Market Analysis with Shawn Hackett

Paul Yeager:  Global forces and forecasts provided activity for both the bears and bulls in the trade. For the week the nearby wheat contract improved $0.09 while the March corn contract added $0.07. Some seasonality, along with rains in Argentina, impacted the soy complex. The March soybean contract gained $0.03, while the March meal contract increased by $9.80 per ton. March cotton expanded by $0.19 per hundred weight. Over in the dairy parlor February Class three milk futures shed $0.18.

Paul Yeager:  The livestock market was higher with April cattle up $0.90. March feeders added $2.50 and the April lean hog contract strengthened by $0.72. In the currency markets the US dollar index lost four ticks. March crude oil cut to 33 per barrel. COMEX gold well it added $0.50 per ounce and the Goldman Sachs Commodity Index finished more than a point lower to close at 610.30.

Paul Yeager:  Joining us now, regular market analyst Shawn Hackett. The road warrior. You've been all over the place, Shawn.

Shawn Hackett:  I have been, two weeks of crazy traveling, but wonderful to be back here.

Paul Yeager:  You're in Iowa, this is Iowa PBS, Market the Market TV show across the country. Just to let you know where you're at. Is that good?

Shawn Hackett:  That's good.

Paul Yeager:  Across the country, we saw we talked about weather, talked about tornadoes in January in a lot of places, including some here last week. But we have this cold snap coming for wheat country. Then there's a forecast change on Friday and not as bad. Are we really dependent on weather already in wheat?

Shawn Hackett:  Well, this time of the year, always still worrying about winter kill. We think we had a pretty nasty spell, at least for soft bread, winter wheat that we think is going to show up when we come out of dormancy. So we're always on the lookout for snow cover versus cold air coming in. It looks like there's going to be a fair bit of snow cover.

Shawn Hackett:  It doesn't look like this one will have a bite to it like the last one. But it's very hard to pinpoint those kinds of timings until right now.

Paul Yeager:  So folks have sat in your chair recently, have been talking about it's not necessarily a wheat story as a United States story. Have you seen stability in relations between Ukraine and Russia enough to stabilize this market?

Shawn Hackett:  I think things are getting worse. We went from a period of hyper worry a year ago to mass complacency today. We had a period where they worked this corridor deal that allowed a lot of that was above ground ending stocks to be coming out of Ukraine ended the supply shortage for a while. But I actually think now they have to sell only what they're producing.

Shawn Hackett:  We were talking with our largest producers there a week ago, 50% down in acres for the foreseeable future. I think the big shortage issue that the market traded a year ago is coming up later in ‘23. I think it's a big surprise and the market's going to have to put some pricing back on.

Paul Yeager:  All right. So give me a little range in that price putting back on.

Shawn Hackett:  What we've seen in the past, when we fire up Russia, Ukraine worries. We've tended to put a nine handle on the wheat market. That's just kind of what we've been doing. The chart pattern has liked to do that, and I wouldn't think that that would be an unrealistic expectation if we really got some escalation there and worry that maybe this -- everyone thinks this corridor deal is going to keep getting renewed all the time.

Shawn Hackett:  And, you know, it may not. We’re worried about Ukraine popping up again.

Paul Yeager:  Let's go back to the weather question and this one is a social media question that we received this week. This is from Vance in Nebraska. He asked this on Twitter. He says, there’s a lot of talk about weather changing to be favorable. Is this mostly based on California? He says Nebraska and South Dakota have gotten some snow. But can snow break a drought?

Shawn Hackett:  It can't break a drought. I mean, it certainly can help. But you still need spring and summer weather patterns to deliver. The reason everyone's getting feeling weather is going to improve mainly is because all the weather models and all the forecasters are saying El Nino is coming for spring summer. El Nino means cool wet weather for the US which tends to produce record yields.

