the hackett money flow commodity report · cci was the bear market ... we feel that this pattern...

The Hackett

Money Flow Commodity Report January 6, 2017

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Published By Hackett Financial Advisors, Inc.

Shawn Hackett, President 23162 Post Gardens Way

#720 Boca Raton, FL 33433

561-573-3766 Email: [email protected]

www.HackettAdvisors.com

Growing Financial Success

CONTENTS

Corn Price Analysis

Soybean Price Analysis

Wheat Price Analysis

Cotton Price Analysis

Sugar Price Analysis

Coffee Price Analysis

LumberPriceAnalysis

OatsPriceAnalysis

OrangeJuicePriceAnalysis

Rice Price Analysis

MilkPriceAnalysis

Cocoa Price Analysis

Ag Commodity Inflation To Return

EXECUTIVE SUMMARY Overall Commodities What is the “Whack A Mole” continuation basing pattern? Put simply, it is a very low volatility sideways trading basing pattern that develops after an initial surge higher from a major low.

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We believe that the early 2016 low in the CCI was the bear market bottom

The current whack A Mole basing pattern should lead to a bullish first quarter upside breakout

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It is characterized by many short term attempts to break out in either direction but is quickly reversed back into the tight coiled spring trading range. Hence, the whack a mole game is used to describe this pattern. We feel that this pattern will end with a violent upside breakout during the first quarter of 2017. One of the bullish themes that we have for this to happen is the likely topping out of the US dollar in 2017. Our thesis is that this US dollar top will be not only a final bull market top but will likely create the final terminal top of the US dollar never to be seen again. Our thesis resides around the idea that the debt laden US Reserve currency global monetary/economic system permanently broke down in the 2008/2009 global economic crisis and remains in an unsustainable state that has induced an economic coma that current reserve bank policies cannot overcome. The new system will likely incorporate the use of SDR’s (special drawing rights) for international trade managed by the IMF (International Monetary Fund) while local economies will have second tier currencies that will fluctuate based upon local capital flows. In such a system, the use of the US dollar would fall markedly and cause a serious and permanent devaluation. We also believe that Bit-coin will be the core independent monetary asset used by the world to facilitate and homogenize daily capital flows by businesses and individuals and provide a safe haven safety valve for ongoing government folly. The recent 5 fold increase in bit-coin we believe is just a drop in the bucket to what this asset will ultimately be worth in the years ahead. A 100 fold increase from current prices would bring bit-coin to a 1 trillion dollar market capitalization. While that may seem large in a world where government debt and derivates amassed have total market capitalization of 700 trillion or higher is really still a drop in the bucket. Gold itself has a current market capitalization of ~ 6 trillion. The current 15 billion market cap of bit coin remains a dramatically undervalued monetary asset that is still in the first inning of its rise to global acceptance. Needless to say we view Bit coin as a rare investment opportunity to participate in a new monetary system while preserve ones buying power when the current currency system goes through the permanent devaluation cycle shift.

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The Hackett



Bit-coin Price Chart

We don’t portend to be currency experts. We are not. But we are guided by the view that the reserve currency of the world has a rhythm and is very regular and repeatable. When the US dollar goes up too much for too long the global imbalances become created become so severe that they require a trend change. When the US dollar goes down for too long the same thing happens in reverse. We are also guided by the idea that when a new president from different party takes office uncertainty reigns supreme and tends to cause the US dollar to weaken as a result in the first term of the new president. New presidents tend to take aggressive bold actions that more often than not have tended to have negative unintended consequences leading to economic stagnation and a weaker dollar. We also are guided by the idea that the US dollar tends to enter an upward parabola 3 to 4 years prior to the arrival of the 16 year cycle top following a prior basing period. That cycle has played out perfectly since the 2008 low in the dollar and that leaves us with no reason to believe that the US dollar 16 year cycle top will diverge this time around. Of course near the top all the bears that existed near the 2008 lows have fully capitulated to the bull camp and now see a never ending rise in the dollar and can see no fundamental reason for the dollar to weaken anytime soon.

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All time highs nearing for bit-coin. This is just the beginning of one of the greatest bull moves of our lifetime.

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So bottom-line… we are anticipating that 2017 will usher in the final top in the US Dollar. We are focused on the 2nd quarter as our preferred time for this to happen although anytime in 2017 will suffice. Any validation or self realization by the market that a US dollar bear market has begun and a blow torch will be applied to the overgrowing underbrush of the forest to light a fire under commodity prices and especially agricultural commodity prices as the bullish fundamentals that have been building for years but have largely been ignored takes center as the illusion of a permanent US dollar bull market and never ending deflationary currency translational forces ethos gets swash buckled.

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We believe that the US dollar will likely make its final peak in the 105 to 110 area in 2017

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16 Year US Dollar Cycle Tops

The chart above clearly indicates the trend of a weaker dollar during the first term of a new president’s administration. In the case of President Nixon and Bush they presided as the new president right at the expected 16 year US dollar cycle top and hence presided over the beginning of a major US dollar bear market and period of rapid commodity inflation. President elect Trump is also taking office in a similar fashion and we see no reason to expect anything different other than the beginning of a major top in the dollar and beginnings of a major bear market.

