Moving Iron: From weather forecasts to geopolitical conflicts, everything impacting your costs

I'm doing pretty good in a wild, wild period here since the weekend, to say the least.

Yeah, our thoughts continue to be that we're looking at a cold spring. We think some winterkill risks are high for the US. You know, as we get into, let's say, late March into late April, dry weather risks for Casey winter wheat areas out west is a risk. So if I was looking for weather-related catalysts, it would be winter wheat for this spring. Pretty hard to get too excited about corn and soybeans. You know, in that scenario, frost is usually not an issue that really tends to worry the market too much. The dry weather is going to be mostly west, but the I-states are going to be fine. So I don't anticipate anything there. Looking for a very good growing season for the US on an El Nino arriving. Pacific Decadal Oscillation is kind of weakening. The negative PDO is weakening, meaning it looks like it might be actually neutral to positive, which tends to promote a good growing season. But if I was to weigh any risks for the growing season, Casey, it would be excessive wetness in the back half of the growing season and a very, very wet harvest. I could see serious delays in harvest advancement, lots of crop quality problems. And obviously, just what you don't want to hear is a lot of potentially extra expense in drying down corn and things of that nature. But that's to me, if I'm looking at where would I be worried about weather for the summer growing season, it would be India, it would be China, and it would be like Southeast Asia and Australia, your rice, wheat country. You know, that's where I would be looking for potential for pretty hot, dry weather. And those could be issues that impact the market in the fall. And then usually what happens, Casey, is India and China in August start to assess their crop production potential. And if it doesn't look very, very good, China will increase their purchases and India will start holding back exports. So I think that any adverse weather for those regions wouldn't necessarily impact price over the summer. It would impact prices from the fall going onward.

Now, we're going to be in full El Nino mode for Brazil. El Nino for Brazil means an entire growing season. The first half and the second half are going to be extremely hot and dry for central northern Brazil, where the majority of soybeans and corn are now grown these days. So if you kind of look through the timeline here, very, very wet spring for the US harvest, drought developing for Brazil. Ramifications of short rice and wheat crops and potentially even corn crops for China, and increasing demand from China, reducing exports from India in the fall. The fall time frame onward seems to me to be where the next accelerator to the upside might be once we finish the uptrends that we currently have, Casey, going into the spring. Right now we've been riding geopolitics, which is going to continue to be there. We've been riding this optimism over China trade deal expansion, which I just read yesterday, everything is still on. There's no change in their meeting. They're going to be meeting with their underlings here next week, and that meeting is still going to happen. And you would have to believe some positive developments are going to come from that. And obviously there's been a lot of optimism over more beneficial rules for renewable energy policy domestically in the US. Those three factors should allow for some more upside, Casey, going into the spring. But in my view, given a good growing season for the US and a delayed reaction from China and India into the fall, you're going to want to make sure that whatever old crop bushels you don't have priced yet, you want to make sure you get them buttoned up by the end of the spring. And you want to make sure those bushels that you cannot store and those bushels, you know, you have to sell in August and September, that you make sure you get those bushels covered here in the spring. It's going to be pretty tough to get much of a weather rally from the US weather point of view after that, after the spring. So that's kind of the general idea here of what I think is going to happen. Geopolitics in terms of, you know, day-to-day, week-to-week, impossible to predict those moves. But we can talk about the longer-term cycles and why we're feeling that this period from now into the next three or four years is going to be an extraordinarily inflationary geopolitical period for hard assets, for energy, and for grain markets, especially wheat and rice. There's a long, long history of these cycles leading to some of the most accelerated moves to the upside when you get into them. That cycle started or starts in 2026. Oddly enough, now geopolitics are kicking in right on schedule. And they're really expected to accelerate into 2030. And we can...

Show a chart and what that has meant, and give people a bearing. Get away from day-to-day; understand the long-term trends. What it means is you do not want to forward sell any more bushels than you cannot store and that you have to sell to keep the farm going. You want to make sure you gear yourself, keep the top side open on your future production. You cannot miss a phase transition higher if that's what's going to occur, like it has in the past. And we can show in the chart what that looks like. So, okay.

