Market Analysis: Shawn Hackett

Market Analysis: Shawn Hackett

Nov 1, 2019  | Ep4511 | Podcast

Podcast

Even with weather, potential sales to Asia and a weaker dollar the commodity markets were relatively quiet. For the week, December wheat lost 2 cents, while the nearby corn contract gained 3 cents. Dry weather in Brazil and potential sales to China did little to fire up the soy complex as the January contract closed two cents higher. December meal improved 60 cents per ton. December cotton dropped 67 cents per hundredweight. Over in the dairy parlor, November Class III milk futures increased 68 cents, to a 5-year high. The livestock sector finished mixed as the December cattle contract added $3.45. January feeders improved $4.40. And the December lean hog contract fell 48 cents. In the currency markets, the U.S. Dollar index declined 57 ticks. December crude oil shed 47 cents per barrel. COMEX Gold added $2.90 per ounce. And the Goldman Sachs Commodity Index was flat to finish at 415.30. Joining us now to offer insight on these and other trends is one of our regular market analysts, Shawn Hackett. Shawn, welcome back.

Hackett: Hey, Delaney. How are you? Hopefully we don't spook the markets today on Halloween. That's the best I've got.

Howell: Okay, well we appreciate your attempt at a little Halloween humor. Shawn, let's talk here about the wheat markets this week. They have had a couple of exciting weeks and now it seems that they are relatively flat. Is the December wheat contract due for some sort of retractment here?

Hackett: Well, this time of the year we're normally looking at Russia. What does Russia's crop look like? What do the exports look like? And what we're seeing is that in the month of October their exports are down 14% over last year. The ending stocks in Southern Russia which is where all the exports come from are down 20% from two years ago and down 13% from a year ago. So even though last year we were looking for those exports to come off, it looks like this year they actually are going to come off and with improving ruble it looks like the U.S. is going to get a lot more business. And we've seen some very good exports here the last couple of weeks. So we think the wheat market has some decent upside into the end of the year because of that.

Howell: Even if the U.S. dollar has some strength here do you still continue to see the wheat market have some upside potential?

Hackett: Right now we see the dollar going down. It looks like it's rolling over. We had the Fed Reserve say they're going to do QE4, lower rates. Everything says the dollar actually looks like it could be topping out. So we don't really see a lot of strength in the dollar into the year end. It's always possible but we're assuming flat down dollar and that is good for wheat exports.

Howell: What about corn exports? They have been just awful the past couple of months really. How does the U.S. dollar impact our corn market?

Hackett: Well, it always makes us more competitive but you have to kind of remember what the Brazilians did. They front ran a trade deal with China and the U.S, six fold increase in exports year over year is what they have been doing, they kind of shoved all this corn in the market and the market just has too much corn, it has to digest it. And so we've been feeling the impact of that. The good news is that is behind us and as we start whittling away those inventories the U.S. is going to start getting business, especially with a weaker dollar coming up. So we're optimistic we've seen the worst for exports for corn and we're going to see better times ahead.

Howell: Well that is good news for producers sitting at home. Shawn, I want to turn our attention to acreage because we've got the November WASDE report coming out next week. They are going to be adjusting the corn acres in Minnesota and North Dakota and some of those areas that have been really affected by weather. What do you see that doing for the WASDE report then? And what do you see that doing for impacts into the market next week?

Hackett: It all depends on what the expectations are already built in. We're already 40 or 45 cents off the lows so a lot of expectation is built in. For sure we've always felt that harvested acres will be coming down anyway. So we think they're going to come down. But probably the market has dialed in lower acres in this report, we don't think there's going to be surprise there, especially with corn near resistance at $3.90, $3.95.

Howell: If we can break through that resistance level, Shawn, what is your next target?

Hackett: Well, the next target is $4.15, $4.20 and that's really the longer term barrier that we briefly got over in June when we had the weather scare and then came right back below it. So that would really be the longer term resistance if we can break through this midterm resistance at $3.95.

Howell: Shawn, I want to turn our attention here to both corn and soybeans because we've got a good question come into us on Facebook I believe from Shane in Bloomfield, Nebraska. He said, the market seems to be suppressing this problem of snow and harvest delays on top of the planting delays that we had. Should producers be selling cash grain now to take advantage of strong basis and then reown the grain on March contracts?

Hackett: Well, whenever you have a strong basis, we do have strong basis, we've had strong basis for a while, you always want to reward the market that is worth rewarding. And so whether you sell cash we'd definitely be locking in doing basis contracts. We still think there's upside to corn going into the end of the year, as we said, with better exports, lower dollar. But we don't think the basis is going to get much better and we do think that farmers ought to be locking in that basis now, that's a really good opportunity for the long-term.

Howell: For both corn and soybean locking in that basis?

Hackett: Corn for sure. Soybeans not as much. We think the corn basis is really the one to be doing right now.

Howell: Okay, turning our attention to more heavily on the soybean market, we see the November and January spread continuing to tighten up a little bit there. What is that indicating to you?

Hackett: Well, the ending stocks were supposed to be a billion, then they went down to 600, now we're 450, a little more adjustment we're at 350 and so all of a sudden you start looking at what is going on if the Chinese start buying more soybeans as part of a trade deal and I think the market is concerned that we might be getting ourselves too tight and we just didn't plant enough acres this year and that is a consequence of that.

Howell: How much upside potential does that leave us then?

Hackett: In the spread or in the price?

Howell: Let's say in the price.

Hackett: Right now the $9.50, $10 is going to be a really hard barrier to get over, we don't think we can get over that without something new coming out to take the market higher. We think that is going to cap any rally attempt and it has thus far.

