Market Plus with Shawn Hackett

Paul Yeager

Welcome in to the Friday, January 27, 2023 installment of Marketplace. Joining us now, Shawn Hackett. It's a good thing we put in the teleprompter the year because I'd be one of those. I'm stuck on what year it is. First, before we get into Shawn, I wanted to say thank you to all of those that are watching Market Plus, but those that have contributed questions on Facebook and on Twitter, we have a whole bunch of them.

 

Paul Yeager

They were really, really good and they were from all over. Shawn, Because you have been all over, I didn't get a chance. I wanted to spend a little more time in livestock. Let's go back to cotton for a minute. There's been discussion here this year about buying acres for cotton. Is that what's going on? You think there's something else in cotton?

 

Paul Yeager

Sorry, I'm going to steal your answer.

 

Shawn Hackett

Well, the tourist industry there, 2 million people Chinese flew in the last month, down from 45. We know those are well wealthiest Chinese who go out and spend money on clothing to a large degree. We're already seeing those numbers going up to the price of cotton in China. Hit a V bottom and it's gone straight back up. That little cotton, things like lumber that's already turned up tend to be your leading edge markets that get ahead of the curve on any kind of an economic rebound.

 

Shawn Hackett

And so I really feel that where we are in the cycle, the cotton market is positioned for, you know, an early first mover advantage on a China reopening from this this significant increase in tourism and travel that's going to be taking place. And where we are priced or have been priced, we are not going to get acres planted.

 

Shawn Hackett

And I think the markets can be uncomfortable cause we just haven't been able to produce a good cotton crop lately. And in case it happens again, we better get some extra buffer stock in Texas, especially to make sure we have enough.

 

Paul Yeager

That's if it's not if they get rain and it's not too dry. That's right. So that's the weather story was that we have the main discussion. We'll get into that in a moment. But this is a question, Shawn, I had texted to me a couple of times this week. And we're going to start with Jason in Tripoli, Iowa.

 

Paul Yeager

And it's kind of funny. I told Jason it's the same type of question I had from someone in his neck of the woods. He says new crop of corn and beans are roughly a dollar a bushel lower than current old crop prices. He says most analysts are suggesting 20 to 30% new crop sales with which I can agree with, he says.

 

Paul Yeager

How or what strategy makes up for that $1 deficit in basically a range bound market? Yes, I want to sell, but I lose money.

 

Shawn Hackett

What do I do? Well, you only sell, you know, if you really need to or if you really feel that the price fundamentals picture is going to get much lower. If our weather forecast is remotely correct that we're moving in back into a drought cycle in the back half of spring into summer. I would think that those new crop prices, which are most sensitive to the weather and to the new crop development, are going to, you know, put some weather premium on.

 

Shawn Hackett

It's not unusual for the market to do it on any circumstance. The strategy would be if you're someone that's sitting here with 20 or 30% sales on cash, what do you do about it? I think you look for an opportunity, like we said at the beginning of the last show, to for a lull, for some a low point here in early spring, on an early start to the spring bears is coming and you look for a good low point to maybe do some counter hedging against those sales so you can make some money, put some money back on those cash sales and make it better based upon your cost of production.

 

Shawn Hackett

That's the way we're looking at it and that's what we're looking for, the opportunity for our customers.

 

Paul Yeager

But I mean, there are some who don't feel comfortable doing something like that or don't haven't had good success doing it. So but as I told someone back on text, I said, Yeah, but what if this drops even below what we have today? How do you try to talk somebody through that right now?

 

Shawn Hackett

Cost of production is never been a good short term tool for prices. Never. I've always seen this idea that cost production, it can't go any lower. I'm not going to sell. And then it goes lower and it goes lower. I mean, cost reduction is a good long term measure, but just because it's below your cost of production does not mean that it can't go substantially lower.

 

Shawn Hackett

That is not a reason not to sell now, because selling at a loss is today is better than selling at a huge loss. Six months from now, it looks like the price is going down. I never would expect anyone not to have any cash sales made at this point. But be careful.

 

Paul Yeager

You can say that with a smile all you want, but it's really hard medicine to take right now to say. But yes, that might be the cold, hard reality if things slip. All right. Let's get back to these questions. We're going to go to I'm going to go to Dan in Oregon, corner wheat. Shawn, which one has the highest price potential for 2023?

 

Shawn Hackett

Based upon our weather look of a potential reemergence of drought and possibly some kind of a historic Lewisburg cycle drought, the corn market would clearly be the market that would be most impacted. Oftentimes, we can get tail end rains, even even in 2012, we got some tail and rains that helped the soybean crop out a little bit. Obviously, winter wheat is not going to be impacted by a summer drought.

 

Shawn Hackett

Spring wheat in the northern plains probably not. I'm thinking the corn market based upon the weather would probably have the best potential. But then we have to obviously keep an eye on that renewable diesel craze later in the year to see what that might look like. But I would say for now, corn over soybeans.

 

Paul Yeager

Okay. Corn over beans and corn over wheat to.

 

Shawn Hackett

Corn, over corn over wheat. Because I don't believe based upon the weather that we're looking at a spring wheat problem, we're looking more at a corn problem at this point.

 

Paul Yeager

All right, Tony in Nevada, he is asking if dollar weakness continues. Do you buy corn now or wait until spring?

