🔴 African Swine Fever’s Effects on Meat Markets & How to Play It (w/ Shawn Hackett)

JAKE MERL: Welcome to Trade Ideas. I’m Jake Merl, sitting down with Shawn Hackett,
President of Hackett Financial Advisors. Shawn, it’s great to have you back on the
show. SHAWN HACKETT: It’s really good to be back. We said we’d talk about African swine fever
again, and here we are. JAKE MERL: African swine fever, you’ve been
covering this topic for the better part of the past year. You’ve been on Real Vision several different
times talking about it, but just for the viewers that may not be familiar with the situation,
can you please break down what exactly is going on with African swine fever and how
it’s affecting the global pork industry? SHAWN HACKETT: Well, it’s a disease and it
impacts pigs. It causes sudden death within 10 days, and
it’s highly contagious. It can be found in food and water, and it
just once it gets going, really, really hard to contain it. China got this disease last August. It spread almost every single province that
they have, and it’s caused 35% of their Hoggard to be slaughtered. That’s just unheard of. We’ve never seen anything like that. Because of that, we have this huge hole in
the meat protein global supply chain. It’s also spread to Vietnam, and most of Asia
now is dealing with the problems of African swine fever. The issue not is there a problem? The issue is, what do we do about it? We’re starting to see that proliferate with
some skyrocketing pork prices and meat protein prices in China right now. JAKE MERL: Is this problem getting worse? Is it getting better? You said the disease was actually spreading,
what’s going on right now? SHAWN HACKETT: Well, it did get worse from
the last time we were here. It has spread to all major Asian countries,
especially Vietnam, which is a huge pork consumer. In terms of China, I won’t say it’s gotten
any worse, it hasn’t gotten any better. We’re now in the recognition phase of them
realizing the magnitude of the problem, and having to do something about it. Their imports of pork, their imports of chicken,
their imports of beef are just skyrocketing, and there’s really no way that’s going to
change for the foreseeable future until they can rebuild their herd, and hopefully find
maybe a vaccine to never let this happen again. JAKE MERL: This disease affects the price
of pork, but you’re saying there’s also an effect with the supply and demand dynamics
for chicken and beef as well. Can you talk about that, please? SHAWN HACKETT: Well, there’s the psychological
part. The psychological part of I don’t want to
eat infected pork. Even though you say it’s safe, I don’t believe
you, I’m just going to eat clean chicken, clean beef, clean fish, and I’ll wait around
for this problem to be solved. There’s that part. The other part is, there’s not enough pork
in the world for them to import to cover the gap. In order for them to actually fill the gap,
they’re going to have to reach out to other meat proteins to handle the total problem. It’s an all in meat protein connectivity issue,
not just pork. JAKE MERL: This is a meat protein bull market
in general, from pork to chicken to beef, and you actually recommended a few different
ways to play the setup. You went long companies like JBS, Pilgrim’s
Pride, Australian Agricultural Company. How have these trades worked out over the
past 6 to 12 months? SHAWN HACKETT: JBS, we mentioned late in 2018
in our interview and it’s more than tripled in value. I think it could go higher, but in terms of
the value play, no longer something that I’m interested in. Pilgrim’s Pride, which we talked about here
in April, is already up 40% from when we were talking about it. Once again, I still think it could go a little
higher, but probably not the best entry for it. Australian Agricultural Corporation really
hasn’t done anything. The drought is still ongoing there, which
has hurt the company’s performance, but I do believe it’s still a good buy. I would continue to look at that as good investment
going forward. JAKE MERL: Would you say investors have missed
the boat here? Is the party already ending, or do you think
there’s room to run with some of these names? SHAWN HACKETT: Well, you certainly missed
the early part of the party. As they always say, you don’t want to be the
last one to leave. I don’t think we’re at that point yet. I think we’re still in the middle part of
the party, where there’s still opportunities, there’s still things to be done, there’s still
value to be had, but a little differently, a little further on the chain than what we
originally discussing when we first talked about this. JAKE MERL: How do you suggest traders and
investors play the current setup? SHAWN HACKETT: Well, we’ve had this massive
bifurcation with international price, Chinese price, and the US price. Right now, we’ve seen pork prices in China
literally go parabolic to the highest levels in history. The US pork price has been absolutely crushed,
crushed, going from 90 cents a pound down to 60 cents a pound, mainly because of the
breakdown of the China trade war, or negotiations in May, and the escalation of the trade war. Then the Chinese coming out and say that we’re
encouraging no one to buy US agriculture right now until we get resolved. Because of that, they pulled back on buying
US pork and so we have this huge dislocation. It can’t last, it won’t last so there’s an
opportunity there. We think that’s one interesting pocket of
value that is enveloped here in the last 3 or 4 months that we think one should be able
to participate and do well with. JAKE MERL: Would you be shorting Chinese pork,
going long US pork? How do you take advantage of that opportunity? SHAWN HACKETT: Unfortunately, there’s no futures