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Carter Nixon

Reagan

Clinton

Bush

Osama

Trump??

2017 is the expected year for next US dollar 16 year cycle top.

Based upon the presidential cycle of new presidents a dollar top in the 2nd quarter of 2017 would be our likely target for a final top.

The Hackett



President Carter, Clinton and O'Bama took office in the middle of the trend which simply kept the bearish US dollar trend intact. The only exception was when President Reagan took office. The timing of his presidency was 4 years before the expected next 16 year US dollar cycle top which we explained before is when the US dollar likes to enter an upward parabola. Trump is not entering his presidency in the same timing construct as Reagan did so we see no reason to suggest a similar fate. Many are equating Trump to Reagan and are calling for a US dollar bull market to accelerate as a result. Our read on history does not support that view as being a likely outcome. Stay tuned.

Weather Update La Nada Has Arrived

La Nada is a condition where the pacific sea surface differentials do not exceed -0.5(La Nina) and do not exceed +0.5(El Nino). With La Nada the southern oscillation index which measures short term trends in this differential can fluctuate to more positive and to more negative inflicting rapid and divergent weather patterns very quickly.

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La Nada has formed more quickly than anticipated. Expect greater weather volatility and less trending weather patterns

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We have already seen this at work with a drought in Argentina that has now morphed into flooding. Also a warm fall in the US that then was followed by an extremely cold late November/December period. This thrashing about and quick shifts in weather patterns will likely continue to be the trend for the remainder of the South American growing season and the remainder of the Northern Hemisphere winter wheat dormancy season. The take away is that such rapid weather extremes inflict high stress onto developing crops and do not tend to produce record crops or above trend line yield crops and in fact tend to produce below trend lien yields in aggregate. They tend to be associated with crops that are below expectations and below trend. So this would not be good news for South America who desperately needs and wants a large grain crop this year to rebuild their nonexistent buffer stocks. There will be a lot of confusion with all this weather volatility and a lot of price volatility until clarity emerges in the March through May timeframe. Stay Tuned. One area we are watching that is of particular interest to us is the North Eastern areas in India that produce the majority of the wheat. India’s wheat stocks are near the lowest ever seen and they have been importing wheat in 2016 to offset. Recently, they lowered import tariffs to promote even greater imports. Should the current wheat crop come up short again then this importation strategy will need to grow exponentially. At the moment vegetative health in the prime wheat regions of India are at or below the levels seen that past 2 years which saw very poor crops. Should weather remain unfavorable as it has been then this could become a major driver for an escalating wheat crisis in India. Many a grain bull market began in India so this is an important region to remain squarely focused on. Also La Nada tends to be less kind to the summer monsoon season and would put rice production back under the microscope after a good La Nina monsoon in 2016 produced a good rice crop. What happens in India will not likely stay in India.

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NE India main wheat area Vegetative Health Uttar Pradesh

Smart Money Group Analysis Overall Commodities

We are keeping a watchful eye on the overall commodity smart money indicator. Any surge above the resistance line would suggest increased smart money bullishness and a first quartet bullish turning point.

Smart money buying into year-end could be a sign for a first quarter 2017 bullish turning point. If the resistance line drawn is broken than our bullishness would increase.

Current wheat crop vegetative health is the below the last 2 years. Bit a good sign for India and bullish for rice prices

The Hackett



Executive Summary GRAINS-Smart Money

The smart money patterns in grain markets is a very unusual one but also a very bullish one. Rarely do we see smart money buying into a flat trading price pattern. Most of the time smart money buying occurs in a decline pricing market. When we see persistent smart money buying against flat price action suggests building and sustainable bullish mantra by insiders that typically leads to an upside volatility expansion. Such was the case when we saw this pattern develop in early 2016 in the bean meal market. This strongly indicates that grain markets should see a bullish turning point in the first quarter of 2017.

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Steady buying into flat grain markets bodes well for higher prices. A secondary buy signal nears.

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Executive Summary SOFTS-Smart Money

A surge in smart money buying in the Softs above the prevailing resistance line bodes well for a first quarter bullish turning point for the group. While a buy signal has not yet been reached, this kind of aggression would argue for one to be triggered soon.

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Strong buying above resistance bodes well for a 1st quarter bullish turning point

The Hackett



Executive Summary Live Stock-Smart Money

Heavy smart money selling in the livestock complex has triggered a major sell signal which would argue for a first quarter top in prices.

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Strong smart money selling in the livestock group has triggered a smart money sell signal. This bodes well for a first quarter top in this group.

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CORN PRICE ANALYSIS-Smart Money Oscillator

Smart Money Indicator

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Corn smart money buying into a flat market is very bullish for a first quarter bullish turning point. We are within a whisker of triggering a secondary buy signal

Smart money oscillator is currently in neutral

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Smart Money summation: Our smart money oscillator is currently in neutral territory while our smart money indicator has seen buying into a flat price corn market. This buying has almost generated a secondary buy signal. This kind of pattern is rare but also very bullish for an eventual upside price breakout. We are guided by the $3.60/bu area which represents the 200 dma as the key trigger for a bull market move in corn. Any weekly and ideally monthly close above this level would be a major technical buy signal.

