I'm Kim Schmidt, executive editor of Farm Equipment. Welcome to Farm Equipment's Used Equipment Remarketing Roadmaps podcast. In this episode, Casey Seymour of Moving Iron LLC talks with Shawn Hackett with Hackett Financial. This episode of the used Equipment Remarketing Roadmaps podcast is brought to you courtesy of Agrisolutions. Let's jump in as Casey and Shawn talk about the natural gas market, which recently saw an 80% drop from its highs. Then they switch gears and move on to soybeans and other commodities and what the world markets are looking at.

Yeah, I've got Shawn Hackett here with us from Hackett Financial out of Boca Raton, Florida, and Shawn, how you doing this morning, man?

I'm doing good, Casey. Really, really good to be back on the show.

Yeah, me too. I was a tad bit under the weather last week and for whatever reason I couldn't talk very well in the morning. Something about not being able to catch my breath, so I don't know if I'm just-

Your wife said she actually enjoyed that, but that's not important.

She probably did. I was... I don't know if I'm that out of shape [inaudible 00:00:59]. Probably combination of both I would guess. All right, Shawn, last week you put out an article or an article, a report out and you hit on natural gas a little bit there. And we've been watching natural gas go from 10 bucks down to under two, and that's actually lower now than it was when it took off the first time. So I guess, Shawn, take a look at that Nat-Gas market and what do you see there?

Well, everyone had bid up the natural gas market expecting a energy crisis in Europe and of course a kind of a short, warm winter, which we had been warning about; took the punch ball away and allowed for that crisis to abate. And as such, the market came tumbling down. And of course, natural gas being what it is, it tends to be the wild wild west of commodities in terms of its volatility.

And so yeah, we knocked this market down over 80% from its highs and actually made kind of a V bottom here about a week and a half ago, two weeks ago, and then rallied almost 50% off the lows before having a little bit of a correction yesterday. So it looks to me, to just as to give you kind of a benchmark, if you look at natural gas, going back to 1990, we watch something called a deviation from the 200 moving average.

It's a measure of how stretched the market can get up or down the record deviation natural gas is ever seen below is 20 moving average was 61% in 1994, which set a very important low. We got down to 67% below the 20 moving average at the lowest from a couple of weeks ago, suggesting an extreme, at least short term overdoing to the downside. And so now we've had this rally off the lows, but when you really think about it Casey, Natural Gas in Europe and Asia is between $15 to $20, down from a hundred by the way, but still $15 to $20 and we're sitting in the twos. The world will continue to buy as much LNG from the United States as they can possibly get their hands on that we can possibly sell to them, given our overall LNG export capacity.

Everyone in the world will do everything they can to get their hands on that kind of cheap energy. Even you factor in shipping costs, it's incredibly cheap energy. Now remember the Freeport Export Terminal, which exports 25% of LNG exports has been offline since September of last year because of a big fire that they had. It's finally come back online here in March and they're expected to get up to full capacity here in April and May.

So now, we just literally overnight increased our capacity to sell 25% more than we had been at a time the natural gas is just crazy cheap here. So throwing some kind of cooler weather here in March, finally getting a little bit of a cool weather after a warm winter and it looks to me like an important low on natural gas has been made. And I think that it doesn't mean, by the way, we're going back to 10 anytime soon. I'm not suggesting that. But I think when you seek natural gas prices in the twos, the long term picture for anyone that needs cash, supplies, whether it's propane, whether it's natural gas, whether it's fertilizer, anything related to natural gas derivatives at this moment, I think you're looking at a long-term good opportunity to be locking in some long-term cash needs at this moment in time.

Yeah, yeah, kind of looks like that way, Shawn. You take a look what's going on. There's... It's really low right now and you just said there's some opportunities because we're going through a bit of a warmup here from what we've seen over the last, I don't know, couple maybe last 60 days or so. But we still have this week where it's the highest, 37 and the lows are in the twenties and it just doesn't stay very warm very long. So there's definitely some that spring hanging on or winter hanging on to spring there a little bit.

And if you look at a seasonal chart of natural gas throughout, not every year... No, seasonals are averages, not every year, but typically natural gas likes the bottom in the latter part of February in the early March in most years as a seasonal kind of a situation. And if you look at the price chart, we kind of bottom them right there in a latter part of February kind of right when the seasonals would suggest. Didn't have to turn out that way, but I mean it was the right time for the market to say, "You know what, unless we're going to zero, enough's enough."

Yeah. Yep. All right. Let's jump over and talk about soybeans for just a minute. We have a couple things going on. One, Argentina still continue to cut their soybean crop. Two weeks ago they had a pretty big cut there, about 5 million metric tons, and they're cutting another million metric tons off of that. And then you've got China buying record soybean from the United States and Brazil both at the same time.

