Market Plus: Shawn Hackett

Yeager: Welcome in to the Friday, April 29, 2022 Market Plus. Joining us now, Shawn Hackett, otherwise known as Mr. Bull, Mr. Sunshine. However, you may have tarnished your name in the Market Analysis. Are you trying to tell us, Shawn, that maybe some of these sunnier days are in the rearview?

Hackett: Some of these sunnier days are in the rearview for certain markets, others are in the front view. So I think you need to really understand the grains, I think we're looking at rearview. But in the livestock I think we're looking at forward view, even in the dairy industry. So I think both sides have to have a point where they make good and then let the other side make good so both work together symbiotically. And so I think right now livestock has been okay but not great whereas obviously the grain business has been very, very good. So I think it's time for the grain farmers, the grain business to let the livestock producer make some money, get themselves healthy again because we want to keep that demand going.

Yeager: We have another question about that in specific and we're going to lay this out here with Paul in Danvers, Minnesota. He asks you, Shawn, he says we have record high corn prices, everybody seems to be holding out for more, planting progress is behind, our trendline yields could be in jeopardy, interest rates are on the rise. So, are we setting up for the perfect storm in the ag economy to come?

Hackett: Well, highs in markets happen when you have a perfect storm of bullish news and that we price it all in. When I think about the mid-May timeframe and the late May timeframe, we're going to price in the planting situation, we're going to price in what is going on in the Ukraine, we're going to price in the second crop corn in Brazil. What does the drought mean for them? We're going to price all of these things in and once you do, once you define all these worries the market doesn't trade it anymore. That's kind of why we're feeling that corn specifically could really be placing all that in to whatever the number is, whatever the high turned out to be but we're already up there $8 old crop, $7 new crop. I think that's what we're looking for.

Yeager: We also had this week, I think the Wall Street Journal had another story about high food and it could keep going higher. Sometimes when the issues that we discuss on a weekly basis end up in press that doesn't normally cover it the end is in sight.

Hackett: Remember, death of commodities came out on the front cover I think it was Time back in 2020 just before the big, big move in commodities. I agree with you, when those kinds of media sources are telling you about what has already happened it means that the trend is about to change. So those tend to be contrarian indicators and one would worry when too much of those kinds of news sources are telling you what we already know.

Yeager: Well, a couple of our analysts, Angie Setzer and Mark Gold both had some interesting things to say this week on Twitter. Angie talked about staying away from the July/November bean spreads and Mark talked about the dangers of lifting the hedge. There's a lot of scenarios that a producer can take advantage of but can also get burned by. As a whole right now as we sit here tonight. Shawn, how do I protect myself best for what could be some rocky times ahead and volatility?

Hackett: Sure, if you recall, our number one strategy a year ago and two years ago was stick your cash grain in the bin and sell what you had to. It was a great strategy, worked like a champ. That's not the strategy anymore. The strategy is sell your cash and if you want to play some volatility because these markets as you said are moving all over the place because they're high and weather has been very abhorrent, we would prefer to take the risk now on paper in terms of options, not risk your cash anymore like we did or were willing to a year or two ago. It's a big different in shifting the risk in how you're going to do things. So sell the cash is what we're really bringing home right now. That's the best way to handle this.

Yeager: Okay, I have a couple more questions that came in via social media. Let's start with Adam in Wisconsin. He's saying, with the high cost of feed, inputs and regulations, how will the dairy supply be affected around the world, especially in light of the weather in major dairy areas through the rest of the year?

Hackett: Well, the $25 dairy price we have for Class III and Class IV, even with the high expenses that have gone up, are still profitable, not as profitable as we'd like it to be but they're still profitable. And when you look at the trends of production in the U.S., of production in Europe, global production, we're starting to inch our way up on production, nothing overbearing, but remember now we're worried about demand. China demand, China milk prices have crashed here over the last 45 days on this lockdown and they're the number one buyer of dairy in the world. GDT prices have also fallen due to the lack of Chinese demand. So when we're thinking this through we think the production is going to be working higher but we do think because the demand is going to be kicking back it means lower prices which will eventually shut that production down and lead for the next reason why dairy prices should go higher.

