Howell: This is the Friday, November 1, 2019 version of the Market Plus segment. Joining us once again is Shawn Hackett. Shawn, welcome back to the table.
Hackett: Always great to talk agriculture.
Howell: That it is, Shawn. And I know you’re from Florida so you don’t have to experience these wet and rainy and snowy conditions that we’ve been seeing but we’ve had a lot of inclement weather this week pushing harvest back even further and we’ve got a question here from Gary in Wilton, Iowa wanting to know when do you expect the market to respond to the weather and yields of 2019?
Hackett: Well, we talked about this in the main program that the corn market has already rallied 45, even 50 cents off of the lows. Has it not already factored in some of these things? That’s a pretty good rally off the lows. The way we look at it, if you believe the 2 billion, 1.9 billion bushel carryout that the USDA said in their last report where would corn be right now if weather was good and we had good harvest? $3.30 corn? $3.40 corn? So it’s quite a premium in there and so I’m not sure we haven’t already priced a lot of this in, maybe not all of it. But I’m of the opinion that we don’t really have much more to do to price in the weather, the delayed harvesting part. We might have more room to price in lower yields should they come in. But I don’t think the delayed harvest needs to be priced in any more than it already has.
Howell: And you’re mentioning that for the corn market but we also had a question wanting to know basically the same, why didn’t we price in weather, coming from Eric in Custer, Ohio, why aren’t we pricing in the same thing here in the soybean market?
Hackett: Well, the soybean market pushing $9.35, $9.50, that’s up a lot from where it was just a few months back. So I would argue once again that we probably priced a lot of it in. It’s always hard to know how much is trade, how much is weather, how much is ending stocks coming down? But we’ve had some pretty credible rallies to really important resistance levels to get over that hump like we talked about in the main program. I don’t see delayed harvest being the story that is going to make that happen, it’s got to be something else.
Howell: Can you give me an example of what that something else might be?
Hackett: South American weather would certainly do it. The USDA is saying corn yields or soybean yields are down quite a bit more than what everybody suspects. Bringing down harvested acres in corn, anything like that that really takes the crop production expectations down more than we’ve been seeing would definitely do it. I don’t think delayed harvest is that story.
Howell: What about the U.S. dollar, the weaker U.S. dollar? Could that be a story that helps out the grain markets?
Hackett: It’s always a story that could help out the grain markets. When we look through the greatest, most prosperous times in U.S. ag history it has been during weak dollar environments, the 1970s, the 2000s and we’ve been dealing with a strong dollar, as you know, for quite some time. But we believe that we have turned this U.S. dollar down and made sort of what we call a two to three year top. And we did something on what we call the broad dollar index, which is an index of the U.S. dollar against a broad array of currencies, not just the Euro and the Yen, and we did what is called a breakout to the upside above the 2002 highs, reversal down. We failed to break out and we then closed back down. We had a weekly and monthly close this particular month. We think that could be the trigger and the sell signal that we are in for an extended bear market environment and I have to tell you if we want exports to get going that is your recipe for getting any trade deal, we really need a weak dollar to get that going and to help translate better prices. So we’re really excited that not only if we get weather volatility continuing around the world, which we think, but if you get also a weak dollar kicking in we could have an exciting two to three years coming up. And so we’re very optimistic those two things coming together, like milk, could be the perfect storm for grain markets that we’ve been waiting for, for years.
Howell: Waiting for, for years. Shawn, then I want to ask turning to the global or the general economy in the U.S. as a whole what does that weaker dollar do for the rest of us?
Hackett: A weak dollar always is good for the U.S. economy. Any time we can sell more to the rest of the world and buy less that effect always improves gross domestic product. So strong dollar has been hurting us, it has been slowing us down, we’ve had good numbers, the numbers have been fine, but it has more been a domestic related surge from tax cuts from other things that President Trump and his administration have been doing. But if we want to get a second wave, a second renaissance of the economy it’s going to have to be more export driven and a weak dollar would absolutely be the recipe that we would be looking for to carry that forward and that’s always good for commodity markets.
Howell: I’ve asked most of the analysts this and I’m going to ask you as well, give you the chance to answer it. But looking at interest rates we saw the Fed cut it again this week. Does that indicate to you that we are turning to potentially heading into a recession here?
Hackett: It’s mixed right now. Our purchasing managers is in a recession but we get numbers from jobs and from the service sector that says we’re not in a recession. So we’re in a muddled economy, that’s really what it is, it’s muddle, it’s not clear. But the Federal Reserve is afraid enough, concerned enough about what they’re seeing that they feel if they don’t take enough pre-emptive action we could go into a deep recession and so they’re very aggressive turnaround by the way from quantitative tightening to quantitative easing 4 and lowering interest rates shows that they’re on top of it and probably are going to hold off a deep recession that could have been the case had they been more reticent to do that.
Howell: Okay. Shawn, let’s turn our attention back to the grain markets. We’ve got a question here from Ed in Chicago, Illinois wanting to know why does the basis remain so strong at harvest this year?