Shawn Hackett:  We disagree. We did an analysis going back to 1850 for where we are with La Nina, Southern Oscillation Index, some of these other indicators, and found that the chances for a El Nino to arrive by spring summer of this year is very, very remote. We don't think it's going to happen. We think we're going to get more of a neutral reading and droughts reemerging can happen if you have La Nina or neutral. And that's what a big change in our forecast.

Paul Yeager:  So how is that impacting corn?

Shawn Hackett:  Well, if we start off with our other forecast is an early start to the planting season means we get off to the gate good. As you said, we had some moisture this winter. People get all kind of bearish about the grain markets, but we think we could get a reemergence of this drought in the spring into the summer.

Shawn Hackett:  And of course, the corn market is the first one to really feel a renewed drought cycle. Remember, 2012, we had a very nasty set back on early planting to only find, you know, the market going back up as drought emerged. We're really, really worried about drought this particular year because of a Gleissberg, 89 year cycle that we've been following that we verified for 11 centuries.

Shawn Hackett:  That's coming up for ‘23, ’24, ‘25 and it has to be a year that's not El Nino. So we're kind of really wanting to make sure our customers are thinking about and preparing for what could that look like? How may they alter their cash marketing, hedging?

Paul Yeager:  Well, what's that make the December contract look like? Because that would be when we always think of a crop. And to me that that should be screaming much more volatility, given what you just said.

Shawn Hackett:  Yeah, Americans really gotten complacent. I mean, we've all we were looking at option premiums the other day. I mean, they're just about as cheap as you're going to get because the market has gone to sleep. You know, we think with the weather risk we just talked about and the geopolitical risks that we talked about, we think the market is not ready for some of these big changes that are coming.

Shawn Hackett:  And we think that when you look at a sleepy December contract that's been you know, we're slobbering around, I just think there's an opportunity there, especially once we price in the early spring weather. It might be an opportunity for livestock producers to get some cash feed bought.

Paul Yeager:  Real quick range then. Do you like that December contract to be buying or are you holding out a little bit?

Shawn Hackett:  Because of our early spring forecast, we still think there could be some downside into that March, early April timeframe. We're not sure we fully priced in that kind of bearishness, but we're looking for that timing window to get our cash purchases made for our livestock producers.

Paul Yeager:  Tuesday, we were almost at a point there was talk of you should be reowning some soybeans. And then it kind of changed as the week went on. Do you see soybeans having any more strength to them or was this just a little blip this week?

Shawn Hackett:  You know, we traded the Argentina drought. We've gotten some rains. I do think drought is probably going to come back. But, you know, it's hard to get the weather market going again once you break the back of the psychology of the market. At the same time, when we look out at the renewable diesel demand that's coming for bean oil later in the year into ‘24 and I look at the numbers, they don't work.

Shawn Hackett:  They don't add up. We're talking about having 14 million more acres. You know, our exports having to drop significantly. How much are buyers going to let the new crop soybean prices go down when we're already in the 13 level, the 13s? I don't know. I just everyone seems to be thinking there's bearish soybeans. I just feel that once again, if we get an early start, soybean acres might be down, weather problems come back.

Shawn Hackett:  I just think soybeans are likely more favorable at this point on the new crop than people are suggesting.

Paul Yeager:  Favorable to bounce back. Because the chart we just showed that you saw how it fell out of bed there in the last two weeks and then a bounce back up. So you're favorable. What's a range then on that November contract?

Shawn Hackett:  Well, the chart has a strong, strong support level at 12. Doesn't mean it has to go there, by the way. But I mean, I am I feeling as if we've got ourselves beared up on the weather problem is over, we got the big crop coming from Brazil and we get an early start to the crop. If we saw a 12 handle on soybeans, I'm thinking that's a place for end users to be looking at cash purchases and needs.

Paul Yeager:  All right. Livestock, live cattle, this is a continued consumer. We keep hearing about inflation pulling back. Maybe the consumer -- the consumer has been buying beef this whole time. What's the live cattle market telling you at least chart wise?