Howell: Is the Chinese trade deal, is that enough to move it? Is that enough of a catalyst so to speak?

Hackett: Well, as always we need to know the details of what it says. It was supposed to be 50 billion, then it was 20 billion, then we're not sure. I guess it could be if it's a surprise that they have bigger numbers in here than we think. But unfortunately we just don't know, we'll have to wait and see. But I don't think it's going to be enough right now.

Howell: Okay, Shawn, the cotton market really took it on the chin this week, I think it was a 67 something cent loss this week. Was it all due to the U.S./China trade negotiations falling apart? Or is there something else impacting the cotton markets?

Hackett: Well, if we rally from 55 cents up to 65 cents, which is a big resistance level on the chart, so that was a logical place for the market to stake a step back, we had some uncertainty on trade, the market is just kind of looking at all the economic data and saying maybe we've done enough for now, why don't want take some chips off the table. Farmers are harvesting and so they have some fresh supplies they need to price. So I just think it was more of a technical factor than anything else. We're still pretty bullish this market going higher. It's an economically sensitive market. It likes to look ahead and with the Fed doing QE4 and lowering rates it usually means better economic activity a year from now.

Howell: Okay, a year from now is a little bit further out there but it does give some producers a light at the end of the tunnel. But I think really the winner of this week's market has to be the dairy market as we saw there just in that cover story. Some producers are looking for alternatives to make ends meet. But $20 milk, five years, that is crazy. What is going on?

Hackett: That's an outstanding price and everything that could go wrong a year ago, everything is going right today. Three things are really going on. We had very, very poor production in the U.S.. It made the cheddar production go down to flat. Cheese prices based upon cheddar price and cheddar fundamentals which is the Class III price and the dry whey price. So that has caused this tightness in the cheese market for cheddar, not other cheese, but for cheddar alone has been driving the market higher. Secondly, we've had weather problems in New Zealand. This is the time of year that New Zealand is the primary exporter of milk powder and other derivatives to the Chinese and the rest of the world and they have had very, very cold, very wet weather, production is going to be flat for the year during their peak production instead of being up. So now there's concerns that as China binge buys into the end of the year they're going to drive up the milk price. And lastly, we have been hearing some things that African swine fever has been causing dairymen locally in China to cull their dairy cow herds to sell into the beef market which has been soaring and that production could be hurt there which may mean that the Chinese will be even larger buyers into the milk market just as New Zealand is not going to have as much as we thought. So it's a perfect storm and we think we can still spike trade this market even higher into the end of the year before we might kind of exhaust this market to the upside.

Howell: Well and that was my next question, Shawn. We don't get a lot of dairy folks on so I've got to take advantage of you since you’re here. Are we going to see some sort of hangover effect so to speak for the dairy market after this all plays out?

Hackett: Absolutely. We see some early bearish warning signs, in the month of September U.S. production was at 1.3%, cheddar production was at 1.2%. It's the first time we've had an up month for the entire year like that. So it's already telling you we're starting to get the response domestically for these high prices. It's not enough yet to make a difference but once we get over what we have to do here there's going to be a hangover and so dairymen should not look a gift horse in the mouth too long because it might just go away on us.

Howell: Okay. We also had big moves this week in both the live cattle and feeder cattle markets. Shawn, I want to ask first about the April live cattle contact. Are we into putting some seasonal highs here?

Hackett: Seasonal highs really take place in the first quarter so we do not think we're anywhere near a seasonal high. When we look at the cattle market we're coming off that Tyson fire spike low and we’ve been running the market higher. As you know we follow smart money capital flows in ag markets and what is amazing is this entire rally up there's been almost no smart money selling which is very, very unusual and suggests this is not just a tradeable rally, this is a order rally and it has been. April has clear resistance at $130. We don't see any reason why we can't go there first before there might be some pause in the market or some retrenchment from a big move so we still think there's more upside to be had here.

Howell: $130 is your target in live cattle. What is your new target in the March feeder cattle contract?

Hackett: The feeder market has a wall of resistance in that $155, $160 area. We would just think that is likely going to hold the market back on any kind of rally attempt so it's not as big of a move as let's say the live cattle market but we still think the market moves smartly up from here. But that would be, has been a long-term target that did hold the market back last year around that level.

Howell: All right, Shawn, your quick thoughts here on the lean hog market. We've seen jumps in weight three weeks in a row. We've seen dismal prices again in the hog market. Where do we head from here?

Hackett: Endless supply, endless demand and there we go. We're stuck in this violent trading range based upon whatever wins out in a given week and until we get to the first quarter when pork production domestically is going to start to come down it's going to be very hard to sustain a rally beyond the trading range. So that's where we're at and it's frustrating, at the same time it's understandable.

Howell: What is the trading range that you're watching let's say for the February chart in particular?

Hackett: I think our top side you're looking at something like 70 cents, something of that nature, and a 10 cent range, we're looking for kind of a 10 cent back and forth range that we've been stuck in and it's really hard for us to see us getting out of that until we get closer to the end of the year when the Chinese tend to binge buy ahead of their holiday season and that is when the markets start to worry about these tighter supplies coming into the first quarter. But it still could be a slog for another 30 days before we get there.

Howell: Okay, Shawn Hackett, thank you so much, always a pleasure.

Hackett: Thanks.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. We’ve been filling our Instagram Stories feed with some of the best fall images in rural America and we added a behind-the-scenes look at our production day. Find us at IPTVMarket on Instagram. Join us again next week when we’ll see how one agent spent three decades investigating ag-related crimes. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television 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 Public Television which is solely responsible for its content.

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN