This is the Friday, April 21, 2023 installment of Marketplace.

Joining us again is Shawn Hackett.

Shawn, I have to just quickly, we're going to talk about cattle and feed in a moment, but I had an interview this week for the podcast and we were talking about cattle and they watch and I said they need more cows on the show.

So here's your cow on the show right there.

So I've done what I need to do.

Shawn?

Yes.

Cattle on feed?

Yes.

You were surprised by what happened.

Why?

Well, we just haven't seen a Bears report in a while, and the cattle on feed number was 1% above, which in itself is not that much of a miss.

But the placements were almost 4% above what the expectations were, while the markets were about the same.

And so that's the first time we've seen a number that just really didn't add up to the Bulls case.

And when you're trading near all time highs and you have speculators really long, you know, they're just they're just looking for a reason to sell the market.

This might just be what triggers a potential waterfall event in the short run.

In the short run.

Okay.

So that leads perfectly into our first question then.

James in the frozen north, they asked us on Twitter, how long do the cattle prices hold up then?

Well, I don't think they're going to hold up at all.

As we said in the main show, we've broken above their all time high in the August cattle and we're stalled out and we're not showing any momentum.

And markets just don't do that.

They keep going or they fall back down.

But why is it that say the stock market, we have all these bad economic news pieces and you think that that's the final nail that's going to send us lower and it doesn't.

Can the same resilience happen in commodities?

The answer is no.

We haven't seen that resiliency.

We've seen speculators unleash on crude oil, unleash on the wheat market, unleash on the cotton market.

They've not shown resiliency like they do in the stock.

Like we said, you know, commodities have to live in the real world of actual supply and demand.

Stocks can say, oh yeah, demand is going to be better three years from now.

We don't have that luxury in cotton.

We've got to move the product today.

And I think that's one of the reasons that we don't get away with being able to look past a lot of this negative economic news, you know, as the stock market can.

So you're saying commodities are more impacted by the negative economic news than the stock market is?

Am I hearing what you're saying?

That is correct.

Unless it's some kind of a financial crisis, then it's everything sells off.

But we're not seeing a financial crisis.

We're seeing a significant economic slowdown that the stock market so far has been willing to look beyond to when the Fed's going to reduce rates and when things are going to get better.

And they can do that because we don't have physical supply and demand in IBM, for example, you know.

All right.

How about Phil in Dresden, Ontario?

You always enjoy a good Phil question.

He wants to know when will the spring rally in corn prices begin?

Is it going to take a weather hiccup in the Brazil Sabrina crop and delayed U.S. corn planting or the corn and want to be like wheat?

Well I think what's really going to make the corn market turn around is a for first of all, just getting too cheap.

We're getting there.

But the secondly, we're going to need growing season weather problems.

I do not believe planting ultimately is going to be that trigger.

I think it's going to be drought coming back into the central eastern grain belt by June and to July.

That's what's going to be the weather event that turns on everyone.

Right now, El Nino is coming.

We're going to perfect weather, record yields, everybody's bearish and our weather work is does not agree with that assessment and that would really, really take the market and zing it the other way if proven that that thesis is incorrect and we think that it is.

The last couple of weeks our guests have been extremely bullish.

One, not a surprise, one a good surprise.

You sometimes have more of a bullish sentiment.

Are you only bullish that corn if it gets dry?

So anything else you're bullish about right now, Shawn?

Well, we are bullish grain markets later in the year.

As we mentioned in the show, because of the significant increase in feed demand as African swine fever requires and causes a change in the herd regrowth phase.

So that's a demand side story later on in the year, but it's really not a factor during the growing season.

The growing season may be driven by the Safrinha corn crop and by us growing weather.

We think the Safrinha corn crop is going to be fine, but we think much of that is getting priced in very, very quickly.

But we don't think that the US weather is going to be as, you know, as perfect as the market is anticipating.

In fact, we think it could be down right.

The last time we had a transition from La Nina to El Nino with a negative PDO was 2012 and we're seeing a lot of similarities to the sea surface temperatures to suggest that might be something to be on the lookout for.

I don't know the weather of 1952, but I do know the weather of 1983.

Earlier in the broadcast, we talked about the snow in the Sierra Nevada, second biggest.

Do you know what third biggest was?

The snowfall of 1983.

I don't know anything in between, but that may tend to that's part of that negative PDO.

We talked about a three in our writings months ago about how this record snowfall led to one of the top five worst grain crops in the summer of 1983.

