Market Analysis with Shawn Hackett

A one year high in the dollar provided stiff resistance to commodities. For the week, the nearby wheat contract lost 36 cents and the December corn contract fell 7 cents. The soy complex fell through a major support level Thursday on news forecasting a record-large 2025 South American crop. The January soybean contract declined 32 cents while December meal tumbled $6.60 per ton. December cotton shrank $4.16 per hundredweight. Over in the dairy parlor, December Class Three milk futures fell 28 cents. The livestock market was mixed. December cattle decreased 75 cents. January feeders put on $5.80. And the December lean hog contract shed 93 cents. In the currency markets, the US dollar index improved 155 ticks. December crude oil lost $3.06 per barrel. COMEX gold decreased $121.40 per ounce. And the Goldman Sachs Commodity Index cut more than 18 points to settle at 530.80.

[Yeager] Joining us now is one of our regular market analysts, Shawn Hackett. Hi, Shawn.

[Hackett] Hey, Paul. How are you? I was here last time in August, things were crashing. I'm back here, things are crashing.

[Yeager] We need an optimist to get us through some of these days. Do you have any optimism in the wheat market because the market did you no favors this week, or anyone really?

[Hackett] Well, I kind of feel that we're putting the cart before the horse. Every time in my experience that we have traded a future defined clarity event like a Trump victory and an end to geopolitical risks and a strong dollar and we crushed the market, we price in that negativity very, very quickly and we usually overprice it. What I see longer term, however, is a very, very poor Russia crop. Their exports are clearly starting to pull back. Their ending stocks are down 10 million metric tons from last year at the same time. They're destocking. And the current crop that is just going to dormancy is looking like it's going to be another small one for next harvest, which means they're going to be out of the export market the way they've been. That is a major change in the wheat plumbing that I'm optimistic ultimately brings prices back up from where we're currently at.

[Yeager] Are you anticipating that Russia then is going to hold onto more of its crop just to handle its own people and not put that cheap product on the market because they don't have the excess to put on is what you're saying? Okay, so let's also then talk about the dollar. You mentioned, before we started taping, I said something about the dollar being stronger, I just mentioned it right there. What is that doing to wheat? Is that being impacted the most?

[Hackett] Wheat is the most impacted grain market to the dollar because it is grown so many places in the world. If you look at when the wheat market topped it was exactly when the dollar bottomed and started to surge. So, when you have a parabolic rising dollar, it's disproportionately bringing selling into the wheat market, another short-term effect of the Trump election and what people think it means to raise tariffs where the capital comes flowing back in. It's an overreaction. But what's interesting is the last time Trump was President, the dollar topped out in December after his election. And I think we could be looking at a repeat of that strong dollar and then rolling back over and that's another reason to be more optimistic on wheat prices in the U.S. going forward.

[Yeager] How optimistic are you on wheat prices then?

[Hackett] Well, when I look at what happened last spring and we went up north of $7 a bushel and I look at what I think is going to happen with the Russia wheat crop coming out of dormancy, with frost risks majorly on the table again for a second year in a row and I look at the much tighter fundamental global situation, I don't see any reason why we couldn't get speculators excited again this coming spring to provide a similar type of move higher. That would not be out of the realm of reasonability here.

[Yeager] So, if I'm someone who needs to buy wheat, now is my chance?

[Hackett] Absolutely. If you think what we did, we went right down and tested the August lows and today we bounced. I think for physical buyers of wheat this is an opportunity to gain coverage, get yourself clean. I think it's one of the best opportunities you're going to get for a while.

[Yeager] In corn, how is it that that has been immune from a lot of the soybean and wheat weakness this week?

[Hackett] Well, we don't have a weather situation in corn that has been affecting soybeans because we've gotten some rains where it counts and wheat has gotten some rains where it counts. Corn is a traditional demand-driven market. The cash basis has been surging the last two to three weeks domestically. The spreads have been, they have been bullish spreading the nearbys against the deferreds. All of this showing that just too much demand, not enough selling at these prices for corn and that is why it has been the strongest, most impervious market to going down during this panic cycle post-election.

[Yeager] We just showed the crop, or the price on Friday, which kind of sets up this question from Luke in Iowa who texted it to me. If you can make $4.25 December futures, can we expect good upward trends? Am I crazy to hope for some $4.50 sales before the end of the year?

[Hackett] I don't think it's crazy. It's not a lot of time and it's always hard to predict those things on a short-term basis. But what I would say is this, we went from having a 2.3-billion-bushel carryout expecting it to be higher when we first started to figure out what we thought crop production and potential would be, and now we went down to 1.9 billion and change. We think we're coming down to 1.718 billion and change based on stronger demand and supplies coming down. When I look at that ending stocks with the risks going forward, a $4.50 market is not unthinkable at the end of the year for a farmer to sell.

[Yeager] And really corn has been insulated from a lot of this and they have more of a bullish outlook. So, are you more bullish wheat or corn in the next six months?

[Hackett] At this price level --

[Yeager] As we sit here tonight --

[Hackett] At this price level, I'd have to sway that I'm a little more constructive on wheat, not because I think the fundamentals are better there, I just think the price is more out of whack of what I think fair value is.