 

Shawn Hackett

You never, ever, ever buy any market just because the dollar is going up or down. That is a variable, a very important variable for overall inflation or deflation for the entire commodity complex. But I would say you buy corn because you think that the fundamental picture is going to improve. You think that the weather is going to deteriorate.

 

Shawn Hackett

You know, it's the fundamental picture that you go with and the dollar either accelerates that trend or detracts from that trend. But I've seen many, many farmers make mistakes, making decisions on currency and getting bitten by.

 

Paul Yeager

Frankly, the dollar. The last couple of weeks has been you talked about no price movement. I think it was four ticks today and I think it was 12 last week. So we really calm down and not going higher.

 

Shawn Hackett

It's well, here's a great example. We've had a big knock down in the dollar, right? You start with 113 and went down to one on one over the last, what, 30 or 45 days. And you look at the price of grains, they really haven't done a lot. So if you're if you bought, you know, three days ago because of a weaker dollar, it hasn't worked out because weather and other factors, you know, are part and play at one time.

 

Paul Yeager

What could you argue that it's maybe a little inflation playing out, deflating of things, too, with the commodities in your scenario?

 

Shawn Hackett

Well, if you think about it, if we had a weaker have a weaker dollar and the prices haven't moved, what would have happened had the U.S. currency stayed strong? They probably would be lower now. So it's kind of a bearish factor, right, because it should have made prices go up under normal circumstances, meaning that, you know, we're still in a tough environment for commodities.

 

Shawn Hackett

And when the dollar doesn't really propel prices, the Goldman Sachs Commodity Index has not moved up much, even though we've had a big break in the dollar. That's a warning sign that we're not quite at the green light yet.

 

Paul Yeager

Okay. Okay. We're going to test your quiz. And if you can guess what this next question is, Paul in Saskatchewan Shawn wants to know where is 40 600 headed or that's urea. Should we buy now for top dress in June or wait?

 

Shawn Hackett

Well, natural gas has crashed and burned. We're now under $3. And obviously nitrogen based fertilizers tend to follow natural gas to some extent at this level are now well below coal. In terms of the natural gas energy price. We look at the world, we think this is a major low here in the natural gas price. And so obviously there's a stickiness to fertilizer.

 

Shawn Hackett

You know, it doesn't come down. It could take some time. We know this, but we're starting to see prices really cave in. We think that can continue into the spring. And I think that the natural gas prices on borrowed time to stay this low. So I think there's a very good window of opportunity to finally get a chance to lock in some fertilizer again this spring.

 

Shawn Hackett

All right.

 

Paul Yeager

How about fuel? Because we have a question about fuel. This comes from Mike in Nebraska. What's your fuel recommendation? He's thinking specifically about US irrigation needs.

 

Shawn Hackett

Well, when we look at, you know, diesel prices, you know, they've come down a lot and we look at the whole situation of how did we get here on energy and energy derivatives? We got here because we dumped Strategic Petroleum Reserve. We got here because of slowing economy. We got here because the Federal Reserve drove speculators out of the energy market.

 

Shawn Hackett

But when we look at all those trends, SPR is going to stop. Our inventories are crashing downward and who's going to be buying a lot of energy here in the back half of 23? It's going to be China coming back to the market. Who was absent from the market in the last six months. It's a really good window of opportunity to lock in some longer term, you know, cash needs on energy, you know, but you get those windows after a lot of excitement.

 

Shawn Hackett

And I think the energy complex between now in the spring is giving everyone that chance to do something smart.

 

Paul Yeager

Back to the peace that Peter did in the show with the from the gentleman from Nebraska talking about I'd be locking in some things. All right. We're going to go to the last question that we have here, Shawn, and it's Kevin. And he asked us via Facebook, Thanks, Kevin, for this question. If the USA has a 180 bushel corn yield in 23, can corn hit four 450 this fall?

 

Shawn Hackett

Well, I mean, I'll answer the question this way. We look how much cotton prices fell, we look how much oats prices fell from a pretty high price. Prices could fall considerably if you have a big crop and you put ending stocks back and the shortages leave the market and the buyer says, I don't need to worry about it anymore, can we see us?

 

Shawn Hackett

A final heart warming new crop corn is already, what, 580? I forget we're close today. You're talking to something like a dollar down from here. You know, that wouldn't be that much of a stretch if we had big acres and a one at a yield. I mean, I think certainly that would be on the table unless there was some extraordinary circumstance that counteracted that.

 

Paul Yeager

Hmm. And 587 good memory there. But but it gets back to what you've been talking about, the weather pattern not changing and we stay dry or we we we start early. Get dry early. We've also proven the last couple of years we still grow a crop, even if moisture doesn't always line up.

 

Shawn Hackett

Timing is everything. So, you know, throughout the last 5 to 10 years, we've had some of the best yields late planted corn versus early because of the sequence of events that took place. I think what's most important is the sequence. If we get the dry weather to reemerge in the back half of April into the summer after a pretty good moisture in the spring, that's actually a not a good recipe for big corn yields.

 

Shawn Hackett

And that's what we'll be looking out for.

 

Paul Yeager

And our timing is done. Thank you, Shawn.

 

Shawn Hackett

Thank you, Paul. Always a pleasure.

 

Paul Yeager

Shawn Hackett, everybody. Next week we are going to talk to one producer about how life and work has changed since his return to the family farm and market analysis with Sean O'Leary. Thank you for joining us and have a great week.