Market Analysis with Shawn Hackett

Paul Yeager: Short covering ahead of next Monday's was a report and good weather made for mixed results in the commodity markets for the week. The nearby wheat contract gained $0.04 and the September corn contract lost a dime. Reduced Chinese demand and optimal weather for this year's crop pushed the soy complex lower. The September soybean contract declined $0.30, while September meal dropped $22 per ton. December cotton improved $0.09 per hundredweight over the dairy parlor. September class three milk futures fell $0.35. The livestock market was in the red again this week. October cattle shed $0.93. September feeders cut $6.55, and the October lean hog contract decreased to 60. In the currency markets, the US dollar index lost three ticks. September crude oil improved $3.19 per barrel. Comex gold fell $1.80 per ounce, and the Goldman Sachs Commodity Index added more than five points to settle at 540.50. Joining us now, one of our regular market analysts, Shawn Hackett. Hi, Sean. Hey, Paul. Always, always my favorite place to be. You know that especially in nice weather like this. And I ordered it just for you. I appreciate it. The weather story is much bigger in corn and beans. However, wheat has had a weather story in some parts, but it's Egypt that was the headliner this week for many early on. Can foreign demand help us wheat producers and this market?

Shawn Hackett: I believe that it can. I mean, when we look at the short crop Russia Ukraine has had, France has had, I mean, a big, big hole in wheat supplies is out there. We have a large crop. We have supplies to sell. But I do believe that the way you're going to put a bottom in the grain markets, especially the wheat market, is to get that demand side factoring in. And I do believe it's already begun.

Paul Yeager: Again, supply and demand could be the story and will be a main topic for us this week. But specifically with wheat. Let's look at that deferred contract again. Able to hold a positive rally at the for the week. Good sign?

Shawn Hackett: It's a very good sign. If you look at the trading pattern of wheat, it's actually showing a very credible bottoming pattern for an extended period of time. It looks to me like the first market that's going to be ready to kind of turn up and confirm a lull. Remember, we put the winter wheat crop away. We're about to put the spring wheat crop away. That's usually when you have maximum selling pressure that alleviate. And then we can lock up the rest and have the buyers come get it. It's a better days ahead. I really, really like wheat here. I think that it's a fundamentally solid market, and I think it's going to be a better market later on in the year.

Paul Yeager: I've heard this question over and over for weeks, and I haven't sat here in a while. So I have to ask Matt and Iowa's question to you, Shawn, are we in the basement or are we still in a free fall? Lower. When it comes to corn and beans.

Shawn Hackett: We know that typically, harvest lows typically occur in corn in the back half of September for soybeans the first half of October. Not every year, not every time we're in the window where we would expect the floor to be seen. My view is if you look at and there's a lot of people that are suggesting, for example, that the corn is going back to three and a quarter, because that's what that was, the low that we had back in the, you know, 2012 to 2020 when we had a lot of corn. My problem with that thinking is this we printed so much money and spent so much money inflating the monetary system. Post Covid, I don't believe that we're going to be able to get ourselves back down to that level. I think we're going to make a higher floor. We can argue it's 375, 390, but remember, 175 used to be the floor before the great financial crisis, and then it became three. I just don't think apples to apples analysis here is going to work out. I think we're going to make a higher level when it's all said and done.

Paul Yeager: But does corn start with three for the foreseeable future?

Shawn Hackett: I don't believe so. I really believe we have to do like we just did with wheat. You have to get the farmer who hasn't sold to sell and move the grain and create the pressure out the basis, all those things that they're going to do. But once that's been done and we lock up the corn in the bins, remember Russia, Ukraine down probably 20% year over year and Brazil corn crop down 15% year over year. Nobody else has a good corn crop. We have a lot to sell. So like wheat, I think we're going to be able to sell a lot of wheat to those that need it.

Paul Yeager: On the new crop side of things with corn. You were in Indiana. You said things look good. I was in Missouri. I've been in lots of parts of Iowa, Illinois. Things look really good. What's that tell you again? We slipped below that for this week.

Shawn Hackett: I mean, it's just a question of what is going to be the price that clears the inventory, right? The floor price. I'm thinking 185 plus or minus the bushels where we're going to find up, wind up with the USDA. If you run those numbers with maybe some lower harvested acres, a little better demand and maybe some lower oil crop, I don't think we get past 2.3 billion bushel carryout for corn for next year. Stocks. The usage of around 15% is similar to past over supplies. I just don't think that we need to do too much more to the downside to clear the inventory.

Paul Yeager: Is that the same story in soybeans for you?

Shawn Hackett: Soybeans, unfortunately, is different, even though Brazil had lower yields and a lower crop, they planted so many more acres that their production was not off that much. They also carried more soybeans into this year than we thought they had. So I don't I can't say that I'm excited about what I see for demand for soybeans going forward. The catalyst that I see potentially is there's talk that we might ban imports of palm oil from China. That has been taking a lot of demand away from being oil. And if that were to get triggered here later in the year, that could create a windfall demand for buying oil and get those being crushers higher. I think that's one of the big catalysts fundamentally beyond Brazil weather that we might need to look at. because I don't think export demand is going to be at

Paul Yeager: On new crop. Arlen Suderman of StoneX tweeted this week, that kind of caught my attention. He said, don't focus on the 15% of the crop. That's bad. Look at the 85. That's good. He's meaning more corn. But the same can be said about beans. Like I said, lots of good beans. New crop side. What are we going to do with all these beans?