That this is this teleconnection, this pattern of a negative PDO led to that very, very poor growing season in the central Eastern grain belt.

Of course, we have blown that record off the water this time around, but it's a very similar mechanism that negative PDO And remember, we have not had the central eastern grain will get into trouble since 2012.

It's been a long time that we haven't had drought coming to the area.

We are due in the set up is there this year for it.

The way we see it.

You know, the center east, our friends in Ohio have just said, can we at least get a spring where we could plant something on time?

Jake wants to know on Twitter, Sean, about the wheat market.

Why does the wheat market want to remain irrational longer than I can remain solvent?

We talked about it in the main show.

I mean, so let's say KC Wheat, right.

That's the poster child for this is trading at a huge premium to international price.

So think of it this way.

How much of a differential do you have to trade KC Wheat to cut off demand when the rest of the world is undercutting you substantially?

We've already done it.

We've already done what we need to do.

We already rationing demand based upon the weather because international prices are so depressed, because Russia continues to undercut the market, at least up to this point.

I wanted to ask this during the program, but I wanted to save it for plus, this is a question from Wes.

It seems to hold up, why is Ukraine even relevant in today's market?

You talked about Russia, but is Ukraine part of this relevant discussion?

Well, they're relevant because they were were a huge wheat exporter prior to the Ukraine war and having those supplies, let's say 30 to 50% of those supplies ultimately cut off in the long run is a huge issue.

The issue is that it hasn't found itself to be an impact to the markets.

Russia got kind of bailed out that story because they had this unbelievable huge crop, 105 million metric tons.

It pretty much put 15 on that.

We took off and it but we're not going to keep getting that lucky.

They're down to 85 this year with Ukraine being down let's say 30 to 50%.

The rubber is going to meet the road later this year, we think, and that's something to pay attention.

Timing is everything.

So I think that the wheat market is at a juncture where we've priced in as much of this oversupply as we can, and now we have to trade.

The other side of it has not gone away.

It was just delayed, kind of kicking the can down the road by some fortuitous situations in the international marketplace.

We opened with livestock.

We're going to close with livestock.

Two questions.

Justin in Michigan wants to know, have beef prices caused increased culling of the dairy herd or do you anticipate it will meaningfully affect dairy production and the milk price?

Out West, we are seeing heavy, heavy culling of cows because of the stress going on over there with the flooding.

And production is down 3% in California.

So we're already seeing the culling of cows very, very strong.

We're seeing the dairy herd starting to contract.

And yes, it's going to lead to an overall contraction of US supply later on in the year if we can get Chinese demand back.

Remember, we've lost Chinese demand because of COVID, you know, this whole COVID chaos period that we're going through.

But as they come out of it, we expect them to be a big buyer of dairy later in the year.

The GDT auction results we just got at the last auction was one of the biggest increases we've seen in a long time, and that's where China shows their cards on the table for demand.

So maybe we've already starting to see the early stages of turning the corner in the dairy parlor.

I'll save my side comments about China and information for another time.

Scottie in Iowa We'll release this question to you or he wants to know at what price level of box beef will the consumer look to cheaper protein sources?

Well, one would have thought they would have been doing it by now, considering how high it is.

I mean, for those that know a lot more about consumer demand than I do suggest, 300 might be the magical number I've heard that talked about a lot as we talked at the main show.

I think we're very, very close to even beef demand getting impacted by what's going economically.

I really feel that we're at that point where we're going to see that happen and have the market say, you know what, even though I prefer beef over pork or beef over chicken, I just can't afford to do this right now.

I have to look for something different.

I think we're really close to that and it's going to happen very, very quickly when it does.

How do you protect yourself then, if you're one of those that have both, either an end user or the one supplying it?

Well, I mean, certainly if you're you know, if you're a cattle rancher, I mean, certainly we've been suggesting cash sales and protecting downside price risks right now going into the summer, given this risks, I mean, prices are fantastic.

If you're someone thats say, look, I have a budget, I need to look out for my family, you know, certainly looking at very, very economical pork prices and chicken prices, relatively prices.

I certainly would be looking for value there if I have a nice freezer, you know, put.

So if you can afford it, put some in there because you're going to get a better chance buying some beef I think later on in the year and maximizing your dollar while the economy still remains under pressure.

Shawn, good to see you.

Good to see you, Paul, as always.

Thank you.

Appreciate it.

Shawn Hackett and everyone.

Next week we are going to look at planting progress with a field report and we'll also have the analysis from Don Roose.

Thank you for joining us and have a great week.