Fundamental Summation: La Nada weather pattern according to recent models is about to flip back from wet to dry in Brazil from late January 2017 through February 2017. This would place 30% of first crop corn and put into jeopardy the planting of the all important second safrhina crop corn. There is no ability for Brazil to have anything but a good corn crop this year given last year’s corn crop disaster and complete drawn down of buffer stocks. What is amazing to me about corn is that despite another large US corn crop stocks to usage both globally and domestically fell year over year.

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Watch the $3.60 area of the 200 dma for a major technical buy signal

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What happens when the US has less than a great crop on lower acres? Very hard to see the bearish case with global demand ripping to the upside. Remember, it is our view that last year’s US corn crop has been way overestimated by the USDA. They will begin to make downward adjustments in futures quarterly grain stocks and quietly increase domestic consumption as they have already been doing. The US ending stocks in our view will come in much lower and be an additional bullish driver for the rally we see beginning shortly. It could very well be one of the reasons why smart money is buying corn in such an aberrant fashion currently.

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Global stocks and US stocks to usage ratio both fell last year despite record global production. Very bullish

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Quarterly Corn Oscillator

The above chart is of our quarterly oscillator buy signal over the last 45 years. As you can see, they have been great long term markers for major lows in the corn market. The current oscillator pattern has an explosive wedge pattern developing that is on the verge of triggering a major technical buy signal. Any such confirmation would likely be the harbinger for a meaningful bull market in corn.

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Our quarterly oscillator is nearing a major bullish breakout. Lots of room to the upside on any confirmation

The Hackett



SOYBEAN PRICE ANALYSIS-Smart Money Oscillator


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Smart money has been uninspiring in soybeans with little direction

The smart money oscillator has failed to trigger a buy signal thus far.

The Hackett



Smart Money summation: There is no signal being generated in either the smart money oscillator or the smart money indicator. Of the entire grain complex smart money in soybeans is the only one showing a bearish bias. Soybeans have been flirting with breaking down below the 200 dma at $10.20/bu. It will be important for soybeans to regain this level by month’s end to keep the current bull potential alive. For Bean meal smart money remains more bullish and constructive.

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The 200 dma has been breached on soybeans giving bulls cause for alarm

The Hackett



Quarterly Soybean Oscillator

The quarterly soybean chart shows a bullish reverse head and shoulders pattern that is near completion with the quarterly oscillator at support after breaking out last year. This should support another bull run higher into the summer months.

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The quarterly price chart appears to be developing a reverse head and shoulders bottom while the oscillator is at major support. This is a critical area for soybeans to bottom.

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Fundamental Summation: The theme for soybeans is the same as it is for corn. Despite record crop production demand keeps growing just as fast if not faster and preventing any bearish rise in global stocks to usage ratio. World soybean acres need to keep rising to insure that even in a bad production year supplies can still fill the gap. Currently, soybean prices are set up for very large acreage increase in both the US, South America (next season) and in China. This will keep soybeans well bid to insure this point but will also provide for a ceiling to higher prices should yields remain on the high end. As always, soybeans will remain very sensitive to any weather problems as there is simply no room for a short crop given never ending runaway demand. We prefer to be more bullish those markets that will lose acres over the next crop cycle like corn or wheat as the bullish burden to overcome is simply easier to attain.

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Bean meal thus far has been unable to break out above the 200dma near $330. This keeps this market on the defensive

The Hackett



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Despite bin buster US and global production over the last 3 years, global stocks to usage ratio has not risen owing to insatiable global demand

The Hackett



Smart Money Bean Meal Smart Money Oscillator

Smart Money indicator

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There has been very little movement in smart money for bean meal as the “whack a mole” basing pattern continues.

Oscillator has been doing very little lately.

The Hackett



Quarterly Bean meal Oscillator

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Similar to soybeans bean meal appears to be developing a reverse head and shoulders pattern on the quarterly chart while the oscillator is near major support. It is important to hold $300 support

The Hackett



CBOT WHEAT PRICE ANALYSIS-Smart Money Oscillator


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The double smart money buy signal the second strongest in history strongly supports a major bull move

The recent oscillator buy signal bodes well for higher prices.

The Hackett



Smart money summation: The second strongest smart money buy signal of all time and the recent smart money oscillator buy signal bodes well for higher prices. Look for a move to test the 200dma near $4.30/bu to test the readiness of the bull market we see happening in 2017.

Fundamental Summation: Similar to soybeans and corn despite bin buster crops in the US and globally the last few years global stocks to usage ex-china for wheat has fallen back to 2013 levels and is just a tad higher than they were during 2012 when prices punched north of $8/bu. What this is saying is that the bearishness on the wheat market is predicated on large Chinese supplies that have not and will not be available to the market place. In a pinch, Chinese wheat supplies will not help would-be buyers of good quality wheat. In fact, China remains an importer of wheat and is actually buyer more wheat from the US this year than it has over the last 2 years. When the above realization becomes real to the market the upside adjustment for wheat prices so going to be very severe.

