Market Analysis with Shawn Hackett

Improved weather helped producers get back to planting and some profit taking showed up in the virtual pits. For the week, the nearby wheat contract lost 19 cents and the July corn contract fell 19 cents. Poor demand and improved conditions returned to the soy complex. The July soybean contract subtracted 43 cents while July meal weakened $21.80 per ton. July cotton shrank by $4.37 per hundredweight. Over in the dairy parlor, July Class Three milk futures declined 42 cents. The livestock market was mixed. June cattle fell $2.15. August feeders cut $3.83. And the June lean hog contract added 7 cents.  In the currency markets, the US dollar index was even.  July crude oil lost 74 cents per barrel. COMEX gold shed $12.10 per ounce. And the Goldman Sachs Commodity Index was off more than six points to settle at 574.70.

Yeager: Joining us now is regular Market Analyst Shawn Hackett. Hello, sir.

Hackett: Hello. You know there's no place I'd rather be.

Yeager: I know. And that means a lot. And you have a lot to talk about. I'm going to tease a tiny bit. It's going to be bearish for a while. But you have some bullish sentiment to come in our discussion. But the question I'm going to lead with is, is the party over in the wheat market for the foreseeable future?

Hackett: I don't believe the party is over. I think it's taking a rest. We had a big, big rally. Harvest is right around the corner. The crop is the best we've seen in the four or five years and we know harvest pressure, farmers are going to start selling out of the field. And so, I think that's, for now, going to put a pause in the market. But I don't believe the party is over. I still think there's more time to go before you have to leave for good.

Yeager: Do you get the sense, though, that that was the, when I use the party reference, that everything else was just kind of stuck in the morning after because of wheat? Is wheat really a leader right now in grains?

Hackett: It is the leader. It has been the leader. And I think it's going to continue to be the leader for a while. The Russian drought and double day frost worst in history there, it's a major crop problem. We haven't had a major crop problem in Russia since 2010-2011. And when we start dialing in what that production looks like it could be as much as 20 million metric tons below what it was supposed to be and they set the global price for wheat. Everyone trades off of them. That is the key.

Yeager: How long are we looking at here for this we'll say pause sideways, or lower, before you see us moving higher?

Hackett: I think we can pause into mid-June in grains and wheat. But I think after that the weight of the lost production in Russia will come back and the market will then have to react and add additional premium. But I think into mid-June is what I would expect.

Yeager: Old crop corn struggled, like most crops did. Did enough farmers take enough of an opportunity to sell, in your mind?

Hackett: I think they did. Certainly, my customers took advantage of it and we were strong supporters of selling cash corn here in late April into May. I think we got a lot done. It's obviously what kept the corn market not chasing wheat as much as many would have liked. But that's the process of kind of cleaning up the market and getting ready for what we think is going to be an interesting hot July here for the growing season.

Yeager: Well, Matt in Iowa has your next question, Shawn, and it's about new crop. June has historically seen a rally in grains and provided a window to sell old crop and get some new crop sales booked. Will we see that rally in the same timeframe?

Hackett: Well, I think we had our opportunity here already. I think that first selling opportunity in cash was already, we already had it. I think we're going to correct into mid-June. I think your next selling opportunity is going to occur mid-to-late July if our hot July forecast is correct. So, I think there will be another opportunity, but I don't believe June is going to give it to you like it has in many years before.

Yeager: Are we in a big slide in new crop until July?

Hackett: I don't think we're going to retest the March lows. I think we're going to make a higher low. But I do think we could give back at least 50% of the rally we've seen in corn. And we're already on our way doing that.

Yeager: Do you get the sense that this planting delay, we're just about five-year average, we'll probably see again pace as it was pretty dry in a lot of places -- is the weather window and any premium added to the market shut?

Hackett: I think the planting situation is not going to create a rally. I think we're getting the crop planted. The good moisture does far more good than it does bad. I just don't see that being a strong story in the marketplace until we get further on into the growing season.

Yeager: I guess I'll ask almost the same question wheat as I did for soybeans. Is that celebration over in soybeans on old crop?

Hackett: I don't think there was anything really to celebrate about. I think soybeans was just going up because we were getting rallies in wheat and corn and speculators were covering short positions. I struggle to see the fundamental reason for soybeans to go up. It's a follower, a third follower, and so to the extent that it was following the other, that party is over, and I just feel soybeans are just going to be a lagging market all through the summer unless we get something going on in August.

Yeager: If I'm holding old crop, it sounds like I've missed my window. Do I cut my losses now and make a sale?

Hackett: Look, if you're sitting here and you've not made a single cash sale and you're saying, I didn't take advantage of this recent rally, I think you do need to get something on the books. You've got to move the ball forward ahead of September, October harvest. We're not in the business of selling declines, we like to sell rallies into technical strength. So, we're not making sales here. But if you're someone who is coming to me saying, I've done nothing, you definitely need to get something done in case a black swan event comes into the fray.

Yeager: New crop has a story that is tough when you're looking historically. 19 years we are behind pace on new crop sales at this time. What is that telling you?

Hackett: Well, it's just saying right now that China, whatever they are buying they continue to find those supplies from Brazil. Even though the Brazil crop is down from a year ago, they came in with larger stocks than we thought. I don't really see the willingness for China to avoid buying Brazil for us unless Brazil holds back exports, which I do not think is going to happen. It's a tough story. It really is a tough story and I don't have a good answer for you. I think it would be weather problems in August that might push the ball forward on demand.