Okay.

Let me know when you see it up and if it's looking okay.

Okay. So, this is — there's not a whole lot of commodities that have traded since 1860. Crude oil didn't trade in 1860. Natural gas didn't trade in 1860. A lot of things didn't trade in 1860, but wheat has. So, this is a chart of cash wheat prices. And there's a reliable cycle that every approximately every 27 years we get into what's called a geopolitical instability war cycle. And I, you know, for whatever reason, it takes almost three decades to harbor anger and discontent to where it leads into some type of a world issue that leads to all kinds of money printing, all kinds of trade flow barriers. Hoarding kicks in. Everybody wants to stockpile what they absolutely need.

And so this is just going over this cycle, Casey. So the first part of the cycle starts right here in 1861 when the US Civil War broke out. And you can see how the wheat price absolutely spiked higher during this four-year, approximately four-year period going into the peak when the Civil War started to back off. Twenty-seven years later, we got into the Spanish-American War, for those who remember it had to do with Cuba. And you can see that, you know, that was a situation in the 1890s and saw the wheat price head vertical. Not as big of a move as the Civil War move was.

World War I. Obviously, everyone I think is familiar with that. We also had the Spanish flu during this period of time, oddly enough, just like COVID. Spanish flu, World War One, and we had a wild spike trade higher in wheat, you know, that peaked right when World War I peaked. Twenty-seven years ahead got us into the late 1930s, early 1940s during World War II. Another wild spike trade, had the dust bowl that led into this, which was a wild weather volatility cycle. Then, 27 years ahead, we had the Vietnam war, the war over communism. We had the wild, wild spike trade in the early '70s when we had the what's called the Russian grain robbery, when Russia essentially bought the entire US grain ending stocks, especially of wheat, setting a wild price — by far one of the greatest accelerations in history.

Twenty-seven years ahead, we got into the September 11 attacks, the war on terror, the war in Iraq, and you know, had a wild price appreciation during this period of time. Um, and then 27 years ahead is 2026. I titled it the war over resources: Iran, Russia, Ukraine. I mean, we already know Russia, Ukraine. We've already established that unrest. Now we're going into the Middle East and Iran, and this is setting off another accelerated geopolitical war cycle. And it's just amazing how repetitive these cycles have been and the differences between how much — by the way, wheat's just a proxy. All commodities have done well during this period. I don't mean to say that wheat is the only one that does well. This is a measure of commodity inflation, hard asset inflation. All commodities do well. But we went back and looked at the price of wheat relative to the price of corn, relative to the price of soybeans, relative to the price of cotton, relative to the price of all commodities. And wheat tended to outperform during these periods of time, meaning that this was one of the best performing markets during these particular four-year geopolitical phases, Casey.

And so while we can't predict day to day, week to week, necessarily month-to-month, we can look at this and say the probabilities that this cycle's repeating is high and that it needs to run its course and that when it's all over, the wheat market, the commodity markets, the grain markets, which are exceptionally undervalued, the energy markets, which are exceptionally undervalued, should outperform. I will preface by saying that typically metals and precious metals tend to go first. They tend to be the first movers in these cycles. They tend to go a year or two ahead of the cycle. And of course, it's known — yeah, that's already happened.

Yeah. So I look at this and while this is terrible for humanity and the humanitarian consequences and the inflation and the loss of life that comes from these geopolitical war cycles and the, in many cases, the famines that are caused by some of these cycles, it is very, very inflationary for those producing hard assets, for those producing wheat, corn, soybeans, cotton. So if you're in the business, if you're in the ag business, if you're in the business of growing these supplies, it's going to be a good period for you. Like I said, I don't say that with excitement or glee. My job is to try to forecast the future, try to forecast what prices are going to do, try to forecast the ag industry.

