Market Analysis with Shawn Hackett

[Yeager] More contract loads and wheat while harvest high Tide arrives in the cornfields of America for the week. The nearby wheat contract sold off $0.17 and the December corn contract fell by $0.06. The turn in optimism for a breakthrough with China eroded Friday morning in the soy complex. The November soybean contract lost $0.11, while December meal declined 3.60 per ton. December cotton shrank by $1.53 per hundredweight over in the dairy parlor. November class three milk futures shed $0.71. The livestock market was mixed. December cattle gained 803. November feeders put on $20.47, and the December lean hog contract weakened. 327. In the currency markets, the U.S. dollar index was up 126 ticks. November. Crude oil fell $2.33 per barrel. Comex gold added $99.80 per ounce, and the Goldman Sachs Commodity Index was lower by two and a half points to settle at five 4415. Joining us now, regular market analyst Shawn Hackett. Hello, Shawn.

[Hackett] Hey, Paul. Always an honor to be on your show, as you know.

[Yeager] I appreciate that. Good to see you again. Is the path of least resistance in grains lower? But let's start wheat particular because there doesn't seem to be any supportive story building anywhere.

[Hackett] I agree it's hard to define a catalyst that crops going in the ground overseas. And here we're ready to go into dormancy. There just seems to be. While the balance sheet says we're tight, the trade action says that we have too much wheat and not enough demand. And it's really hard to put a finger on what might change that other than just time.

[Yeager] So, it's a narrative more than numbers.

[Hackett] That's the way it looks right now. I mean, the numbers say, hey, we should be stronger. We should be higher, and yet we just keep going to new lows week after week after week, saying there's something going on with demand that's not supporting the market like it's supposed to be. Maybe it's maybe it's people eating less of the foods that are wheat derived. There's something going on that's hurting the global demand for wheat.

[Yeager] Any advice on what we should be doing if we're still sitting on some wheat that we took out this summer at this price level? 

[Hackett] Paul, you know, under $5 winter wheat, I just don't think this is a time to be moving grain that you don't have to. If you do and you and you've got to pay bills, obviously do what you have to. But I don't think sub $5 winter wheat is what I'd be doing right now.

[Yeager] Corn market are we on offense or defense right now?

[Hackett] We're on defense as of this week because of what's going on with this constant endless trade volatility. We're going to meet with Z. And now it's not going to happen. Maybe it is. And so, you know we're harvesting the crop. We're not going to get data which we're supposed to get this week which should have showed reduction in corn yields. So, with other grain markets falling apart, it's really hard for the corn market to gain traction.

[Yeager] Do you find, though, that those who Pooh poohed government reports in the past are benefiting from this for whatever reason?

[Hackett] Well, when you lose transparency, whether you love the USDA or not, if you lose that transparency, the market withdraws. And our experience is that when you don't have as much data to assimilate, markets tend to go down. So, I think the buyers can gain an advantage so long as the government isn't putting numbers out for the market to assimilate. And the speculators, who tend to key off those reports, like I said this week, we should have gotten a report that could have been pretty constructive. And now it looks like we're not going to have to wait until November before we get some, you know, agronomic data there.

[Yeager] Does this just push the volatility can down the road a lot further, because it's going to take time to sort through what is happening right now.

[Hackett] Yeah I mean it. We don't know when the government is going to open up, but it could take until January before we really get a clear-cut view from the USDA about what this crop looks like. That's a long time from here to there for the market to wait around. And then we're subject to all kinds of headline risk in the meantime.

[Yeager] All right. If you're saying we're playing defense, what are we doing with that chart here? As we look at the March corn four-month chart that is now trending lower again?

[Hackett] The way I'm looking at is this way right now with what we've seen this week, with the uncertainty, if you know, you have to move some grain before the end of the year. I would move it. I would take those bushels, I'd sell it, I'd get the cash. There's no way for us to predict what's going to happen.

[Yeager] But isn't there a there's a sentiment building of commercial storage is going to be expensive if available at all. In some places. Are you rezoning? Is that what you're advising us here?

[Hackett] Well, yeah. I mean, obviously I'm not hearing. Yeah. I mean, paying commercial storage, I wouldn't do if you can store it on the farm, that's fine. If you need to raise cash, but absolutely, at this price level, you know, this is definitely time to be looking for an opportunity to reown those bushels. When it looks like that, we might be reaching the next trough here with whatever's going on this week and beyond.