Yeager: You also alluded to it a little bit in the end of our meat discussion, we were talking about China. China has not been in much of the discussion we've had at this table for the last several weeks. You are making it sound that China is going to come back in to be our big driver of news.

Hackett: Well, if you think of it this way, they've shut down 300 to 500 million people for over a month now. We don't know how much longer it's going to last. But we know what happens after you reopen. They're going to stimulate, they're going to print all kinds of money, they're going to do all kinds of government -- they're already doing some of it already. And what happens when 500 million people get out of their house and say I want to do something, I want to buy something, there is going to be a switch turned on in things like dairy and things like beef demand and things like pork demand. We already experienced it what happened here in the U.S. --

Yeager: We saw it here firsthand.

Hackett: So we've just got to get through how long is this no tolerance policy going to last?

Yeager: All right, let's talk about the dollar. Phil in Dresden, Ontario had a really good question about the dollar. Let's do it now. The U.S. dollar is strengthening while the commodity complex in general continues to climb. Usually it doesn't happen this way. When does the break for either arrive?

Hackett: Well, this time is different because of all of the logistical problems that we had. You can't react as quickly as you would normally be able to react to a strengthening dollar. You just can't do it like you used to, it takes time. Having said that, when you look at a Yen chart, you look at a Euro chart, you look at a Yuan chart and these currencies are crashing relative to the dollar, you're telling that the purchasing power of all of these consumers are going down very rapidly right now. That absolutely has consequences. And it may not be immediate but it's going to show up, we think probably over the next two to three months we're going to really start to see it come home and see that export demand weaken and see that consumer demand weaken and that is going to be one of the reasons that it's going to make some of the balance sheets that look really tight kind of open up a little bit and maybe have some more supplies around than we're thinking right now.

Yeager: When you talk about these currencies in other countries, here our currency is high, inflation is high, so are we experiencing ahead of what these other countries are going to have because of the dollar being so strong and the inflation so high here right now?

Hackett: Well, think about how uncomfortable the prices are here. And we have the best currency in the house right now. Think how unbearable it is in other countries whose currencies have fallen dramatically. When you're dealing with $30 natural gas in Europe, if we had those kinds of prices here, Paul, there would be riots in the streets, we'd have a revolution. So I think you have to understand how much pressure the consumer overseas is dealing with right now and to think that somehow that is not going to matter in the short run, I think it is. But it's not permanent because I do think the dollar ultimately goes up and it goes down, we think we're due for a down that will start to equilibrate this a little bit, but it's not going to happen right away.

Yeager: Okay. I have two questions left here, actually just one. Doug in Thornton, Iowa, he's asking about changes that are going to happen to trade come Monday. How do producers prepare for the expanded trading limit?

Hackett: Well, just like anything else, you know now that markets can move even more than they have already moved. So whatever strategies you're looking to do, just make sure that you can handle expanding limits and if you're uncomfortable with that either don't do what you wanted to do or make sure you have tighter controls over the risk management of your hedges or your trades or whatever it is that you're trying to accomplish. But clearly expanding limits create the potential for greater ripsaws in both directions. And of course when prices are high and we're going into the growing season, those ripsaws are going to be many and far and frequent and just be careful out there. That's why we'd rather keep it simple stupid, stick with the cash, do some simple option strategies if you want to play some of this volatility but we wouldn't really risk your cash right now. We think it's the wrong place to place your risk.

Yeager: Set it, forget it and go plant.

Hackett: Absolutely.

Yeager: Shawn Hackett, good to see you. Thank you for the insight as well.

Hackett: Always great to be here and I cannot wait to be back.

Yeager: All right, thank you. That's going to do it for what we call Market Plus. Again, you can see it many different ways whether it's on our YouTube channel, in podcast form, we also do this little TV show that we've done for 47 seasons. We're going to do it next week when we talk about how to end famine and Mark Gold will sit down and break down the markets. Thank you for watching, listening or reading. Have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

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