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Is consumer demand for beef weakening? Inflation's role · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Cattle Talk Podcast.
• 0:06
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insight escaping the industry, creating commodity futures and options involved a potential risk of luck and is not suitable for all investors.
• 0:21
  SPEAKER_02: Today is September 18th.
• 0:23
  SPEAKER_02: I've got Mike Fitzgerald in a branch office with us for professional egg marketing.
• 0:27
  SPEAKER_02: How's it going, Mike?
• 0:28
  SPEAKER_01: Good.
• 0:28
  SPEAKER_01: Good afternoon.
• 0:29
  SPEAKER_01: Thanks for having me.
• 0:30
  SPEAKER_02: Of course, uh, we're going to talk about the cattle market today.
• 0:33
  SPEAKER_02: And with that cattle market, it was exciting up until about four trading sessions ago, Mike.
• 0:39
  SPEAKER_02: I want you to explain a little bit just the premise of why we had a recovery and why it quickly took it back.
• 0:46
  SPEAKER_01: All right.
• 0:47
  SPEAKER_01: Well, the my best guesstimate here as to why we had a recovery was cash markets have been decent here over the past few weeks.
• 0:58
  SPEAKER_01: Um so yeah, kettle futures really got kicked hard this week.
• 1:04
  SPEAKER_01: Um, for a bullish market to kind of maintain some momentum, we kind of have to keep feeding it with positive information every day.
• 1:11
  SPEAKER_01: And there just hasn't been a lot of good positive news coming out of this week.
• 1:17
  SPEAKER_01: Um like, for example, they uh announced yesterday they're they're going to continue with the reopening of the feeder cattle crossings from Mexico into the U.S.
• 1:28
  SPEAKER_01: with the Santa Teresa crossing that's supposed to be opening up here this next week.
• 1:34
  SPEAKER_01: That's about 30 days after the opening of the Douglas, Arizona plant or uh crossing.
• 1:41
  SPEAKER_01: And we haven't had a lot of feeder cattle come through, but the Santa Teresa one is the largest kind of crossing that they would have.
• 1:49
  SPEAKER_01: I believe 40, maybe just over 40 percent of Mexican feeder cattle probably cross through that particular area.
• 1:57
  SPEAKER_02: Yeah, about 3% of our total production, I believe, is imported, about uh uh one uh from Mexico for numbers, and then about one third of that, I think, was about from that crossing, wasn't it?
• 2:11
  SPEAKER_01: Yes, yep, yeah, yeah.
• 2:15
  SPEAKER_02: So very relevant, anyways.
• 2:17
  SPEAKER_02: So it it seems like uh tails wagging the dog here a little bit, isn't it?
• 2:20
  SPEAKER_02: I mean, cash is had a disappointing day yesterday, probably because futures are just going down, doesn't it look like that?
• 2:27
  SPEAKER_01: Yeah, yeah.
• 2:30
  SPEAKER_02: Yes.
• 2:31
  SPEAKER_02: So uh uh what do you think fundamentally right now?
• 2:34
  SPEAKER_02: When you start to look at this situation, uh we're what do you think on numbers here recently?
• 2:40
  SPEAKER_02: Supply still isn't a problem on whether you look at the the cattle market or the hog market, but uh it seems like we're seeing something else here.
• 2:47
  SPEAKER_02: So just walk me through fundamentally what you're seeing a little bit in this marketplace.
• 2:52
  SPEAKER_01: Yeah, I mean it's it's a little bit about I'm not sure supplies are necessarily a problem for today.
• 2:59
  SPEAKER_01: Um, we're gonna continue to be operating well underneath any kind of shackle space availabilities that we would have in the industry, even with the recent announcement of a closure of a plant.
• 3:12
  SPEAKER_01: Um, and actually those numbers have increased some so, like that graph that you're showing in front of you, we've we've harvested about three and a half percent less cattle over the past two weeks.
• 3:25
  SPEAKER_01: That's that's encompassing the holiday there.
• 3:28
  SPEAKER_01: Um, we were doing about four and a half percent less over the past eight weeks.
• 3:32
  SPEAKER_01: So the numbers continue to get just a little bit better as we've gone forward here.
• 3:37
  SPEAKER_01: Some of it has to do, I think, with just improvement and cattle processing margins.