[Yeager] I've never made math my major, but I'm pretty sure we were going to be up for the week going into Friday and soybeans, and then we're off $0.15. Why? Let's take away Friday's news. We'll talk about that in a minute. Why were we rallying this week?

[Hackett] I think was rallying because we were expecting that we were going to have some exciting trade news in mid late October. Besson had said a big breakthrough was supposed to happen here in October, just a week ago. And then we were going to get a USDA report that was going to show maybe lower yields, and then, you know, it just seemed like we were going to finally get some good news on that front. We had a quarterly grain. Stocks report that showed less soybeans than we thought. And then the wheels came off that we may not even have a talk at all with Trump and Z, and we may not have any meetings at all. And we may get an escalation of the trade war instead of a trade deal. And when you look at the balance sheet of soybeans, if we don't move grain to China, our balance sheet is going to grow. Our ending stocks are going to grow.

[Yeager] Okay. Many things. Let's start with China. Do we need them?

[Hackett] We do need them on soybeans right now okay.

[Yeager] If we don't get them what's an alternative?

[Hackett] Well, we're trying to develop the renewable diesel side of the equation. We did increase those mandates earlier in the year. There's a lot of uncertainty about exactly what that looks like for next year. You know, the political back and forth with all of this. We're trying to get domestic demand going, but it's still not enough. If we have zero exports to China in a given marketing year.

[Yeager] But then it would appear, given we don't have government data, that we kind of need the transparency side, then we think we're going to get some aid. We don't. Then all of a sudden the president says, we're not even going to talk. It appears there's posturing this weekend could be big. Did the market shrug off this post on Friday? Because we've seen this play before. Because I'm not saying $0.15 is not a big deal, but it could have been worse.

[Hackett] Well, I would look at the entire year, Paul. We're basically the same price today as we were in the spring. Yet we've had negative news, nothing good, and the market hasn't really been going down, hasn't gone up either. So, I think we are continuing to discount the tendency of Trump to be playing volleyball with negotiations, and that this may be just another part of that volleyball that he plays in order to get the best deal. Later on in the month, and he could come out next week and say meetings back on things look great. And there we go.

[Yeager] There's a lot of things when it comes to the posturing that happens and the sense that this is a deal in search of we're looking long term. You mentioned last year prices were about the same. What's different between last year and this year?

[Hackett] Last year we weren't in a trade war. We were thinking we might be in one if Trump got in. This year, we're in a trade war. Last year we had a lot of a lot of booked exports to China. This year we have no very little of any exports to China. So, it's a very different story now. Last year we had very, very large carryout on soybeans that are smaller this year, which is actually a good thing. But we just have a ton of more uncertainty, Paul. Just a ton more uncertainty than we did back then.

[Yeager] Because there's plenty of people who are like, why is this any different? It goes back to what you kind of said about wheat. It's sentiment, not numbers, because the numbers should say a certain story.

[Hackett] Absolutely. We are playing the sentiment game right now.

[Yeager] All right. It's not any better for cotton either.

[Hackett] Cotton. We are very reliant on selling exports or selling cotton supplies to China. Even more so than soybeans. And when you have a consumer that's consumer sentiment. That's at some of the lowest levels in history. And you have demand that's showing weakness all over. And cotton is a very, very economically sensitive commodity. And it's competing with synthetic fibers. With crude oil now going under $60 a barrel. Cotton just has a super, super demand side problem that it needs to solve. And it needs a trade deal or better economic conditions in order to get that.

[Yeager] Last week we had the discussion about other crops. You know, whether it's Milo or something else, because wheat, corn, beans just didn't have that optimistic look. It certainly doesn't seem like Cotton's the answer either.

[Hackett] It's not the answer. In fact, I would argue it's even worse because it's more of an economically sensitive commodity, you know, very tied to the economy and very tied to trade with China and elsewhere. So, it's I don't see that being a go to place at all. I really don't.

[Yeager] Do you sense there's going to be I mean, you mentioned January is when we could see things. That's when we start to start getting these acre pictures and we start getting that sense. Are we going to see a dramatically less amount of acres of cotton, beans, corn? What's the big change going to be in 26?