Hackett: I think it’s a function of three things. Obviously when harvest is delayed you have less supplies coming in and you have demand that still needs the product and that by nature means you’re going to have a stronger basis. Farmers are so frustrated from this year, everything that could go wrong going wrong, and they’re so frustrated the prices haven’t been better that they thought would be that many of them are deciding to put a lot of this in the bin and wait around for better prices next year and I definitely get that. And so that is clearly a factor that is coming into play. And I would say that the third factor is the USDA came out in the last quarterly grain stocks of September and we had the largest drop in quarterly grain stocks on that report ever for the September report meaning they just couldn’t find hundreds of millions of bushels of corn and almost 100 million bushels of soybeans. Usually those kinds of corrections on quarterly grain stocks report are because they messed up the past year’s crop, they overestimated last year’s crop. So it says to us that we may not have the 1.9 billion bushels of corn they say we do and we may see further adjustments in quarterly grain stocks going forward. So we think there’s something to that there’s just not as much out there as the spreadsheets are telling us.
Howell: You mentioned that folks are holding their crop and that makes me wonder what your thoughts are about the carry going on right now between Dec ’19 and Dec ’20 in the corn market. Should producers be looking already to make sales for next year? That seems crazy to think when this year’s crop is still in the field.
Hackett: Yeah, we only recommend, our ethos is we only recommend sales when our smart money insiders indicator gives us sell signals and we stick to that discipline and we really don’t stay away from that and we’re not in a sell signal in corn, we’re not in a sell signal in soybeans. It’s not that we wouldn’t look out that far but we would do it when we have a really solid sell signal like we had in late June/July when we were making recommendations for active sales. We just would hold off right now in doing too much in the deferred. There’s just too much going on with South American weather, the fourth driest growing season thus far in 30 years, there’s just too much going on for us to want to get aggressive on that unless we have a really solid indication by the insiders.
Howell: Shawn, what are your smart money signals suggesting to you about boxed beef prices? I read this week that they were the highest in the record of recording them except for 2014 which was a good year for cattle folks.
Hackett: Yes it was. And as I said in the main program amazingly smart money remains bullish in the cattle market despite these high prices and this big rally. It’s highly, highly unusual and anomalous for that to happen. Usually when you get a rally you see proportional selling and we’re just not seeing it and so we’ve been warning in our reports about this that this says this rally is something different going on in this rally than your normal garden variety seasonal trade or that sort of thing. And so until they get aggressive selling and we looked at today’s commitment of traders report and kind of eyeballed it, we did not see any big selling going on. This market has higher prices to go. So despite the numbers saying we should get skittish, our discipline says we stick it out until they give us a clear signal, they know better than anybody else.
Howell: You said there that it was a different rally than normal, seasonals and other things. What makes this rally different than others?
Hackett: We think the difference is this Tyson fire caused a shock in the system that ought not to have happened meaning that was not supposed to happen, that crash and burn, that whole thing that took place really set this market sideways. It was already a pretty constructive market and because of that overreaction to the downside for every action there is an equal and opposite reaction. We’re getting that springboard effect just as we’re getting better with trade with Japan, with China, with our domestic demand is strong, the packer margins are still fantastic despite this rally. So it’s kind of like we talked about dairy, it’s a perfect storm for cattle, everything that could go right is going right and we don’t see those winds changing until post first quarter of 2020. That’s when we think the clouds could get more stormy. But we’re very bullish continuing into the first quarter. And so as much as the temptation is that we got to have a top, of course we could have setbacks along the way, but we are not that bearish at all, in fact we’re still bullish this market despite it all.
Howell: Is that the same then when you look at the feeder charts? On the chart there is a huge gap around the $147 mark. Are we going to test that and fill in that gap?
Hackett: I think we’re absolutely going to be doing that. I think we’ll probably do that and more. It’s hard to know how far we’re going to go in something like this because there’s a lot of factors that are really unusual going on. But there’s absolutely no doubt in our mind we’re going ot fill that gap and we think we could probably test last year’s highs before it’s all said and done on the feeder cattle market. We don’t see any reason why last year which was not as bullish as this year should be any different. And if the dollar weakens and we get some currency inflation under our belt absolutely. It’s one of our favorite bullish markets right now is the cattle space.
Howell: Is there any other markets that you’re extremely bullish about at this point?
Hackett: That we’re extremely bullish about? I would say right now the cattle market is probably the only one that our indicators are giving us the green light on. Everything else is not really giving, flashing big signals right now, it’s not necessarily bearish, but not like cattle. For what we do that is our wheelhouse, it’s right in our wheelhouse for what we like to be pounding the table on. Everything else is sort of in murky middle ground right now and that will clear up but we just don’t have anything else we feel that comfortable with right now.
Howell: Okay. Shawn Hackett, thank you so much.
Hackett: Thank you.
Howell: Join us again next week when we’ll see how one agent spent three decades investigating ag-related crimes and Naomi Blohm will join us at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!
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