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Look for a rally to the 200dma to test the bull’s readiness here.

The Hackett



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Global wheat stocks to usage ex china are back to 2013 levels. Bullish

Chinese imports of US wheat has reached 3 year highs

The Hackett



Quarterly Wheat Oscillator

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The recent quarterly oscillator buy signal and break of the multi-year downtrend line bodes very well for an imminent beginning of a major bull market.

The Hackett



COTTON Price Analysis-Smart Money Oscillator


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Smart money has been very quiet and remains close to a sell signal

Smart money oscillator remain bearishly positioned

The Hackett



Smart Money summation: Both our smart money oscillator and smart money indicator remain bearishly positioned. A new smart money sell signal looks imminent and would be a call to action to sell. Strong supports reside at the 200dma near $.67/pound.

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Fundamental Summation: Cotton demand continues to suffer due to the weakening global economy and preference for synthetic fiber. Synthetic fiber however is starting to cause environmental hazards in China as several plants have had to shut down as a result. Have we reached the tipping point for sustainable synthetic fiber production? Bottom line is the 2 data tables below depict, china keeps destocking, the rest of the world ending stocks are stable although stocks it usages have been on the rise due to weakening demand while the world is short of high quality cotton of which the US is the prime exporter. This has kept a strong bid for US cotton as a result but prices can only trend so high before buyers pull back. With increased US acres likely it is hard to make a fundamental bull case for cotton beyond March 2017.

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Prices remain above the 200dma keeping cotton in a bullish posture.

The Hackett



Quarterly Cotton Oscillator

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Quarterly oscillator has broken out to the upside which projects a further rise in price

China destocking while the rest of the world remains stagnate with rising stocks to usages

The Hackett



COCOA PRICE ANALYSIS-Smart Money Oscillator


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The double oscillator buy signal bodes very well for a sharp snap back rally

While no buy signal yet the vertical smart money buying into major chart support suggests a large snap back rally.

The Hackett



Smart Money Summation: Aggressive smart money buying coupled with a double smart money oscillator buy signal against major longer term support projects a sizeable snap back rally in the weeks ahead. Also cocoa prices have fallen to an historic deep discount to the 200dma which has supported bottoms in past years. Too early to say a major bottom has formed as we would want to see a smart money buy signal for that but enough to say a meaningful snap back rally is likely in store. We think after the snap back rally completes a complex basing pattern will develop.

Fundamental Summation: La Nina has always produced big crops in Africa and was the basis for our bearishness a year ago on top of an extreme overvaluation and very poor smart money. La Nada that we are now heading into should provide weather that is less friendly. With prices having already crashed 40% from their highs near major chart support and improved smart money buying we are no longer a bear in this market. We think demand which had been under pressure for many years will show much improvement and add to the more bullish La Nada weather pattern. Remember that global stocks to usage remain historically tight in this market so any disruption to production cannot be tolerated. We think one should begin protecting upside risks at this time.

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Deep discount to the 200dma supports a large rally

The Hackett



Quarterly Cocoa Oscillator

A major quarterly oscillator buy signal supports the beginning of a basing pattern of which a near term snaps back rally would be in order.

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A major quarterly oscillator buy signal has been triggered in this market. This should be the start of a major basing pattern.

The Hackett



SUGAR PRICE ANALYSIS-Smart Money Oscillator


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The extended smart money oscillator buy signal warned of an eventual snap back rally

Recent smart money has been buying but no buy signal yet.

The Hackett



Smart Money Summation: An extended smart money oscillator buy signal against decent smart money buying increases the odds for a snap back rally. The ability for the market to close back above the 200dma average keeps the bull alive for now in this market and supports a further near term rally.

Fundamental Summation: While we are bearish long term demand for sugar as the world fully understands and is moving away from excessive sugar consumption the rate of decline will be a slow moving train in the beginning. The move into La Nada supports a more adverse global weather pattern at a time that global stocks to usage remain on the tighter side of historical precedent. All eyes are on possible Brazilian dryness into late January/February 2017 in sugar areas to reduce what was supposed to be record production. With India running a large sugar deficit last year it will be imperative for sugar production there to rebound so a move away from La Nina to La Nada would throw question marks into that potentiality. For now we do not see much to do in sugar but watch. The bears failed to take the market down and the bulls are back in control but we are not certain they will be successful either.

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Sugar prices closed back above their 200dma providing a strong near term buy signal

The Hackett



Quarterly Sugar Oscillator

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The quarterly oscillator for sugar has a history of setting double tops before a final top is placed. The secondary price top has also tended to occur at a higher level than the first top. Thus we would expect the possibility of a move to new highs to occur on the current rally attempt to give us an additional oscillator sell signal

The Hackett



Coffee Price Analysis-Smart Money Oscillator

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Market can ill afford any production setbacks should La Nada remain in place

Smart money oscillator has triggered a strong buy signal. This supports a near term rebound in prices

The Hackett




Smart Money Summation: A strong smart money oscillator buy signal against a strong surge in our smart money indicator bodes well for a near term rally to unfold. While prices had temporarily closed below the 200 dma by the end of December the move back above that level could reignite the bull market in coffee and keep it alive.