[Hackett] Well, I mean, if prices remain this unattractive through the spring, you know, we're going. And of course, if there's no aid that comes in and there's no trade deal that comes in, the banks aren't going to fund the acres. They're not going to fund it. The acres will be forced down. Whether the farmers want to, you know, don't want to do it or not.

[Yeager] Are they going to keep funding in the live cattle market?

[Hackett] Look, the live cattle market is in a situation where we have a three-pronged supply side story Screwworm 50% tariffs on imported beef from Brazil and the incredibly slow herd rebuild in the U.S. Based upon historical precedent. And even though the beef cutout, prices have been collapsing here, it's still not enough, given that extraordinarily tight supply going into the holidays. So, beef and cattle is a very extraordinarily unusual situation. It's bucking the bearish tide in most commodities right now.

[Yeager] And live cattle is not even the big story of the week. No feeders, $20. I never, ever thought I would say on the week $20 move and it's only a 5.8% move.

[Hackett] Well, that's the thing. When the numbers get bigger, smaller percentages mean larger numbers. But still, on the bottom line of what it means to a cattle rancher for that kind of a price move. It's just big, big numbers we're talking about.

[Yeager] So, if we've got this three-pronged issue, we're just getting started on this, right. this rally?

[Hackett] Well, I mean, right now I don't see anything that's going to change on the Screwworm. He says he's going to talk with Lula to reduce the tariffs. But we now know we can't rely on anything when it comes to trade negotiations. And the herd rebuild cycle is a is a multiyear cycle. I don't really see anything between here and the end of the year that's going to change the supply side of the equation. And even though demand is not the best it could be, it'll be good enough to override the supply of cattle on the market. So, you're looking at the chart. We're it looks like we're breaking out this week on a weekly closing basis. We could be ready for another run higher.

[Yeager] Yeah. Because we were starting to develop a little bit of a lower pattern. And yeah, this kind of threw it off in the in the feed, in the feeder, in the hog market. Sorry. We had more seven-week lows. Are we right now in this picture of this long cattle short hogs hedge?

[Hackett] Well hogs had a good run going. It was getting some momentum. It was starting to actually outperform cattle. And then all of a sudden it just it just caved in. And I just think what's going on there is that we are dealing with a major consumer backing away from demand of all proteins, not just beef. And we're not selling a lot to China, obviously, and we're just backing ourselves up and we're having a hard time finding enough demand for that supply, given that lack of it. And we don't have the same type of supply constraints on the hog market that we do in the cattle market. So very, very ugly reversal picture this week, unfortunately.

[Yeager] Is that a long-term thing here? Is this a technical thing? Since that's really all we're going to have to go with?

[Hackett] I think it is more technical. I mean, we did have a good run. We did break out on the charts. We are coming into some support here. I don't think it's a long-term reversal, but it certainly is an unknown. You know, something that you didn't want to see for the hog guys that were getting some prices that made sense. I do think we can have a run going into the holidays, because the supplies for hogs are not fantastic in terms of they're not growing that rapidly, but definitely a hiccup and definitely something that's going to keep this market at bay for a while.

[Yeager] Last few seconds, the dollar two consecutive weeks, a pretty good gains.

[Hackett] It's not not not desired, not wanted. It only hurts the situation even more at a time. We're trying to move to anybody who wants to take our take our supplies. Having a strong dollar just crimps that even further and makes our prices less attractive. Just a very unfortunate situation of the dollar backing up here.

[Yeager] And lastly, on let's go back to crude oil for a moment. We below 60 bucks for a while.

[Hackett] We traded under 60 today. It's been a long time since we did that. Another sign of weak economic activity. OPEC continues to raise their production and it's not good for anything doing with commodities.

[Yeager] Shawn, good to see you.

[Hackett] Good to see you.

[Yeager] Thank you so much. Shawn Hackett everybody. And you have been watching the analysis segment. And in a moment we will continue our discussion in an online only segment, search Market Plus with Shawn Hackett. Wherever you get your podcasts to hear that conversation or go to our website of markettomarket.org. We'd love to be with you in the buddy seat at any time. And if that doesn't work, how about you take us along with the option of pulling up our YouTube channel? We'll help keep you company on these long days and nights in the field. Subscribe at youtube.com Market to Market to see the full show Market Plus and other historic offerings from us next week. The U.S. hazelnut industry cracks the code to market expansion. Thank you so much for watching. Have a great week!

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