. We talked about this to our customers that we will likely see a fade into the end of the week, especially have a long weekend that is notorious for changes in trend when you get back form the 4th of July. So I just think it's just the way short-term trading operates and the short-term psychology of markets.

Yeager: I didn't exactly ask Ken's question but I got real close. This one came in via Twitter. Ken in Michigan. Corn limit up and then died the next day. Why? Anything different than what you just said?

Hackett: No, it's really the same thing. You get these short-term rushing and the moment they see any loss of momentum because they're only in it for short they just immediately sell out and then once you clear that sentiment you now can go back and trade something different again and that has probably took place the last couple of days.

Yeager: On this December contract, are we trading weather from here on out?

Hackett: We are.

Yeager: How long is the weather the biggest story on this trade?

Hackett: For corn it's going to be into the end of July. When we look at the numbers, how quickly the crop was planted in the short two week window, a very, very high percentage of the crop is going to pollinate between July 15th and August 1st this year, the normal. So the bullseye is that last half of July. And if we're correct about our weather analysis from our algorithm it says hot and dry is still in front of us for that period of time. The market needs to put more weather premium in than it already has.

Yeager: Can we put another 11% in this market next week or the week after? Or is this high in in corn?

Hackett: If we have a hot, dry forecast for the Midwest, not just the Northwest but if it moves more into the center of the country and we believe that's what is going to happen, it's hard to imagine that we have priced it all in. We think that we could go up considerably more given that we lost a few million acres from what everybody thought. What we're looking at, Paul, is this. If we have a crop that is 175 yield with the acres we have and you assume the demand being what it is -- are what they are today for next July.

Yeager: Right, but I saw someone's yield monitor on Twitter this afternoon that said, I dealt with a combined 4 inches of rain over 2 months in July and August last year, I got hit by a derecho, I got this, I got that, I still turned over 200 bushels to the acre. We can grow a lot of corn. Look at the areas not dry right now, those are some pretty good corn producing states.

Hackett: But last year's national average was still 172 despite it all. And the way we look at it, we're actually thinking -- we believe the yield can be similar to last year. That's a good crop, by the way. That's not a terrible crop. But in a year with a margin of error so thin, yes there's some great yields out there, but when you put it all together we are big on looking on temperature, we were 3.3 degrees above normal in the month of June in the Corn Belt. The way this temperature model works and allowed us to make the forecast last year for 10 bushel below trend for August is if you're 2 degrees above normal in June and 2 degrees above normal in July you're not going to have an above trendline crop, you're going to have a below trendline crop. And the only thing moisture does is modulate is it just a little bit below or a lot?

Yeager: Do we have any room for error in soybeans?

Hackett: Well, I think it's a similar situation. I'm a little more worried about the demand side on soybeans than I am on corn because we lost so much production from corn in Brazil. We lost a billion bushels of supply out of Brazil, but we had this massive, massive crop in Brazil for soybeans. And the African swine fever has re-emerged in China, they liquidated the herd, their prices crashed there. So we think they might have overbought the soybeans for a while and they may be pulling back and not buying as much from the U.S. as everyone is anticipating. That could be a problem if we start getting expectations for record acres being planted in South America here in another couple of months.

Yeager: What are you doing in soybeans if you have something to do?

Hackett: Our overall strategy, Paul, we've been talking about this since the beginning of the year is we've been expecting that we would have a final blow off top in grains in mid to late July based upon the peak of the drought cycle. But of course managing weather markets is extremely difficult. You wake up one day and don't like the weather model, it's down 15. We would just say figure how many old crop bushels you have left you want to sell, figure out how many new crop bushels you want to sell, this is for corn too, and just start averaging the next four week's sales and I think that average you'll do yourself a world of good from what we see happening in the fall.

Yeager: You mentioned ASF, let's talk hogs first here in the livestock discussion. What is that impact for an American hog producer in the next 3 weeks?

Hackett: Well, remember that last year we had all this demand from China that helped keep that price buoyant and now with the crash in the price in China and the pork price crashing their imports are backing way off. Now, we had a rest but we had this reopening of the U.S., we had the re-filling of the freezers, the food service, all this pent up demand and it's starting to fall. Well now if we lose that demand, and of course we're getting some hog weights doing better and we don't get the Chinese demand back, that is why we've had the initial crash off of $120 and $96 in a very short order. We're not very constructive hogs into the fall for that reason.

Yeager: What about in the cattle market?

Hackett: We kind of feel the cattle market has taken everything it can take. The fire, you had the JBS hacking, you had -- and that day where it wouldn't go limit down that day and it immediately turned up, we should have been limit down three days in a row and it didn't. And then we get the cattle on feed report that starts to tell us we're looking at smaller animals ahead, we think we might finally have gotten the animal supply in balance with the through put problem that we have been dealing with. And so we think once we get this corn blow off top, this grain blow off top out of the way, we think the cattle price can actually show some buoyancy because it has been being held back because they couldn't bring these animals through.

Yeager: But processing is still an issue with labor. We hear the job report, there's still not a lot of people lining up to work at the packing house.

Hackett: That is the problem, but we think that the supply is starting to get into a better balance with that. And we do believe these incredible margins that they've been having for quite some time and there is some capacity coming online here in the fall, that should be enough to take the backing up of animals away and at least allow for a more supportive market going forward.

Yeager: The feeder has had a hard time penciling out higher grain. Are they sitting out for a couple of weeks here before they start buying again?

Hackett: They're going to have to sit out until the end of July until we get this drought cycle out of the way. It's going to be really -- if we get a dome and hot and dry for pollination and we get the corn market really to rock and roll they're just going to sell that thinking it's going to go into August until we get the big pattern change. So it's going to be a tough sledding. But there will be a big opportunity once that pattern change comes and everyone realizes the top is in.

Yeager: In 10 seconds, when is the best time to go to the sale lot and buy some feeders?

Hackett: The first week of August.

Yeager: The first week of August. I'll see you at the sales barn then. The lunches are always good. Thanks, Shawn.

Hackett: Thank you.

Yeager: That will do it for this television show we call Market to Market. This is the broadcast part but guess what, we also do something online and we call it Market Plus. So join us. You can find that on our website of MarketToMarket.org. And remember, we answer your questions in Market Plus. And as you head into the 4th of July holiday, be sure to take a picture in your corn field or your neighbor's corn field or somebody else's and tag it with this hashtag #kneehigh4th on Instagram. You can also tag us when you find us on our feed of MarketToMarketShow. We'll share as many as we can there at our feed of MarketToMarketShow. Next week, we see what is bringing rural, urban and downstream parties together on nutrient reduction. Thank you so much for watching. Have a great week.

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