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Strong smart money buying recently bodes well for a rally attempt.

The Hackett



Fundamental Summation: Can the coffee market in Brazil navigate through the supply/demand imbalance brought on by the escalating Robusta coffee shortage between now and the summer of 2017 with buffer stocks fully depleted? Will Mother Nature remain kind allowing for Brazilian production to be good enough? We believe the answer to both is likely not. A La Nada weather pattern in Brazil means a greater chance for drought to remerge hurting 2017 output potential and the flooding rains in Vietnam during harvest which has not only reduced further the 2016 Robusta crop but has also hurt prospects for the 2017 crop will further support greater demand for low quality Brazilian Arabica and provide for an unmanageable tightness until 2017 harvest supplies become more available later on in the summer. Our Brazilian cash differential ratio has triggered a major buy signal over the last few weeks giving credence to this cash tightness thesis and subsequent secondary rally attempt. Of even more importance is the increase in cash differentials during the rise in prices this week which is highly unusual. End users should be protecting upside price risks.

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Look for a sustainable move back above the 200dma to rekindle the coffee bull market

The Hackett



Quarterly Coffee Oscillator

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The coiling pattern of the quarterly oscillator suggest a bullish break out coming

The Hackett



Brazilian Cash Coffee Differential Ratio

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Major cash differential buy signal has been reached on the move above .90. This is the first buy signal since the coffee bottom in March 2016

The Hackett



Lumber Price Analysis-Smart Money Oscillator


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The huge surge in smart money bodes well for a break out rally

A renewed smart money buy signal has been triggered boding well for a new short term rally

The Hackett



Smart Money Summation: With the smart money oscillator having triggered a buy signal and aggressive buying of our smart money indicator the odds favor a renewed rally in the weeks ahead. With lumber prices having moved back above the 200dma a new technical buy signal has been triggered that should support another rally to the highs.

Fundamental Summation: Please read the following as it goes over the timeline for what could be an explosive event driven spike upwards trade. January 9th is the first key date that could bring in some upward price fireworks with regards to the US/Canadian lumber trade war. Protecting upside risks with call options and call options spreads makes sense to us at this time Stay tuned.

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The break back above the 200dma is very bullish for higher prices

The Hackett



Lumber Trade Wars on the Horizon GUEST CONTRIBUTOR

- December 29, 2016 6:00 AM |

Categories: Commodities, Guest Post, Industry News, Price Forecast | Tags: Guest Posts,IHS Markit

Spend Matters welcomes this guest post from Deni Koenhemsi, senior economist at IHS Markit. This trade case, regardless of its conclusion, will cause heightened volatility and increased prices. We recommend placing orders before the year ends, as prices will escalate further at the beginning of January 2017. On November 25, 2016, the U.S. Lumber Coalition submitted a petition to the U.S. Department of Commerce and the U.S. International Trade Commission, asking for relief from what it described as "Canadian subsidies and dumping."

This move was highly anticipated. The softwood lumber agreement that governed the softwood lumber trade between the two countries came to an end after nine years in October 2015. There was a standstill period for another year, during which parties could not file any trade cases against each other. Although Canada and the United States continued to negotiate for most of the past year, they could not come to an agreement by October 13, 2016, when the standstill period ended. Thereafter, the two sides were permitted to petition for a trade case. The lumber trade between the countries, which was tightly managed previously, had a full year of no tariffs or quotas. The resolution of trade cases is hard to predict, but the uncertainty is especially high during the transition to Donald Trump's presidency. During his campaign, the president-elect voiced protectionist trade policies, including policies against North American Free Trade Agreement (NAFTA) members. However, details on those policies have yet to be given. What is the timeline for this process?

The U.S. International Trade Commission (ITC) is scheduled to make its preliminary judgement on January 9, 2017. If the USITC rules in favor of the petitioners, indicating there is material injury to domestic producers, the Department of Commerce will continue to investigate and is likely to make its preliminary countervailing duty determination towards the end of February and antidumping determination towards the beginning of May. Therefore, the timeline points toward increasing price pressure for the spring months, as a result of possible CVD and AD measures coupled with rising construction activity. The trade case does not end there. Canada is then expected to petition for appeals through NAFTA or the World Trade Organization. Why was last year so important?