And war is very good for the ag industry. And unfortunately, as much as I would like to think that we would eventually stop feeling the need to go through these phases of unrest and geopolitical instability and wars, it looks to me like we have yet to stop wanting to do that. Everything says to me that this cycle is in full force and it has to run its course. And it says to me that if you're in the business, you need to adjust your cash marketing accordingly by not forward selling more than you absolutely have to. And just keep in mind that this is a very good cycle for you. Even though it's a bad cycle for many, for those in the ag sector, it's a very good cycle for you.

Having adequate storage on the farm is probably the most critical asset that you can have right now — to be able to hold back when prices are unattractive like they are now, and then to be able to sell when the prices are good like they were a few years back. And if this cycle repeats and we see it again and we get another big run, you know, you want to have the ability to sell those bushels out and then forward sell more aggressively. That's how you're going to manage this. You can't miss dollars higher like we saw between 2020 and '22 by overselling the future. You have to participate in that. If you're going to eat the losses during the tough times, you have to make hay — no pun intended — when the times are better.

And this particular cycle is the dominant cycle of this part of the move. The last cycle was more like COVID money printing that led into some geopolitical unrest. This cycle is pretty much primarily a geopolitical cycle. The cycle that comes after this is your weather volatility cycle. So in every commodity inflationary period, it's about a 15-year period and there's three waves higher that roughly last about three years and then you get two to three years of correction. Three years up, three years down, three years up. It's three waves up, three waves down. This is the second wave higher. Each one has a different driver. This one's geopolitical. The next one's going to be weather volatility. The last one was really a monetary story. And that's pretty typical. You get three different reasons for why something moves. But this one is geopolitical, and this one is where wheat, rice, and energy tend to outperform.

Well, in every 15-year period, each wave roughly on average lasts approximately three years.

Um, specifically the geopolitical cycle, when the geopolitical cycle is kicking in, if you look at all those price surges and you average the time from start to finish, it averaged about four years.

So, that's why I'm saying this period from 2026 to 2030 — by the way, doesn't mean you have to wait till 2030 for the peak. The peak could occur in 2028 or '29. It just means that typically it takes around four years for that cycle to blow its top off or have a crescendo to where that geopolitical cycle or that geopolitical stress backs off.

Okay. And the next cycle, the last cycle of this inflationary cycle will be the weather volatility cycle. They've talked so much about it on your show. That period from, you know, 2028–30 into the mid-to-late 2030s where we have no sunspots, wild weather volatility based upon the solar cycle. That'll be your weather volatility cycle like the dust bowl was in the 30s or like the sea surface temperature volatility cycle was in the 1970s. That will be what drives that part of the cycle and the geopolitics will take a back seat, whereas the last cycle was all about COVID — coming out of COVID, massive money printing that occurred that led into some geopolitical unrest — but really most of the move in the markets occurred before the first bomb was dropped in Russia-Ukraine. In fact, the Russia-Ukraine war beginning actually was the peak of the cycle, if you think about it — when it really was the peak, meaning it was really a COVID monetary cycle. Whereas this one's going to be driven by geopolitics. And just amazing that the 27-year cycle starts in 2026 and now we're getting this re-ignition, or this acceleration, of geopolitical unrest in Iran.

And it does seem to me that it is a war on every theme. You know, back in the 70s it was war on communism, and then in the 2000s it was the war on terror, right? You know, then to me this looks like the war on resources — that we're battling for resources. We're battling for who controls these important resources. And Russia-Ukraine, number one exporter of wheat. Obviously the Middle East, dominant producer of oil and natural gas and liquefied natural gas. From all the reports I've seen, Russia-Ukraine has some of the biggest rare earth metal reserves in the world. I mean, you know, usually these wars have a reason for occurring where they're occurring. To me this is a battle on resources, and obviously China is very heavily dependent on the region for energy and food, and so that's, you know, this is kind of the battle that we're dealing with. And fortunately for the United States, you know, we produce tons of energy and we produce tons of food. So for us, in terms of what it means for us, you know, we're well positioned. But if you're someone like China, if you're someone like India, if you're someone like the Middle East that lack in the areas of food or energy or both,

It's a tough period coming up. And that's where the hoarding comes in. You say, 'Okay, if I'm not certain I can go to Russia and get the wheat that I need, then I'm going to stockpile what I need as a buffer against it.' So, one of the reasons that all those periods you saw this spike trade in wheat, it's because of hoarding. Those that have it don't sell it, and those that don't have it panic buy it and they stockpile it, and it creates that demand mismatch.