market in China to do that with, and we’re reticent to really go long futures and stuff,
because as we talked about before, what if African swine fever was found in the United
States. We just don’t want to be in a position to
be in a leveraged investment with that risk out there. Having said that, we do think there’s an interesting
way to play this with a company called Seaboard, S-E-B is the symbol, trades in the New York
Stock Exchange. It’s a 100-year-old company. They’re the second largest pig producer in
the United States and the fourth largest processor in the United States. If you lay a chart of Seaboard stock price
against the futures price of Hogs, there’s a very high correlation of how those two markets
run together or run back and forth to each other. We think that that is a very interesting way
to play this current depressed US price to owning Seaboard, $6 billion company, pays
a nice dividend, pristine balance sheet. They have other businesses in marine transport. There’s other things going on here and we
think this is a lower risk way to play a big rebound in US prices when eventually demand
comes back to fill this pork protein hole that we’ve been talking about. JAKE MERL: In terms of the actual stock price,
how much upside are you expecting? SHAWN HACKETT: Well, right now, if you look
at the chart, we’ve had this quadruple top that we developed. We think that on this next run higher import
prices, we’re going to break through that level, and really make old time highs in the
stock. We think the stock can run up to $6,000. Yes, $6,000 per share. It’s one of those higher price stocks, but
we think that’s a pretty good target price from where we are now around $4,000, $4,200
is where we are right now. JAKE MERL: What would you say is the biggest
risks that trade? Is it simply the fact that African swine fever
could come here to the United States? SHAWN HACKETT: I would say that really is
your biggest risk, really biggest systemic risk. Yes, the economy could go bad. Yes, the China trade war could continue, but
that’s already priced in in our view, but if we do find African swine fever in our shores,
Seaboard’s going to get hit. JAKE MERL: In addition to playing the pork
prices here in the United States, are there any other ways you suggest traders to play
the current setup? SHAWN HACKETT: There’s an opportunity a little
further into the cycle and what it is, is because bean meal demand in China is down. Because if you have 35% less pigs to feed,
you have less need for bean meal, which is a huge component. That means that you’re crushing less soybeans
to make meal, but the other component of crushing soybeans is soybean oil. By the very nature, that bean meal demand
is going down and less crushes going on means that bean oil supplies are falling as a result,
yet demand in China and in India and globally, is making record highs by the day. What we call the stocks, the amount of oil
that’s out there, relative to the demand for that product is actually at the lowest level
since 1993. We don’t see that trend going away until they
start crushing more beans, or finding some other ways to make palm oil or some of the
other edible oils that out there. We think we have a situation where this proliferation
of African swine fever has gotten now to the point where this trade is now in play. JAKE MERL: How do you take advantage of that
situation? SHAWN HACKETT: We think that the best way
to do it is to own a large producer, plantation owner of edible oils, and processor. One of our favorites is a company called Wilmar
International. $50 billion company, just a dominant, dominant
company. I think they’re the second largest palm oil
plantation owner and dominant processor of bean oil into beans and such forth and so
on. Once again, if you lay their chart over the
chart of palm oil prices and bean oil prices, there’s a very high correlation meaning that
the stock price is pretty well leveraged to the price of that. Palm oil has been hit very, very hard over
the last 12 months and we made what it looks to be a double bottom pattern. It looks like we’re just about ready to complete
that bottom. We feel that that’s likely going to happen
and as it does, the Wilmar chart also looks like once again, about a quadruple top, developing
bottoming pattern. Both charts look very similar that we’re looking
for an important breakout, which would be looking for all upside here. If you look at where Wilmar has gone before,
we think there could be a 50% up in the stock. We’re thinking the back half of 2020, that
may take a little time for this to develop, but we think there’s plenty of upside in this
stock over the next 12 months. JAKE MERL: What would you say is the biggest
risk to that thesis? SHAWN HACKETT: I would say the biggest risk
to that thesis is really the economy. Bean oil is something that’s used in baking
and frying. There is an economic component to it in terms
of restaurant, health, and how the restaurants are doing and so if there was an overall–
really, let’s say, a crash in Asian economies and where India and China are just starting
to use less of the product, that could be the biggest risk that we see in the stock. JAKE MERL: Well, Shawn, thanks so much for
joining us. It was great having you back on the show. Thanks so much for the update. SHAWN HACKETT: My pleasure. I look forward to do it again. JAKE MERL: Shawn is still bullish on meat
protein. Specifically, he likes buying Seaboard Corporation,
ticker symbol SEB, at current levels. He thinks the stock could hit $6,000 over
the next 12 months. In addition, Shawn is also bullish on Wilmar
International, ticker symbol WLMIY. He thinks the stock could go as high as $40
over the next 12 months. That was Shawn Hackett of Hackett Financial
Advisors and for Real Vision, I’m Jake Merl.