[Yeager] In soybeans, that has been -- you get this report from South America, a big crop, then there's the discussion of no more rain for us -- but then all this pasture land is going to be turned. It's a whole lot more acreage coming onto the play, onto the field in play. What does the American farmer do now with this harvest behind us with that news in South America?

[Hackett] Well, first of all, it's a projection. We don't know what the production is going to be at. The most critical point for weather in South America is right now into the early part of January at least for Brazil to determine what crop yield is going to be. Our work says we're going to get a significant drying out and we'll have to see if those projections start coming back down. But more importantly, while everyone has been negative about Trump tariff policy going forward, one beneficiary could be soybean oil. And the reason for that is that a lot of imported soybean oil has competed for bean oil to make renewable diesel. It would seem reasonable we may be able to not see those supplies come in and anything we lose from outside vendors we have to then buy more bean oil and increase the bean crush. And we've been seeing the oil and meal spread blowing out, meaning covering in the oil and selling in the meal.

[Yeager] But didn't we have a pretty weak week in soy oil? That was a big driver in the low price for the majority of the week.

[Hackett] I would say there's a lot of factors. From the low we've had a big surge. But crashing crude oil here this week has started to impact the psychology of the bean oil market because there's other factors that go in. Longer term, however, I think this bean oil story is one that if we're looking at a way for the soy market to override and maybe run through some of these bearish overhead supplies, getting that going again could be a significant help to getting that fundamental situation better.

[Yeager] Do you feel that $10 is still that both psychological and technical dance that we're going to have for a while?

[Hackett] I think the November contract came down near $9.50 if I'm correct at harvest lows. If I look at the March contract, we came right down to those harvest lows in August and now we've bounced. If you think about it, all this bearishness as you just mentioned, and we couldn't break the August lows. That sounds like technically the market is acting more bullish than the outward fundamentals would suggest.

[Yeager] Don't look now, there's optimism in soybeans. Is that what I just think I heard you say?

[Hackett] I think there is optimism in soybeans, I really do. I don't think that we're going to be taking out those harvest lows in August any time soon.

[Yeager] Any optimism for cotton?

[Hackett] Cotton is a little bit of a tougher story because we sell so much to the Chinese and so much of the demand for cotton is relative to synthetic fiber, which is crude oil based. When crude oil falls, we lose the competition to synthetic fiber. Having said that, China has decided to print and spend as much money so the Chinese consumer can start buying things again and getting their economy going and getting their stock market going. I believe ultimately that is going to be successful and that is going to bring buyers back into the U.S. cotton market from China. So, I'm optimistic. Once again, we have not broken the harvest lows in August and I don't think we are going to do that. I think we're going to dig our heels in here and find some demand.

[Yeager] That's not going to mess with global inflation if they put more currency in the market?

[Hackett] Well, China is worried about China. They have a deflation problem in China itself so they're trying to reflate a deflating economy there and they should be successful at doing that for a little while and commodities react to those kinds of things in China and we really need that to get a little tail wind here for commodity inflation.

[Yeager] We had finally in live cattle, it looked like the chart keeps, the retracement is trying to not fall. Do you see a sideways dance here for a while? Or is this thing now the way the chart finally looked at Friday? We are headed down.

[Hackett] We're still in these triangular formations in both feeders and live cattle going back to last fall. One big thing that my contacts are starting to tell me and that JBS just announced in their recent report this week, herd rebuilding is starting to show up from them and from my contacts, one thing that has been a missing ingredient to suggesting we're at a final high. If that is in fact the case, and some of these rains that came into the Midwest helped, that to me says we might actually see one more price surge before it's all over.

[Yeager] So, then why did feeders rally in the face of that news unless that just came out after the trade on Friday?

[Hackett] This news from JBS came out last night. I'm not sure how many people listen to JBS. I certainly do because they would know more about the market than I do. And for me, for them to see they're seeing retention of animals says 2025 could be a little more exciting than many people might suggest.

[Yeager] '24 was pretty exciting in the cattle market.

[Hackett] It was but I'm talking about potentially breaking out of this sideways trading pattern and providing one good final selling opportunity for livestock producers.

[Yeager] In hogs there was a talking head who had a good statement on Smithfield. Was that the reason for the run up in hogs this week for a while?

[Hackett] I think this whole run up from hogs has been simply this, the USDA said that we were going to grow production by three to five percent and we haven't grown production at all for the year and the market mispriced hogs based upon that and had to quickly surge to reflect that. We've now done that. We reached 90 on the April contract. I think that is going to be a very good place for the market for the producer to get some sales on the books, lock in that price. I think we've done probably overreacted or overdid some of this concern over lack of production. I would be a cash seller here in the hog market right now.

[Yeager] So, we see herd expansion likely happening in the cattle market and in the hog market?

[Hackett] Well, but remember in the cattle market that's not next year you see the expansion, it's the year before.

[Yeager] Right, yeah, okay.

[Hackett] Well, think about it, we have bean meal prices at COVID lows --

[Yeager] I'll have to pick you up on that in a minute. Thanks, Shawn. Appreciate it. Shawn Hackett, everyone. 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 marketomarket.org. Those two segments are 66% of our podcast offerings. We also have the MtoM, which is released on Tuesdays, so you can take us along throughout the week. Subscribe today at your preferred podcast provider. Next week, having that uncomfortable financial talk with those living on and off the farm. Thank you so much for watching. Have a great week

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