Market Analysis: Shawn Hackett

Weather responsive markets played out much of the week as rain served as both a relief and a burden on the trade. For the week, the nearby wheat contract lost 20 cents, while July corn added a quarter. Oil demand drove the soy complex. The July soybean contract shed 3 cents. July meal dropped by $19.80 per ton. July cotton jumped $9.78 per hundredweight. In the dairy parlor, June Class III milk futures shed 21 cents. The livestock sector was off. June cattle declined $5.78. August feeders cut $8.62. And the June lean hog contract plummeted $12.40 or 10 percent. In the currency markets, the U.S. Dollar index rallied 179 ticks. June crude oil added $3.06 per barrel. COMEX Gold fell $25.20 per ounce. And the Goldman Sachs Commodity Index improved almost 7 points to finish at 754.80.

Yeager: Joining us now, he's back everybody, Shawn Hackett. Good to see you, Shawn.

Hackett: Hey Paul, great to be here, much better than Ireland where I was a few weeks ago. I'm glad to be in Iowa.

Yeager: Good to have you here. I'm going to start with a question that's not from Iowa but about the wheat country. We receive all sorts of questions via Facebook and Twitter and I want to start right there with a question, my eyes are giving me fits here, from Brent in Enid, Oklahoma. He wants to know, Shawn, is there still so much carryover wheat that a horrible winter wheat crop in Texas, Oklahoma, Kansas, etcetera won't bring prices up further? Seems to be the big topic.

Hackett: Well, it's a question of is the supply that is out there going to be available to the marketplace? When we look at Russia, remember for a year they withheld exports and built up large ending stocks. This year's crop which they're going to harvest in June, they're thinking it's going to be a record crop, 90 million metric tons. So when we look at what Russia has potentially for sale, massive, massive supplies and they have shown willingness to want to sell. They seem to need to fund this invasion of some sort. So the reality is if they're going to be able and willing sellers come June we do think there is enough wheat out there to handle things for now, even with the lower Kansas City winter wheat crop that we have right now.

Yeager: Well, and each contract was headed in a different direction this week. Finally there may be some relief. I talked about weather in the open there. It has been a hindrance to the growing of the crop but it doesn't seem to be pushing the crop. So, domestically in the United States if I'm a producer of any and I need to take advantage of any three of those contracts, what is some advice for me right now?

Hackett: Right now with taking some of this weather premium off, getting the first rains in that west ground that haven't gotten anything since last year, I think we probably are making a top. Usually once you break the weather market now it's just a matter of how bad is bad but we've already addressed it. So I think one needs to be a cash seller in the Kansas City wheat market. However, in the spring wheat market we're not sure that the market is correctly ascertaining the nature of the Northern Plains delays and the snow and the cold and the wetness and the flooding of the Red River. We think there is more to go there. We might hold off some of the cash sales in the spring wheat. Spring wheat relative to KC wheat is extremely cheap. There could be some difference in bifurcation in prices there.

Yeager: We're talking about prevent plant acres already and it could spill over a little bit into the corn market, North Dakota, South Dakota planting more corn than they used to. Let's specifically talk about corn this week. A couple of times the lines, new contract high, new high close, July, December kept going. The question is, Shawn, does that keep happening next week?

Hackett: Our long-term forecast has been that we would make a final top in the corn market in the springtime. Our idea was the middle part, latter part of May. It's a forecast we've had for over a year now and we really -- one of the reasons we felt that way was because our natural climate cycle algorithm that we created told us that we were going to have a late ending winter, lots of precipitation and delays that would lead into this final what we call kind of a blow off top, which I think we're in right now. So we think we're near the end of this two-year phase transition that began during the derecho storm and it is definitely getting time to take some of that money home on the farm if you're a producer of corn.

Yeager: We have some questions that we'll use in Market Plus, which you can see also in the same place you get this show if you watch us online. We'll ask about some of those specific things. So I'm going to stick with corn for a moment. If you're saying blow off top, you're saying it's high, I haven't turned a wheel. Why do I do something because I'm seeing my field I haven't rolled? Surely this thing is going to go higher?

Hackett: Well, it may go a little higher. We think it could go maybe a little higher into mid-to-late May but the fuse is very shortened. Trying to predict that moment of reversal that we're down big and the top is in, very, very difficult to do. We'd rather be just an average seller through this month, through the period where we think this blow off top is going to occur, and then try to hand pick that moment and then feel I missed it and then try to sell on the way down, which is much more difficult than trying to sell on the way up. Remember though, be careful about overplaying your local weather. It's a global market and even in the United States there's a lot of different growing conditions and it's going to warm up here after next week and the planters are going to start to increase their roll.

Yeager: We had a whole lot of pictures on our Market to Market Facebook page this week of people rolling finally so we'll see how those numbers reflect on Monday. But in soybeans, when you talk about this global picture, the oil, the soy oil as Malaysia, this noise about the cooking oil and we're not exporting any more here, the Russia, Ukraine, no sunflower oil. It wasn't enough to eke out a win for soybeans. Why not?