This is a textbook trade case with a long history. However, discussions got heated last year as Canadian softwood exports to the United States increased significantly after the agreement elapsed. According to the U.S. Department of Commerce, in the first nine months of 2016, the quantity of spruce-pine-fir (SPF) imported from Canada increased by about 30% (although it remains below pre-recession levels). A significant part of imported lumber is used for framing in the United States. Thus, cheaper prices and higher imports from Canada put a lid on U.S. softwood lumber prices as demand from rising housing construction increased. So perhaps you purchase softwood lumber, or it is an input cost for your product. How will this trade case affect you? The markets have responded to the initiation of this petition. Prices for British Columbian Spruce-Pine-Fir increased 5% after the filing of the petition. This increase came on top of already high prices. Although, there was some give back in the last two weeks, we expect higher pricing in the run-up to the USITC's preliminary decision. Therefore, it is best to put in orders this week and the first week of January. We expect higher prices in the first and second quarters of 2017 for Canadian lumber. For U.S. lumber, the pattern will be similar. Higher prices and possibly lower quantities of Canadian lumber would support higher prices for species such as Southern Yellow Pine and Douglas-Fir. However, it is important to remember that there is still some time before this trade case reaches any preliminary conclusions. Now is not the time to accept large price increases. Raw material price increases or price drops do not transfer 1-to-1 to intermediate goods. If you have not seen any price drops from your softwood lumber inputs in 2015 and in the first few months of 2016, you still have time to negotiate against price increases.

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The Hackett



Quarterly Lumber Oscillator

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Lumber prices still have room to run during the first half of 2017 before triggering a quarterly oscillator sell signal

The Hackett



Oats Price Analysis-Smart Money Oscillator


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Surging smart money buying into a flat pricing market is super bullish just like we are seeing in the corn market

Our smart money oscillator currently is in a neutral position

The Hackett



Smart Money Summation: A recent smart money buy signal bodes very well for new rally highs in the months to come while our oscillator has entered a neutral state. Strong resistance resides in the $2.40 area which we believe will give way to the $2.80/$3.00 target area that should be achieved by pre planting season.

Fundamental Summation: I will repeat what I said in the last report as the story remains the same: Oats supplies are going to be near record tight in North America and a large increase in planted acres is a must in order to assure adequate production for the 2017 growing season. Current prices are not going to do that. We believe that it will take closer to $3/bu oats to garner the acres required in North America. End users should be protecting upside risks.

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Oat remains well above the 200dma and remains in a very bullish position

The Hackett



Quarterly Oats Oscillator

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The quarterly oscillator has just broken out of a basing pattern that projects a major move to the upside. Oats has $3/by written all over it.

The Hackett



Orange Juice Price Analysis-Smart Money Oscillator


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The recent oscillator buy signal supports at least a short term rally attempt

Smart money buying has begun but remains well below triggering a buy signal

The Hackett



Smart money Summation: Our smart money oscillator remains in a buy signal construct while our longer term smart money indicator has started to see some aggressive buying. This should allow for at least a near term rally to emerge. Strong support resides near the 200 dma at $1.80/pound.

Fundamental Summation: Florida frost…will there be or not be that is the question. Thus far Florida has been blessed by a tropical air blocking pattern that has kept the cold air from up north from coming in. It is still too early to give up on a frost just yet but with each passing week the odds begin to work against the OJ market from rallying to new highs. I will repeat what I said in the last report. “The more time that passes by the more that crashing US demand is catching upon with tight US supplies and stabilizing US production levels. Time also will allow an improved Brazilian crop to enter the market as harvest winds down and is completed by January 2017. Already we are seeing dramatically increased Brazilian OJ exports into the US that are increasing US ending stocks from last year’s tight levels.

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Strong support near the 200dma should hold for now.

The Hackett



The combined effect should begin to increase US OJ inventories beyond the comfort zone and take the edge off of the current US shortage with a much lower pricing structure.” We would be protecting downside risk and aggressively do so on any frost spike trade that may still emanate. Quarterly OJ Oscillator

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A major oscillator sell signal was recently triggered giving cause for a major top

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Rice Price Analysis-Smart Money Oscillator


Our smart money oscillator remains bullish and is near another buy signal

The recent smart money buy signal the 2nd strongest of all time projects a monster up move ahead

The Hackett



Smart Money Summation: Our smart money oscillator is near a buy signal while we are lock a loaded in a major buy signal for our smart money indicator for a major bull move. Over head resistance remains in the $10.30/hwt area which is the 200 dma. Any close above this level would likely set off a major bull market move.

Fundamental Summation: Last report we went over the bullish US rice price implications of what should be a very large contraction in US planted acres this spring. But that is not really what we have been forecasting. What we have been forecasting is bull market in world rice prices that will levitate US prices far beyond locally driven fundamental factors. The key is to try and figure out when/if India will begin to withdraw from massive global rice exports. For the better part of 4 years they have been willing to export 10mmt of rice or more. We believe that this has come at the expense of meaningful draw-downs in Indian rice stocks. Last March 2016 the USDA and India magically decided to knock domestic demand down and subsequently increase ending stocks. This odd slide of hand took ending stocks back up and put further out into the future the moment of reckoning for them.