Shawn Hackett: You know, my feeling is, is that soybeans going to need to get direction from corn and wheat? That's the fundamentally bullish story outside the US. I think you need to get corn and wheat going on a demand driven move higher, and it will drag soybeans up for grudgingly. The good news for soybeans is that Brazil currently has some soil moisture and the lowest two percentile since 1950. If rains do not materialize during the planting season, their acres are going to be down and their development is going to be way off. That could be a weather catalyst. I know that's not you always want to hear it go away for weather, but it could be a real legitimate weather catalyst for soybeans as we get later on in the year. Right now, La Nina does not look like it's going to form. It's going to stay neutral. And that's bullish for drier weather in key Brazil soybean areas.

Paul Yeager: We do have a weather question we'll get to in Market Plus that's similar to that. But let's go to the demand side of the ledger that you talked about. And wheat and and corn and beans. Does China come through if if it's dry in South America, do you get the sense they're going to be interested in American beans?

Shawn Hackett: If we really going to supply problem? I mean, we've never seen subsoil moisture in Brazil like this before. I mean, think about starting March in the United States was the lowest 2% of moisture. If we really, really get to where that crop could be way, way off, they're going to come and buy soybeans in the United States in a major way. We have to get there first. The other thing that I think is very important is they started printing a lot of money in late July. If you look at a correlation between commodities and money printing in China, there is a like an 85% correlation between the two. And it typically impacts those markets they import the most. Wouldn't surprise me that if they kept printing money the way they are, and it looks like they're going to, we could see better demand for things like crude oil, things like cotton, things like soybeans, things they need a lot of. Then we might find that they buy a lot more from us.

Paul Yeager: Is that part of the reason cotton had a run up this week?

Shawn Hackett: That, plus the flooding in the southeast was really devastating for some of the cotton areas down there. Certainly the combination of both of those, I think, is what drove cotton, and I think cotton is going to see more of that kind of flooding the further on we get into the hurricane season.

Paul Yeager: Live cattle, any more is tied to economy overall and Friday into Monday. Tuesday we really took a bath here in live cattle. Is there a sense that they still are tied together? And with a rally in the stock market at the end of the week, that is going to be the savior?

Shawn Hackett: Well, we had a big rally today. And I think this was, you know, kind of the market's a little relieved, but any time the cattle market looks and sees the stock market crashing and sees economic numbers crashing for consumers, it's you know, that's a that's going to trip the switch. It did trip the switch as speculators sold heavily. However we did not break through important technical support. And we did bounce this week on a Friday close. I don't think that the cattle market's going to get out of hand unless things unravel much, much more than they already have.

Paul Yeager: And feeders have been always kind of more tied to the S&P. Does that trend still hold in in these recent developments.

Shawn Hackett: No question that that trend is going to hold.

Paul Yeager: And we're going to be tied to monetary policy. The fed has a, the Jackson Hole meeting is coming up here on August 22nd, where all the smartest financial guys and oil get together and tell you how they're going to save the world. And then we got the fed meeting in September where supposedly they're going to start cutting rates.

Shawn Hackett: Very, very important metrics or something like the feeder cattle market that's waiting for that.

Paul Yeager: But the markets, just like in commodities, there's always this. It's baked in because they expect it. Are we already in some of this trade turning because we expect a rate cut?

Shawn Hackett: Well we've been expecting a rate cut all year long and that hasn't happened.

Paul Yeager: But not like now. Not like now.

Shawn Hackett: Yeah, I mean now I think I think the market really believe strongly that it's going to happen. The question is is it one and done or is this going to be a methodical process of continuing to do so? I believe they're going to be much more accommodative monetary policy, especially going into the elections. I think they're listening to what Trump is saying about wanting to control the fed. And I think they might want to do everything they can to make sure things don't fall apart heading into the elections, if that has any sway on how people vote.

Paul Yeager: Hog market. I was at a hog show today. there were some smiles, but there were also some concerns. Which should they be thinking more of right now?

Shawn Hackett: The hog market is a little different for me, and we know we have cheap pork cutout prices. We know people don't want to eat pork. It doesn't as flavorful as it was before. Having said that, I really believe if we're going to get rid of the oversupply in the marketplace. China's pork price is at a one year high. Their hog prices at a one year high. We're seeing indications that their pork supply is going to get very, very tight. And we've seen a couple of export numbers here in the last month that showed some bigger numbers. I think that's going to be the story that eventually takes the hog market off the doldrums and takes it higher. Without that, it's really, really tough sledding because we can only sell so much to Mexico and we just have too much domestic for domestic demand that we currently have.

Paul Yeager: I'll have another pork chop on a stick if that helps. I'll take one for the team. Thank you. Shawn, good to see you

Shawn Hackett: Thank you, Paul.

Paul Yeager: All right. Appreciate it. We are going to pause this analysis, continue our discussion about these markets in our Market Plus segment. You can find both analysis and plus on our website of markettomarket.org. We are getting ready to kick off our 50th season later this month. As part of that celebration, we are taking the MTOM podcast on the road on August 12th and August 15th. You can find us at the Iowa State Fair in Des Moines, Iowa. Check out our Facebook page for more information. Next week, we'll take a look at new regulations that shorten the path for the genetically edited seeds. Thank you so much for watching. Have a great week.

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