Shawn Hackett:  We’ve started to weaken, you know, in both hogs and cattle. I just don't think the demand is going to hold up. And even though the animals are thinning out, the cattle feed continues to show the cattle numbers coming down. I still feel there's a mismatch with demand versus supply, at least going in to the second quarter. Once we get beyond that, you know, and the China has the reopening that we think is going to cause a boomerang for demand and the effects of the Fed rate hikes kind of get in the rearview mirror.

Shawn Hackett:  And of course, those animals continue to thin out we're pretty optimistic the back half of ‘23 into ’24, we could see that retention, herd rebuilding cycle like ‘13, ’14.

Paul Yeager:  Well, you could make a case last week's cattle on feed said that maybe we'd already turned that corner. Do you think we have on the feeder market?

Shawn Hackett:  I don't think we've quite turned yet. I think we're really, really close to doing it. I think it like, once again, the issue I have is if we're correct about drought coming back, there still could be a little more that drought effect liquidating animals. And I want to be very careful about not, you know, jumping the gun here.

Shawn Hackett:  I'm really confident about drought coming back. And I think the more probabilistic forecast is to say later in the year is when that's really going to hit the road.

Paul Yeager:  Hog market, I've kind of shorted it the last couple of weeks. I need to spend a little more time there. You mentioned China reopening. Is that going to be a savior to this market? Is that why we saw finally an end to some of these tough weeks we’ve had?

Shawn Hackett:  Hog prices in China which we watch very closely have really started to rebound significantly. Cotton prices in China have really started to rebound very, very strongly. Stock market in China is up big. The currency, Chinese currency up big. I think the capital is getting ready for this boomerang effect in the back half of ‘23. Obviously, pork demand is going to be beneficial to that.

Shawn Hackett:  As much as we have not been really rebuilding the herd here, we still need Chinese demand to get the excess off the top.

Paul Yeager:  Do you see an expansion of the hog herd in the United States and is that a good economic decision to make?

Shawn Hackett:  I would have thought we would have seen it by now. I've been kind of wrong on that thinking we would have seen the expansion by now and all we've been doing is adding weights and keeping the animals the same. I have to believe we're going to start to see some kind of a movement in the upward direction as we approach the latter part of the year.

Shawn Hackett:  But it's supply and demand, and if China's there with bated breath to buy that excess or increase in the herd may not be a bearish factor.

Paul Yeager:  Final few seconds. Let's talk energy. We hear this. We're going to rebound up to $4 again on gasoline. We hear it we saw it earlier in Peter’s piece about inputs. I have a great question about selling ahead and not clearing a profit right now. We'll get to that in Market Plus. But I'm asking you this question is Shawn, which do you like better?

Paul Yeager:  You mentioned biodiesel or ethanol or crude oil. What do you like better in the next quarter here of ‘23.

Shawn Hackett:  In the energy complex? I mean, I really like energy as a whole. When you look at the Strategic Petroleum Reserve selling ending, you look at the inventories in the US falling off a cliff, you look at potential geopolitical escalation and Russian supply coming off. I really feel that's the energy complex is looking for some better prices here.

Paul Yeager:  And we'll continue that in a moment. Shawn Hackett, good to see you. Thank you.

Shawn Hackett:  Thanks, Paul. Always glad to be here.

Paul Yeager:  All right. That will do it for this analysis. We're going to pause it for a moment. We'll continue that discussion, your questions and our Market Plus segment. You can find that on our website of markettomarket.org. Winter days and nights can be filled with a little reflection and learning. Head back to school with our market to market classroom project.

Paul Yeager:  Go to markettomarket.org/classroom to get enrolled today. Next week we talk to one producer about finding life and work since they've returned to the family farm. Thank you so much for watching. Have a great week.

Speaker 5 Market to Market is a production of Iowa PBS, which is solely responsible for its content.

Speaker:  What's next doesn't happen by chance. It happens when researchers and farmers work together to solve tomorrow's agronomic challenges. We're committed to creating what's next because at Pioneer, our name is our mission.

Speaker 3 Sukup Manufacturing Company, providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.

Speaker 4 Tomorrow. For over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.