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Look for a run to the 200dma in short order

The Hackett



We are very suspicious of this move and do not see the basis for demand weakness and in fact see the basis for demand to be stronger than was originally expected with the current and ongoing wheat supply cries that had India becoming a large importer from a large exporter over the last 12 months. With wheat prices in India skyrocketing and rice prices remaining stagnant to down there almost assuredly is an increase in demand for rice within the country. When we run the numbers from the February 2016 report should India continue on their 10mmt export pace the level of ending stocks would fall to dangerously low levels. If our thesis is right about this then at some point over the spring/summer of 2017 India will begin to see spiking rice prices domestically and talk of rice shortages around the country. Any indication of this, similar to what has been seen with wheat this past year, would begin to have the market question the validity of the current numbers and begin to project a much tighter situation. We do not believe that India will be able to keep the 10mmt rice export pace for the duration of 2017 if our numbers are correct. With a potential La Nada providing more challenging weather for India in the summer of 2017 would only pour further octane and to a raging forest fire. So our view is that rice prices will likely begin to rally initially on lower US rice acres and then Asian rice prices wail begin to rally on fears of tighter India rice supplies and reduced export potential. As such end users should be protecting upside risks.

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Quarterly Rice Oscillator

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The quarterly rice buy signal has triggered one of the most extreme buy signals seen since 1988. This is cause for the beginning of a major bull market

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Milk Price Analysis-Smart Money Oscillator


Smart Money Summation: Both our smart money indicators have triggered sell signals that argue for a first quarter top and correction into the spring of 2017 timeframe. Strong support resides near $15/hwt at the 200 dma. It appears that the typical seasonal weakness from December into early February may have taken hold that could then be followed by a resumption of the spike trade into March/April 2017 to place the first half top.

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A new smart money oscillator sell signal argues for a correction into January 2017

The recent smart money sell signal argues for a first quarter top and correction into the spring 2017

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Fundamental Summation: There is really nothing new to report on milk. Global production remains at or below 2014 levels as global prices have been surging as a result. The only area in the world where production is strong is in the US and that fact when compared to the typical holiday fall off in demand could allow the US milk price to correct into their seasonal late January to early February lows. We would not view such a correction as the end of the bull market in milk or the final top. Our target window for a first half top as we discussed in out last report is the Late February/March 2017 timeframe. So either the pause in the spike trade is going to remerge now and move to new highs or the current correction is going to gain steam and lead to a late January to early February low to then lead to a new spike trade back to new highs. We have continued to suggest placing floors under the market to guard against a sharp early year correction and still feel that is the best strategy on top of having initial cash sales on the books. We are watching an analog that has been running greater than 87% to the years 2014 and 2005.

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Strong support resides near the 200dma in $15 area.

The Hackett



If this analog were to be verified it would support a sizeable January 2017 rally to begin by the end of next week and support and escalation of the 4th 2016 quarter spike trade rally. We won’t have to wait long to see which path the milk price will be on.

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Will this analog continue to remain true to future price direction in milk? If so it would support our February/March top thesis time window

The Hackett



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Our quarterly oscillator has not reached major sell signal territory which suggests that there is more upside for milk prices later in 2017

The Hackett



Live Stock Complex-Smart Money Oscillator


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Renewed smart money selling and lack of a smart money buy signal support a first quarter top

Oscillator remains in neutral territory

The Hackett



Smart Money Summation: With renewed smart money selling, no sell signal in sight and a neutral oscillator the odds favor a first quarter top. Strong resistance resides neat $1.40/pound at the 200dma.

Fundamental Summation: We are looking for signs that Feeder cattle are outperforming live cattle prices which have always begin at the beginning of a major bull market move in live cattle prices. We know that Feeder cattle prices lead those of live cattle so this is the market we want to analyze for a major bullish turning point. Unless China get‘s into the act and imports a lot of US beef we do not see a favorable environment at the moment with abundant domestic supplies and shrinking US domestic demand. China lifted their 13 year ban on US beef imports but it will likely be a slow process to rekindle this export channel. If our bullish grain forecast plays out later this year then we would expect additional bearish head winds from herd liquidation. We think a more extensive basing building period is in order for cattle prices and see that period from the fall 2017 in 2018 as the appropriate time to expect a major bullish turning point.

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The Hackett



We feel the path of least resistance is to the downside right now and would encourage producers to protect downside risks Quarterly Feeder Cattle Oscillator

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A major quarterly oscillator buy signal has been triggered which support the forming of a major low in feeder cattle prices in 2017.

Feeder cattle prices not leading the recent rally in cattle prices. This does not support a major bull market move at this time.

The Hackett



Lean Hogs-Smart Money Oscillator


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Oscillator is in neutral territory and heading towards a sell signal

Aggressive smart money selling argues for a first quarter top

The Hackett



Smart Money Summation: There has been no sell signals generated yet from our smart money indicators on the recent rally but aggressive smart money selling recently supports the forming of a first quarter top. Strong support resides near $.66/pounds which is the 200 dma

Fundamental Summation: While we do believe that lean hog prices have made a final bear market low near $.40/pound, we do not yet believe that the blistering 30% rally off the lows is the beginning of a sustainable bull market just yet. Large increases in US supplies later in the year against weakening US demand and the likelihood of herd liquidation headwinds if our bullish grain forecast plays out suggests that a first quarter top is in the making. Similar to cattle we see the 4th quarter of 2017 into 2018 as the likely timeframe for a new sustainable bull market move.