Yeager: That's hard to hang a market on hopes and dreams of a weather market.

Hackett: Yeah, it's not something that you want to hope on a dream on. But because we are very constructive on corn and wheat, we do think we are going to get additional selling opportunities, not because we really should be getting them, just because that's the way the soybeans work. If we get big moves in corn and wheat, we're not going to see soybeans stay down here. We'll get what we just saw, grinding, struggling rally, but a rally that you could at least sell into strength and get a better price than we have right now.

Yeager: What is the scenario that makes soybeans go from third in line to first in line to be a leader on new crop?

Hackett: You have to have a hot August. I don't really see any other scenario out there that I can see that is going to allow that to happen. We need a hot August, which we have not had in over a decade. But we need that story to bring speculators into the market and to bring some panic into cash buyers into the market. Other than that, it's just going to follow the wheat/corn lead.

Yeager: Weather has been benign in corn and beans. You have a forecast for the hurricane season picking up, which is going to cause some problems in cotton. We have been seeing that market stuck in a bearish story. Has it flipped to bullish in your eyes?

Hackett: Well, Texas got great moisture for the first time in many years. We're off to a good start with planting. So, it's struggling because right at this moment production potential looks the best in the state of Texas it has looked in a long time. So, I think it's going to continue to struggle as we move along. But, as you stated, very active August, September hurricane season, especially for the Gulf, especially for Texas, it means we could get a lot of unforeseen rains during bowl sets that could really create a stir. But that's a long way from now. But it's definitely something that is going to keep the market from breaking down right now. And so, I think it's just a market that is going to trade in a trading wedge, which we've been doing back and forth, and if you have to sell something sell the upper end of the range, if you have to buy something buy the lower end of the range. It's really not a market that, in my mind, has a lot of near-term potential.

Yeager: Live cattle have some near-term potential or long-term potential?

Hackett: It has great long-term potential. We've been promoting the idea that we're stuck in a wedge pattern since last fall, which we have been. We are now at the upper end of the wedge rolling back over. We think we're going to go back to the lower end of the wedge, once again. But coiling, a coiling pattern like that typically breaks out to the upside. That pattern completes at the end of the summer in August for both hogs, cattle, feeder cattle and for dairy. So, we're pretty excited that we could see a pretty exciting end of the year for the livestock sector, not only because of these technical pairings, because we think fundamentals, which HPA and things are really coming together to create an unusual fundamental situation.

Yeager: But your first answer sounds much more technical. But you're saying that the technicals are going to be influenced by -- or the fundamentals, will they override the technicals?

Hackett: Well, when there's not a good fundamental story, the technicals drive trading patterns. And then once you get the fundamental story that takes hold, you then get a breakout of that technical pattern and you then move into a more dynamic move either to the up or down side, depending on which way it goes.

Yeager: Well, we have the issue with China stopping the import from that one facility in Colorado, one can sometimes become two and all of a sudden HPAI becomes an issue and they just say stop. Does that put a lid on any optimism here in live cattle?

Hackett: Certainly, those are unknowns that we can't really forecast how it's going to play out. I don't really think, from what I've seen and the research I've seen and the trends I've seen, that we're going to see the beef cattle side of the equation get caught up in HPAI. I think it's going to be more of a dairy situation than a beef situation. And I really believe that the supplies later in the year are going to be so tight, I'm not sure we're going to need to worry about too much export to China at this point.

Yeager: Feeder wise, after the report last week, the market kind of yawned, I guess is probably the best way to say. How did you see feeders?

Hackett: Yeah, it yawned, and, as I said, I don't really see that market having an ability to break out to the upside until we get past the June, July timeframe. I'm not necessarily negative either, by the way, I just don't see the technical or fundamental reasoning to break out until later in the year.

Yeager: One of the frequent guests on this show said this week in a newsletter, June in hogs looks explosive, upside exists into the fourth quarter, record high prices possible. Shawn Hackett, do you stand by what you said earlier this week on hogs?

Hackett: Yeah, I really do. I think the way that we're setting up, if you look at the Chinese hog price breaking out to the upside is the leading indication that the herd liquidation over there is over, that the African swine fever situation is over. The pork price itself in China has had its first up week in months. And to me, when we're looking at when they're going to be needing to buy a lot of pork to cover a shortage is going to be later in the year. And from everything I see, our herd is going to be smaller, not larger, the further on we get into the year.

Yeager: What do I do if I'm a producer then in the United States?

Hackett: Well, my general view with the whole livestock sector, but especially hogs, is you want to keep your topside open. You want to make sure you have your upside potential that if we get a big move, you're going to be able to sell those cash prices at those higher levels. So, my concept would be to do things to protect downside price risks because there's a lot of uncertainty in the world, we don't know how all these things are going to play out. But keep your topside open. We've had record losses. You need to make some money and you need to keep that topside open.

Yeager: Thank you, Shawn, good to see you. Appreciate it. We are going to pause this Analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of MarketToMarket.org. Our email inbox is open around the clock to take your feedback on topics about the program or just something you want to tell the producers of the show. Drop a line any time, markettomarket@iowapbs.org. Next week, a move to close the last packing plant in a major U.S. city. Thank you so much for watching. Have a great week.

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