Hackett: Soybeans are very, very high but on the flip side the bean meal price has really been falling. And we really worry about the bean meal demand. Where is the feed demand going to come for bean meal later this year? The hog herd is not growing. The cattle herd is shrinking. The herd in China has been shrinking for six months as they have been liquidating the herd on uneconomical prices. We really worry, who is going to be the buyer? We're killing off all these chickens due to avian flu. If we're producing, if we're crushing beans for oil and the meal supply is the byproduct I just think we could have a big problem and those two might go in opposite directions and keep the bean crush from being really that exciting to create the crush that is needed to support these high prices. And if we have a large crop which we are expecting to see this year in the U.S. with extra acres we might have all the soybeans we need to cover the deal.

Yeager: So it sounds like I need to make some type of protection right now.

Hackett: Absolutely, a hundred percent agree. We are not friendly the soybeans. In fact, we think the soybean market probably is already topped out on the Brazilian drought and all we're doing now is kind of a re-testing kind of a phase while the corn market finishes its job. And remember the wheat market made its blow off top during Russia's invasion. So we have these markets kind of blowing off their tops in different phases and cycles but overall we're kind of worried about where these prices are heading because we actually think once we get through this planting issue with the weather we're going to have a really good year for weather and big crops later this year. We don't think this is the drought year or this is the weather problem year to get all the market excited from where we've been.

Yeager: So you don't see weather as a big issue then?

Hackett: Not once we get past planting season we don't. We think it's going to be a really good year. We're leaving La Nina, we're heading towards El Nino, that phase transition tends to produce better weather, cooler weather, more moisture. We're already seeing it this spring.

Yeager: Cotton, that is one of those markets that went opposite China's buying. IS that the only driver?

Hackett: Well, there's two things. Old crop cotton is being driven by these on call sales that the millers have put on and they didn't fix their product in time and so there's been a lot of shortcovering that has been blasting this market higher in the short run. But the new crop it's all about are they going to get rain in West Texas? 3.5 million acres, it can be a zero, it can be a huge crop. It does look like, we talk about Kansas City winter wheat, it does look like we're going to get our first sprinkle, quarter inch, half inch and if we do that could start to pressure that new crop cotton prices and start maybe the worst case scenario is not going to play out here.

Yeager: We had a lot about cattle in this program, but live cattle, all the meats off this week. What is driving the live cattle?

Hackett: When you hear stagflation, when you print a negative GTP number, you definitely worry the market that the demand for meat is going to be an issue and at the same time when you're dealing with high feed prices, high cost of production and potentially lower demand it brings sellers in week end, month end, it's a perfect time to just crush the market like we saw and just really pile drive it down. Having said that, having said that, that's the short-term issue. But if we're correct about the corn market topping out here in May and rolling over, especially for the cattle market, that herd liquidation especially for the feeders, we could see prices much, much better as we get into the latter part of the summer and the fall. And so we do think there is an optimistic side to this very difficult period right now for the livestock sector.

Yeager: So you make it sound like there's a couple of months of rough road ahead for cattle, especially the feeder.

Hackett: I would think for at least the month of May and even into June it could be tough sledding. After that the situation could -- if you think about what happened in 2013, 2014 after the drought top in corn, we had that really nasty hit and then we had the really wild when all the animals stopped coming to the market and we started to retain them and rebuild the herd, that is kind of the scenario we see later this year into 2023 and it should be pretty exciting times in the cattle business. But right now it's the last of the herd liquidation phase and the most painful part unfortunately.

Yeager: Not much to get excited about in the hog market either.

Hackett: Well, we had some excitement, we had a big rally and then it just caved in. We've been adding a lot of weights and as those weights have been added and the supply has been coming in, when you look at China we just noticed that the hog price in China jumped 15% this month. That is a sign that their herd liquidation that they have been going through is finally over and that the price is finally going to be maybe profitable for the first time in a while. That is the early stages of getting them back into buying our pork. But that is not today, that's later in the year. And so right now we have an air pocket for demand against these higher weights and that is going to pressure this market down at a time that we did hit some pretty high prices there for a while.

Yeager: Do you see the timeline being the same for hogs as it is for cattle?

Hackett: We kind of do, we kind of think if you're thinking August prices onward, we're thinking that is where the rubber meets the road and where this switcheroo between supply and demand favor higher prices for both markets right now.

Yeager: 15 seconds, crude oil, it's still above $100. What does that mean?

Hackett: Bad for consumer demand, it's as simple as that. We need that down. And if the natural gas price is going to continue to be elevated because we're selling L&G to overseas, that is not going to help the economy or get some of the demand going that we want to see.

Yeager: Shawn Hackett, good to see you. Thank you so much for your insight.

Hackett: Thank you, Paul.

Yeager: All right, that will do it for the TV show we call Market to Market. We're going to keep going in Market Plus so please join us there. Find that free on our website of MarketToMarket.org. Twitter was in the news this week and some have jumped on and off the platform but we've been there since 2009 and we continue our plans to offer links of our content and requests for your input. Follow along if you like @MarketToMarket. Next week, we look at the battle to end famine. Thank you for watching. Have a great week.

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