Well, if this geopolitical cycle repeats like it has since 1860 and we get into a hoarding cycle, Brazil's supplies of agriculture are going to be absolutely critical to supplying those that don't have, right? I mean, they have been critical. Yeah. I mean, they have to be able to — like if they don't produce or they have difficult times producing given their now prolific nature, you now have a higher-order issue with how things get done.

The Brazilians have pulled back on their deforestation. They're still deforesting, but at a slower rate. So, they haven't done anything to actually reverse — I've always felt, if you looked at the precipitation patterns, that they've dropped in half over the last decade. They went from excessive rainfall, all the rain that you could need, and even though they've dropped in half, they're still barely producing enough rain. They can still produce crops, but any fall off — in our view, any fall off from here and then they start having insufficient rainfall to produce crops in the manner with which they've been accustomed to, which makes, as I've always said in all the presentations and in all my reports and all our discussions, the next four years are the test as to whether this trend stops where it's at and we just hover around 50% down, or we have another notch down to where we have a disproportionate decline or slowdown of their production growth or production capabilities. And I don't have an answer perfectly for that, but if we're going to find out, it's going to be in an El Niño year. An El Niño year is where the majority — three quarters — of Brazil typically gets into a drier weather pattern normally.

So this coming cycle is like a critical test plot on how the rains are going to perform now going into this El Niño cycle. It starts in October of this year, goes into May of the following year. It's the dry cycle. It's really going to be critical to gauge their rainfall versus, you know, what they've been seeing. If we see rainfall falling below the threshold that we've been seeing and it does show that they're going to have insufficient rainfall and that they're going to have an actual crop problem here because of it, then everything has changed for the global supply chain, for who produces what and who sells to who and who's the center of the ag food chain.

If that rainfall trend falls further in this next cycle, it means that the US gains market share back for the first time in many, many decades. It would mean that we would increase acres. We would bring acres back into production that are out of production. It would mean throwing caution to the wind to do everything we could to increase yields, to do everything we could to, you know, like it would be hardcore pressure to produce everything possible to make up what Brazil might not be able to produce that the market is counting on them producing. Like I said, I don't know for sure because obviously we've never had an Amazon deforestation cycle before. All I can say is we know the trends have been down 50%, consistently. We've been seeing a steady decline by 50% ever since we've been moving down this path of accelerating deforestation. And the trend is your friend until it stops. There has been no indication that the trend has stopped falling. But this next year is really a defining moment as to whether that trend is going to stop or we're going to get the next rung down. So it's a very, very important year coming up, and it could add, you know, an additional agitation to the geopolitical cycle if it comes up that they're going to have some crop problems, if their soybean crop's going to be off, if their corn crop's going to be off and they get to where their supplies, their exportable supplies, are going to be short.

What's really interesting, Casey, while no doubt in soybeans their export capabilities has been unbelievable, but in corn, because they've decided to go down a gold rush on corn-based ethanol production in Brazil, if you look at the demand for corn for corn-based ethanol, it looks like our chart was in the early 2000s to the late 2000s where we just saw parabolic demand for corn for ethanol back then. And that was one of the drivers that made that geopolitical cycle so powerful. We're seeing the same thing in Brazil. Even though their production's been up nicely in the last three years, their corn production — the demand for ethanol from corn has grown so fast that their exportable supplies haven't grown at all.

So think of that. Just think of that — that we have a situation where their crop in corn has grown yet their exportable supplies have flatlined. And if their corn production flatlines or falls and they keep their corn-based ethanol policy, the corn situation is really interesting. Soybeans not as much, but corn really, really interesting what could happen there, Casey, you know, really, really interesting what could happen there.

