Thinking strategically to manage market and weather cycles

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Geopolitics, interest rates, currency fluctuations, market demand and the weather — there’s much for farmers to consider when making business decisions in a volatile market.

Meteorologist and market analyst Shawn Hackett says it’s important for farmers to have a good understanding of all the factors that can impact prices to build effective marketing strategy. At the Grain Farmers of Ontario annual March Classic meeting in Guelph this week, Hackett, president of Hackett Financial Advisors, shared his take on a host of market movers and indicators and how they could impact strategy in the near and long term.

In this interview with RealAgriculture’s Bernard Tobin, Hackett says it’s important to consider both non-weather and weather related cycles. He kicked off his presentation with a look at how a devaluing U.S. dollar can impact Canadian farmers. “It means the Canadian currency is going to strengthen. And yes, we’ll still see inflation in Canadian-based prices, but it’ll be half as much.” In this circumstance, he says farmers should consider hedging the Canadian dollar to manage the currency risk. (story continues after the video.)

When it comes to interest rates, Hackett says rates tend to go through a cycle that sees a 35-year decline followed by a 35-year rise.

“Right now, we’ve turned up from that 35-year decline into an up-trending cycle,” he says. What typically follows is a high cost for capital, which increases the cost of farming. It also means tough times for government balance sheets, higher interest expense, and the need to print money which leads to more inflation. “The last one of these was the 1970s and we know what that one was all about — it was a very inflationary cycle.”

When it comes to weather-related cycles, Hackett, the meteorologist, says extreme weather volatility escalation is here to stay for 10 to 15 years. In the video, he explains how reduced sun activity is changing jet stream airflow patterns from zonal to wavy, which enhances the destabilization of the southern and northern polar vortices.

“We’re in that now. And when you get that amplification, weather volatility is crazy — record cold, record hot, record snow, record floods — and it can happen very, very quickly, ” says Hackett. “Until the sun goes back to firing up normally again, we’re going to be in this escalating weather cycle of volatility.”

What can farmers do to mitigate that risk? Hackett says markets will present excellent opportunities for livestock producers to buy feed. He encourages crop producers to take a hard look at crop insurance, which continues to expand. “And obviously, I think I’d be looking at ways to use futures and options to manage risks on the farm.”

 

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