So I guess Shawn, look at the overall soybean marketplace. What are your thoughts there? And we've talked about quite a bit here, we've talked about a lot of different scenarios when it comes to renewable fuels and what's that look like in the future when it comes to soybeans? So I guess looking at overall stocks in the world right now, depending on what happens with Brazil and what that crop to ultimately ends up looking like, we could have a fair amount of soybeans on the market here this time next year.

Well, the way I look at South America, it looks like whatever Brazil gained in production from a year ago, Argentina, lost it. Now of course Argentina sells meal and oil, not really raw soybeans. Brazil sells raw, so we're going to have bigger exports of raw soybeans, kind of Brazil. But the overall exports of raw soybeans and derivative products like meal and oil is going to be about the same. So there's not going to be any net new supplies coming out of South America because we're kind of almost looking at a half a crop in Argentina, which means their exports of meal and oil are going to be significantly constrained. So that's not bearish, it's not bullish, it just keeps the situation as it was a year ago, which means the US has to have a big crop.

We've gone over a lot of scenarios of renewable diesel and the amount of capacity coming online. I mean bare minimum, if we chop down everything and we try to get as bare minimum as we possibly can with all the different scenarios, we need 10 to 12 million additional acres planted in the US of soybeans over the next two years. If you believe the USDA's Outlook Report and some of the private estimates were not expected to increase soybean acres this year at all. That's a mispricing. And if you look at the price of new crop soybeans, it's been gaining on corn, it's been gaining on spring wheat, it's been gaining on cotton, it's been gaining on rice because it realized it made a terrible mistake. It's mispriced new crop soybeans relative to competing crops and it needs to get acres in.

And so I believe that the trend of soybeans outperforming other crops to gain those acres as we get into the planting season is going to continue until the market gets comfortable that it's remedied the error that they made. And it gets, like I said, some of those acres over to soybeans because I don't think we can afford, Casey, to have a flat acreage here this year with all that's coming for 24 and 25. I think we need to start getting a few million or two or 3 million more acres this year and then adding it next year. So to me, that's the other big story is, soybeans having the price itself competitively to gain some acres in those acreage areas that can switch. It needs to do it in a hurry and it's starting to do so. All the ratio charts I just mentioned are showing soybeans outperforming all of the crops right now.

And that's what it's looking like from what I've been just watching on my chart. It's just been... Soybeans have kind of caught a little bit of a... Got a little steam headed their way.

We'll get back to the discussion in a moment, but first I wanted to thank our sponsor, Agrisolutions. Improve performance and durability with a wide range of premium tillage parts and extended life solutions with Agrisolutions. As the market leader in wearable parts, components, accessories and solutions for tillage, seating, planting and fertilizing, Agrisolutions is proud of their purpose; to build and feed the world. To learn more about Agrisolutions and their globally recognized brands such as Bellota, Ingersoll Tillage and Trinity Logistics, visit agrisolutionscorp.com.

Now back to Casey.

All right, so let's talk about what's going on over in pork production here for just a minute. So you got the Chinese out there talking like they're going to increase pork production, but they say that every year and they still buy record amounts. And then you start looking at where we're at in the United States as far as pork prices go. But you look at the pork market right now, you've talked about some bearishness here the first year, and then maybe seeing some of that kind of wear off here towards the second quarter going into third quarter of the year. What are your thoughts on the pork market? Are they still the same?

I mean, even though I can appreciate and understand that that pork is not necessarily a one for one replacement for beef, it's not. It's two different meats and it's not a perfect replacement, but when you have the beef price trading at an historic premium to the pork price, the economics are so severe that anyone that is looking at providing neat proteins on the table for their families has to be looking at adding pork protein to their diet relative to beef protein. I mean, the gap is just too severe. And so I believe that, and this is not just here in the United States, this is everywhere. This is just a massive, massive gap. So that means the demand for pork is going to improve around the world, and as China comes out of their COVID chaos, obviously they're going to be needing more meat proteins and obviously they're going to be also needing more pork.

So overall, I think the demand side of the equation looks pretty good as we get into the second quarter onward, given this huge disparity. And once again, nobody knows what the truth is in China. Anybody that says they know the truth in China, they don't. All I know is that the hog price in China has been rising, and that means there's not enough hogs for the pork supplies that they need, which says that we don't have an overburdensome supply of pork in China, especially as they come out of COVID chaos.

And then I look at the animal feeding units here in the United States, and it's been kind of flat lined here for three or four years, and I don't see anything that suggests that's going to change. So we have a pretty good situation for an improvement in price for the US hog price here going into the second quarter and probably going into the summer in the fall. I think this is a pretty good area for... If you are a packing house and you're thinking, "I need to be locking in some animals here for the griddling season."

And I just think this is a good place to be protecting upside price risks on your cash market needs. I just think this is a pretty good value area to be looking to do some of those longer term things that typically are very... It's how you run a packing house as you try to lock in good input costs against what you think your end user pork price is going to be. So I haven't really changed the view other than I just feel that the disparity between the two has gained even more and it just makes the case even stronger that hog prices and pork prices have to rally strongly as we get into the second quarter onward.