Well, we know Russia-Ukraine created a spike in fertilizer prices because of the large exports that come from China, that come from Russia, Monaco, the Middle East. You know, there's a lot of fertilizer that comes out of that region. And we've seen fertilizer prices spike already. There's nothing good about entering this geopolitical cycle for fertilizer prices. There's nothing good at all. It just means that prices are going to have significant risks to the upside going forward. And so the fertilizer side is going to be another reason that agriculture yields become challenging, or that agriculture prices would need to go higher in order to compensate the farmer for that critical input being so high and going higher. You know what I'm saying? And obviously if you looked at natural gas prices in Europe, they almost doubled in one day when Qatar said that they were shutting down their key LNG production facility for an unidentified period of time. Just think that through. It's just not good for fertilizer prices and for the world, for the region. And it's going to embolden Russia and Ukraine to dig their heels in.

And I could easily see a contagion — usually these geopolitical cycles, there's a contagion that spreads from one region to another — and I could easily see this Iran-Middle East situation not only being a contagion for other Middle Eastern countries but being a contagion for a resurgence of Russia-Ukraine unrest as we go into 2027. And there's nothing good about that in terms of fertilizer and wheat supplies. And that's what makes the weather in China and the weather in India during an El Niño so very, very important to follow, because if they have poor crops this coming cycle during El Niño and their supplies come up short at a time of geopolitical acceleration to the upside and high fertilizer prices — I mean, that's what happens, Casey. We always talk about synchronicity of cycles, right?

A couple of reports ago, I showed all the different cycles of inflation that have led to large increases in hard assets over a thousand years. We had the solar cycle. We had the monetary cycle. We had the interest rate cycle. We had the geopolitical cycle. There's times when they're on opposite sides where, you know, one cancels each other out. There's times when a few cycles are in synchronicity. The more cycles that are in sync, the greater your potentially inflationary impact.

Prior to this cycle, the most synchronous period for hard asset inflation was the mid-1600s. We had all cycles but one in an inflationary upswing. Anyone that follows the ice age and what happened to food prices and commodity prices during that time in the 1600s knows it was one of the most inflationary periods for hard assets and resources that we have seen. In this particular cycle, every single cycle is now in synchronicity for the first time in a thousand years. So it just means that everything seems to be in alignment monetarily, geopolitically, weather volatility-wise, and interest-rate-wise, to lead to this war on resources — why this phase is the war on resources, right? Like there's a reason that this is a war on resources.

Well, I think the historians call it monetary regime change. Change the rules of how the economy operates. When the British lost their role and we gained it, it was a major, major monetary regime change of how the world operated economically. And it looks to me we are going through a monetary regime change. I don't know — no one can say exactly what that will look like, but it won't be what it has been. It won't be what it is today. It'll be something different. And anytime you change the monetary regime to something different, hard assets, commodity assets, food assets, energy assets tend to reprice — as you correctly point out, throughout history have tended to reprice — into that new monetary system.

Historically, what has led to these monetary regime changes is excessive indebtedness on a country-by-country basis. We had a sovereign debt crisis in the 1930s. We had a sovereign debt crisis in the 1970s. We clearly are in a sovereign debt crisis now. And so excessive debt leads to these monetary regime changes just by force. The system cannot continue to operate in that kind of excessive ever-growing indebtedness and something has to change. When you change an indebted system, it means ultimately the new system has to reflate your way out of it, which means the hard assets maintain their purchasing power. And that's why hard assets, commodities, energy, food, precious metals have tended to fare well during these periods of time. And I don't think there's any question that we're in some part of this phase. And up now is the geopolitical instability part of that phase.

I was speaking in South Dakota. I could send you some of the dates and where it's going to be. But I'll be in South Dakota. I'll be in Iowa. I believe I'll be in Maryland. So some different places here over the next few months.

Our website is hackettadvisors.com. We have a Twitter page, faradex11. We have a LinkedIn page as well, and from time to time we do put out some information on some of these cycles about what we're thinking, what we're looking at. People can go there to keep tabs of what we're thinking if they see value in using statistics, cycles, and correlations of the past to predict the future.

Thanks, Casey. Always a blast.