Although he agrees that 2012’s drought caused tight supplies in the grains, Shawn Hackett, president of Hackett Financial Advisors, sees its impact on grains dissipating over time. Instead, in 2013 Hackett is watching the soft ags and cattle, markets that typically have longer cycles.
In the softs, Hackett says 2012 was the year of the surplus, but now prices have fallen in nearly every instance to below the cost to produce them. “A year from now, we will be talking about tight supplies in nearly the entire softs complex. Weather will determine if they are still adequate or if they will be too tight,” he says. “Where the grains likely are looking at much more supplies a year from now, the soft ags have fallen so dramatically that we’ve likely priced in most of the surplus.”
Within the softs, Hackett is most bullish on coffee because he says the fundamentals for coffee likely will tighten first compared to other markets where surplus are much higher. “There’s a possibility that we could see coffee going to $2.00, and it could see $2.50 if we have weather problems in Vietnam or Brazil,” he says.
The second market Hackett is expecting to outperform is cattle. “The drought effect will be leaving the grains and entering the livestock markets. The herd liquidation has already taken place,” he says. “The lower supplies are coming due to the fact that we slaughtered so many animals because of the tighter economics. This suggests we’ll be entering a period of significantly tighter supplies of beef, pork and dairy.”
He explains that cattle has a much longer cycle than the other meats. Where hogs can see a turnaround in the herd in about six months, and even less than that for chickens, it is a couple of years for cattle. “The only way to get through the next couple of years will be to get prices high enough that people stop going to steak houses,” he says.
Hackett expects live cattle to go to record highs in 2013 with a price target above $1.50 per pound, but says that if we have more heat or dryness over the summer, we could get to $1.80.
Although 2012 is a year many are happy to see behind us, a lot of the same problems seem poised to follow us into 2013. Nonetheless, opportunities can be found.