Author Since: Mar 11, 2019

  1. Trade war? Debt mountains? Hong Kong?
    No, I think mainland China's biggest problem right now may be this African swine flu, couple that with the massive lack of soybean due to the trade war and there may be an astronomical drop in farming output from China?
    The stunning arrogance and negligence of the CCP is going to drive them to ruin.

  2. yet another manmade created epedimic to create chaos. Thank you Deep State! Extinguish the 1% globalists before they wipe out Mankind!

  3. The trade war should evolve into a full embargo on everything against China. The enactment of Global Magnitsky Act against Chinese leaders and their associates should be the start.

  4. Yahh, right, and the lean hog index is down over 20% since late July and still dropping. Sounds to me like these two "gents" have several truckloads of hogs for sale and they want to unload those filthy pigs on you.

  5. Chinese move into Africa and swine fever spreads. Anybody think that is a coincidence? Is this really African? Spanish flu didn't start in Spain they were just one ones who were brave enough to speak out about the epidemic.

  6. How pathetic that they can't contain a virus. They are using Rx anti virals which are useless while herbal/mineral/other work well but are ignored.

  7. I've been talking about the Chinese food crisis for a while, and people keep telling me that I was dumb for thinking it, and I was spreading lies. LOLOLOLOLOL!!!

  8. The young psychopath can't hide his smile at the money he thinks he will make doing nothing and profiting from the worlds misfortune.

  9. Could you please learn how to be a decent human being and not parasite and play with people's livelihood for your personal gain?

  10. All these new viruses are Man Made in a laboratory!! Same as aids, Ebola, swine flu and most deadly disease!! Deep state together with big pharma and industrial military complex are creating deadly disease then bring new vaccines at higher prices!! Monsanto and GMOs destroy the Human immunity together with chemtrails spraying!! We're nothing but lab rats working to make these disgusting criminals richer and richer while they harm our children!! When these criminals have perfected they're robots we will no longer be needed to serve them!! They intend to destroy of the humans on this planet!! Russian government don't force they're citizens to be vaccinated!! It's the western govements who force vaccines on all children!! I'm British and I never have a flu vaccine!! I watched a program that said vaccines for older people contained three times the amount of a certain ingredient because the older peoples immune system is stronger against these vaccines!!! I believe this to be true!! How many young people living now will reach the age of 80/90 years old?? Not many is my guess!!

Related Post