🔴 How Climate Change Affects Corn & Soybean Prices (w/ Shawn Hackett)

JAKE MERL: Welcome to Trade Ideas.
I’m Jake Merl, sitting down with Shawn Hackett,
President of Hackett Financial Advisors.
Shawn, great to have you back on the show.
SHAWN HACKETT: It’s always good to be here.
JAKE MERL: Let’s get right into it.
What are we talking about today?
SHAWN HACKETT: We’re talking about a very
unusual situation that only comes around maybe
every 20 or 30 years.
And that’s a frost risk potential to the US
green crop.
In order to have a frost risk, you have to
have a late developing crop, that usually
means a late planted crop.
This year was the slowest planting season
we’ve had in history, and because of that,
of the tremendous flooding the tremendous
rains that went all the way into June, we
planted a record amount of soybeans and corn
acres in mid to late June than ever before.
As such, our current development is in the
top five slowest on record.
Because of that, we are going to need a longer
end to the growing season to finish the crop
out, to have the crop mature so that it can
yield its full potential.
If that does not happen, and you junt it or
stop it from finishing out, there’s all kinds
of yield quality and disease problems that
can emanate.
So this year, because of that alone, we are
in a very unusual situation with, that is
possible this year.
JAKE MERL: What would make that possible?
What are the catalysts for that?
SHAWN HACKETT: Whenever we look at– whether
we try to look at historical context correlations,
so there’s some big picture features that
have historically met earlier frost dates
a knot.
One is where are we in the solar cycle?
There’s an 11-year solar cycle, we go from
high sunspots to low sunspots at the trough
periods have tended to be greater correlations
to earlier frost states in the Midwest.
We are in a trough period.
We also happen to be in what’s called a grand
solar cycle minimum, where we have an overall
longer period of lower sunspots, which tends
to amplify normal behavior that will also
help it.
Also, we’re seeing a significant weakening
El Nino.
In fact, it’s actually acting more La Nina
Whenever that happens, it also increases the
odds of a colder weather pattern in the Midwest.
Finally, we look at something called the 18.6-year
lunar cycle, and that’s essentially when the
moon oscillates between 18 degrees off of
the equator to 28 degrees.
That difference changes the forces on the
ocean and makes the oceans move in different
ways and it impacts the weather quite significantly.
There’s a very high correlation where we are
now when we’re at this part of the 18.6-year
lunar cycle for increased early frost risks.
So from a big picture perspective, we have
a lot of reasons to think that the odds are
higher this year than not that we’re not going
to have a long end of the season, we’re going
to have a short end to it and a potential
early frost date.
JAKE MERL: It seems like a perfect storm all
coming together at the same point in time,
seems like a pretty rare event.
SHAWN HACKETT: Right, not only that you have
a late developing crop, but you also have
to be at the right time for all these other
factors to come into play.
When we now say, okay, here we are, late developing
crop, we have these bigger factors that are
in play, how do we monitor and micromanage
it on a day to day, week to week level to
see if we’re getting something coming up?
There’s three weather phenomena that we focus
One’s called the Eastern Pacific Oscillation,
one is called the Arctic Oscillation, and
the other one’s called the Western Pacific
Differences in the atmospheric pressures over
the Northeast, the Arctic and how they rotate
air currents.
When they’re in what’s called a negative phase,
they tend to push arctic air, cool air into
the Midwest.
What we’re looking for– any one of these
could do it.
Any two of these could do it.
Any three of these could do it.
Meaning the more that are in our favor, the
What we’re looking for is when will these
three oscillation indicators be all negative
simultaneously, it’ll give us our best shot
at an early frost date.
Right now, from the latest weather models
that we follow, we’re looking at a mid-late
September as a higher risk point where all
these oscillations are going to be in their
negative phase, pushing this cool air into
the Midwest.
It doesn’t mean it guarantees it, but it says
that we should really be on the lookout for
some unusually cold intrusions of air into
the Midwest where the crop is way behind.
JAKE MERL: Based on everything you’ve laid
out, would you be expecting higher crop prices,
whether it’s corn, soybeans, or what specifically
are you looking at?
SHAWN HACKETT: If we get a significant frost
that comes in and stops the crop from finishing
out, then we’re going to have to start moving
our crop production numbers down significantly.
Yield down, harvested acres down, and obviously,
our overall supply is down and the market
will have to react very violently.
Remember what happened at the beginning of
the spring and summer when we had this delayed
planting, prices for corn, for example, went
from 340 up to 480 in a matter of 3 or 4 weeks
because the market was pricing at a lower
crop, we would have to do the same thing all
over again but for a different reason.
JAKE MERL: How do you suggest traders and
investors play the current situation?
SHAWN HACKETT: We think sometimes, simple
is the best modus operandi here.
Sometimes complication gets in the way.
We think a very easy, simple way to do it
is simply to own a grain ETN as they call
it, exchange traded note.
In this case, our preferred one would be GRU.
We think that that just owns corn, soybeans
and wheat and you’ll be able to participate
in the entire move in the grain complex.
You don’t have to try to pick one over the
other or something like that, or try to do
a futures or options and get the timing wrong.
We just think you just want to own this into
the end of the year.
We think there’s a good chance that you could
get your 30% or 50% move in grain prices if
this frost scenario were to play out at all.
JAKE MERL: Just in case things don’t go your
way, and it doesn’t play out, would you have
a stop loss on the downside?
SHAWN HACKETT: I would say it’d be more of
a timing issue.
If we get to mid-October and we haven’t seen
a frost, then that’s off the table.
We would view it as a timing factor.
If we haven’t seen the markets route, we haven’t
seen this frost scenario play out, we will
take the trade off by mid-October if we haven’t
seen it start to play out.
If there’s no catalyst, there’s no trade.
Because really, an early frost date means
between September 15th and October 15th, and
if it happens afterwards, it’d be a minimal
We view that as a demarcation line in the
sand for this trade.
JAKE MERL: Shawn, there’s been a lot of news
that there’s been high temperatures specifically
in the Arctic, there’s ice melting, and there’s
climate change, global warming, how does that
affect your thesis?
SHAWN HACKETT: It actually enhances the thesis.
In years where there’s low sea ice during
the summertime enhances cold air intrusions
into the Midwest and the reason is basically
this, when you have low sea ice levels, the
ocean in the Arctic absorbs more of the sun’s
As we start going into the cooler phase of
September and October, the eastern Arctic
freezes very quickly, but the Western Arctic
stays warm, and it develops has high pressure
system over the warm region that spins around
and actually helps funnel even more cold air
down into the Midwest.
What may seem like something that could actually
make a warmer trend, it actually does the
exact opposite throughout history.
It actually enhances the cold air and chooses
by the nature of how it impacts the airflow.
In this particular instance, the last time
we had this was in 2012 when we had low sea
ice, and we had very, very early frost dates
that year.
But of course, the crop wasn’t delayed, so
we had no problem.
JAKE MERL: Well, Shawn, we’ll see how it turns
out in the months to come.
Thanks so much for joining us.
JAKE MERL: Shawn is getting worried about
a frost risk for crops.
Specifically, he thinks the Green Index, ticker
symbol GRU, could rise 50% over the next 4
That was Shawn Hackett of Hackett Financial
Advisors and for Real Vision, I’m Jake Merl.

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