Right On. Okay. All right. So two weeks ago, I believe, Brazil had a outbreak of Mad cow disease in their cattle herd and subsequently stopped selling beef to China. There's a report this morning that Mexico's going to allow Brazilian beef imports. But I guess looking at that, Shawn, what kind of impact have you seen that make on the overall beef marketplace since the last, over the last two weeks? And I guess, what are your thoughts there in a already fairly tight marketplace?

Yeah, I mean, when you're already tight and there's no animals coming for the next couple of years and you throw in a loss of Brazilian beef exports to China, and we don't know how long, of course, maybe it'll be over this afternoon, we don't know. I think the last time we went through this, if I remember correctly, I think it was two or three months where they couldn't sell and then they were able to sell again, I have to believe that this won't be any longer than that, and maybe it could be shorter than that.

So it's a short-term thing. I mean, obviously it has extra demand for US beef that wouldn't otherwise be there at a time. They were already tight. And of course it's given the market an extra boost here. But I'd also be careful on the opposite side, when you get that announcement that China says, "Oh, they're comfortable again, they're going to buy it, they're okay with beef imports from Brazil again."

You know, could get the opposite side of the trade where everyone says, "Okay, we all as well, we overplayed this." So you got to be very, very careful that kind of a news story. I really don't believe it's going to be a long-term thing, but it has created a short-term boost to price at a time that the market was already tight.

Yeah. So you're looking at what... You were talking about packers a little bit ago, but here's a report that packers bought 91,000 heard of Cattle and in negotiated market last week, second highest tally of the year. So it still shows, even though the price of beef is as high as it is, there's still this record, it seems like record demand for beef right now.

Beef demand has been surprisingly resilient. It has been. It seems that-

[inaudible 00:15:44] The space of everything around you too, you wouldn't think it would be as expensive it is as it is that you didn't think it'd be that way.

It's one of those enigmas, it could be that it all comes crashing down all at once and it's just a final surge in demand. But it has been surprising, Casey, I have to admit that when you're looking at weak demand that a lot of other areas, you would've thought that the box peak price would have softened here. It doesn't mean it won't soften, but it has been resilient. And I guess it just means that US has enough people with enough money that really, really like beef and don't want to give it up given the supply of animals that are available. And that's... We have to just continue to watch that trend because if we're moving into a beef market that's becoming non economically sensitive, that's a totally different ballgame that we've seen over the last 30 or 40 years where we know beef demand tends to come off.

So I wouldn't say the test is over yet. It does look like conditions are going to worsen here into the second quarter. The Fed's going to continue to raise those rates. A lot of the indicators are continuing to show things are going to get worse. But if we get into the end of the second quarter, Casey and we haven't seen the material decline in beef demand, we're going to have to kind of rework our numbers about what that means for the overall supply-demand equation if we're moving into a more imper impervious demand base based upon the economy. I'm not willing to throw that hat in the ring yet, but it's certainly something we've gone long enough with strong demand for beef that one has to question whether we've shifted gears here to a different supply demand mechanism here.

Yeah. Yep. Thank you. Right. All right, Shawn, good stuff. As usual, folks want to reach out to you and get more information about what it is you have, go on over there at Hackett Financial. It's the best way to do that.

We have a website at Hackett, H-A-C-K-E-T-T, advisors.com. We have a Twitter page at @feridex11. We have a LinkedIn page. You can look up my name, Shawn Hackett. You can look up our company name, Hackett Financial Advisors. We oftentimes will put from time to time some interviews or some quick blurbs about some of these weather cycles and fundamental things that we talk about, that can keep people in the loop. And so that would be a good place for people to try to keep on tabs of what we might be thinking at various times throughout the year.

Okay. Checked it out. Shawn's got tons of information out there, especially on his website. They're over at hackettfinancialadvisors.com. Check that out over there. A lot of good information there. And the simple Google search of Shawn Hackett, you're going to find tons of interviews and stuff out there and stuff too, so check that out. Shawn appreciate you being on the podcast, man.

Thanks you, Casey, love your show, and it's an honor to be on it.

I appreciate that. I'm Casey Seymour, with Moving Iron Podcast. Check me on Facebook, Twitter, and Instagram @movingironllc. Go to LinkedIn at Moving Iron Podcast and check out the Moving Iron Podcast YouTube channel, which is shockingly enough name, The Moving Iron Podcast, YouTube channel. So really, really thought on that one a long time. So check that out there. All the videos that we do, every podcast that we do, the video version of it's up there at the same time. So movingironllc.com is where you can find everything Moving Iron related. I just posted a whole bunch of blogs because I'm really bad about posting those blogs after I write them, so they're up there now. With that, I'm Casey Seymour with Shawn Hackett, with Smart Folks.

Thanks to Casey for sharing his conversation with us. You can keep up on the latest industry news by registering online to receive our free newsletters. Visit www.farm-equipment.com. For Casey as well as our entire staff here at Farm Equipment, I'm Kim Schmidt, thanks for listening.