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Lean hog prices have marginally broken above the 200dma. Any failure to hold this break out could lead to a violent sell off

The Hackett



Quarterly Lean Hog Oscillator

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Te recent major oscillator buy signal supports that a final bear market low has been achieved.

The Hackett



Hackett Financial Advisors Inc. specializes in the agricultural space where there is far less coverage by the commodity analyst community and where some of the greatest opportunities should remain in the years ahead. While everyone on the planet has an opinion on Crude Oil or Gold there are very few who study agriculture in the manner that we do. We would be happy to see if opening an account with us would fit your needs whether as a commercial operator and/or a professional investor/firm. Apply for an account online with the following link: https://www.hackettadvisors.com/Account_Open.asp We also put God first in our dealings with you and our approach to the markets. Our heart is in the right place and through is honor and grace great things are possible. We take the view that the more successful you are the more you can give back to those in need. It hardly makes any sense to do it for any other reason.

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https://www.hackettadvisors.com/Account_Open.asp�

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Also remember that you can also open an account with us at Hackett Financial Advisors Inc. We clear all our operations through R.J. O'Brien & Associates whcih is the oldest and largest independent futures brokerage and clearing firm in the United States. A futures commission merchant (FCM), RJO is a full clearing member of: the CME Group (founding member of the Chicago Mercantile Exchange) and all its markets; IntercontinentalExchange (ICE); NYSE Liffe U.S.; and the CBOE Futures Exchange (CFE).

RJO offers the latest in order entry technology coupled with 24-hour execution and clearing on every futures exchange worldwide. Clearing more than 100,000 client accounts, the firm provides a full range of services to the industry’s largest global network of introducing brokers (IBs) and to commercial, institutional, international and individual’s clients. These include more than 400 IBs and many of the world's largest financial, industrial and agricultural institutions. We do not engage in proprietary trading; all of our business focuses on our valued clients.

Founded in 1914, RJO is one of the last 'boutique' futures firms in the industry. It is a privately held business majority owned by the O'Brien family of Chicago. The O'Briens have been instrumental in the development of the futures industry and remain committed to the continued growth of the company and our leadership within the industry.

With client assets of approximately $3.6 billion, RJO is a well-diversified, fully integrated FCM. The firm regularly captures top-tier market share in both agricultural and financial futures products at both the CME and CBOT

Our Place in the Industry

If you have any questions about any of the content in this report, please call me at (888) 535-5525 or e-mail me at [email protected] . Thank you for reading and I hope your future investment decisions turn out to be prosperous ones.

Best Regards,

Shawn Hackett, President

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mailto:[email protected]�

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The information, tools and material presented on HACKETTADVISORS.COM (this web site), in the HACKETT MONEY FLOW REPORT and in the HACKETT STOCK REPORT are provided for informational purposes only and are not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or other financial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products or other financial instruments. The information presented on HACKETTADVISORS.COM (this web site), in the HACKETT MONEY FLOW REPORT and in the HACKETT STOCK REPORT is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities mentioned on HACKETTADVISORS.COM (this web site), in the HACKETT MONEY FLOW REPORT and in the HACKETT STOCK REPORT. The use of HACKETADVISORS.COM is at your own sole risk. HACKETTADVISORS.COM is provided on an "as is" and "as available" basis. Hackett Financial Advisors, Inc. makes no warranty that HACKETTADVISORS.COM will be uninterrupted, timely, secure or error free. No charts, graphs, formulae, theories or methods of securities analysis can guarantee profitable results. This document does not purport to be a complete description of the securities or commodities, market or developments to which reference is made.

The information contained in HACKETTADVISORS.COM (this website), in the HACKETT MONEYFLOW REPORT and in the HACKETT STOCK REPORT has been taken from trade and statistical services and other sources, which we believe are reliable. Hackett Financial Advisors, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. The HACKETT MONEY FLOW REPORT and the HACKETT STOCK REPORT are written as weekly tools to help investors make better financial decisions. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of Hackett Financial Advisors, Inc. and others associated or affiliated with it may recommend or have positions which may not be consistent with the recommendations made. Each of these persons exercises judgment in trading and readers are urged to exercise their own judgment in trading. Past Performance is not indicative of future results. . FUTURES AND COMMODITIES TRADING AND STOCK INVESTING AND TRADING INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR EVERY INVESTOR. INFORMATION CONTAINED HEREIN IS STRICTLY THE OPINION OF ITS AUTHOR AND IS INTENDED FOR INFORMATIONAL PURPOSES AND IS NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION TO BUY OR TRADE IN ANY COMMODITY OR SECURITY MENTIONED HEREIN. INFORMATION IS OBTAINED FROM SOURCES BELIEVED RELIABLE, BUT IS IN NO WAY GUARANTEED. OPINIONS, MARKET DATA AND RECOMMENDATIONS ARE SUBJECT TO CHANGE AT ANY TIME. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS.

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This material has been prepared by a sales or trading employee or agent of Hackett Financial Advisors Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by R.J. O’Brien’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Hackett Financial Advisors Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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