• 3:42
  SPEAKER_01: Those things, those things were a train wreck all year long, and now we've put together a couple weeks here where they're actually in the black and has encouraged them to ramp up their kills a little bit.
• 3:54
  SPEAKER_01: But the cattle futures as a whole continues to be cautiously optimistic, I think, short term that supplies are still well in check, but um you know, every day, week, month that passes as we go forward, those supplies will generally start to fix themselves, and with especially with uh bringing in more Mexican feeder cattle.
• 4:18
  SPEAKER_02: So, what is it on the demand side of things that you see then?
• 4:22
  SPEAKER_01: I don't I don't see a lot of problems on the demand side.
• 4:26
  SPEAKER_01: Um, some of the higher end cuts are still performing really, really well.
• 4:30
  SPEAKER_01: Like the rib, for example, about a week ago, that thing was record all-time highs.
• 4:38
  SPEAKER_01: And we're a little bit back from that this week, but still near all-time highs.
• 4:46
  SPEAKER_01: There's there's a seasonal here on the cattle product world that that says those things would generally grind lower from this point forward.
• 4:55
  SPEAKER_01: I have concerns like in our in our own shop, in our own mine, we have concerns about stability in the beef world as you're going forward.
• 5:05
  SPEAKER_01: Um, there's gonna be continued pressure because of inflationary expenses as the consumer goes to the gas station and fills up with gasoline or diesel.
• 5:16
  SPEAKER_01: I mean, those those things have really jumped up here a lot lately.
• 5:20
  SPEAKER_01: I continue to think beef is on the high end of what consumers are going to spend their money on, and you would you would expect that if pocketbook gets hit a little bit, they would start to trade out for some cheaper proteins.
• 5:35
  SPEAKER_01: And you have to worry because if you drag box beef values down, then you um you would take packers back into negative margins, and therefore the cash market would continue to go with it.
• 5:47
  SPEAKER_02: What do packer margins look like right now, Mike, after uh after what we've seen recently?
• 5:53
  SPEAKER_02: Uh are we still in the black on that?
• 5:55
  SPEAKER_02: Or with uh cash staying up here a little bit, are they starting to uh not make any money anymore?
• 6:01
  SPEAKER_01: We are packers are still in the black.
• 6:05
  SPEAKER_01: Um probably around$50 would have been last week.
• 6:10
  SPEAKER_01: Not a lot of change week over week.
• 6:14
  SPEAKER_01: If you if you just kind of average any kind of choice and select and cash market being relatively steady week over week, so yeah, not a lot of change, but the fact that they're printing black black ink is I mean unusual for what we've been experiencing here for the last 18 months.
• 6:30
  SPEAKER_01: Yeah.
• 6:32
  SPEAKER_02: Well, technically, we're off to a really rough uh finish to the week here on the chart wise on these futures.
• 6:39
  SPEAKER_02: We failed pretty early on the recovery for what we probably could have been.
• 6:42
  SPEAKER_02: We're busting through some support levels here.
• 6:45
  SPEAKER_02: So uh I want you to send us home with some thoughts, Mike, and a few things that you're watching here going forward on this uh cattle market.
• 6:53
  SPEAKER_01: Um, continue to find ways to hedge rallies, I think, in this environment.
• 6:59
  SPEAKER_01: I do think that a lot of the fundamentals that we would look at on a higher level, we would be on the backside of the mountain for a lot of these things.
• 7:09
  SPEAKER_01: Um, you're starting to see things like heifer retention taking place, especially with cheaper feeder cattle.
• 7:15
  SPEAKER_01: But be cautious about um sale barn activity and what the new critters are going to be costing us coming out because they experienced a really, really big run-up when cattle futures were up a week ago.
• 7:28
  SPEAKER_01: Some of these feeder cattle in the sale barns just went seemingly through the roof.
• 7:32
  SPEAKER_01: Um, and and they take a little while to come back down.
• 7:37
  SPEAKER_02: All right.
• 7:38
  SPEAKER_02: Anything fun, money flow-wise, this week?
• 7:41
  SPEAKER_01: Um I would anticipate managed money continues to lighten up their position.
• 7:47
  SPEAKER_01: I was staring at that sum here this morning, and I believe that we are right at or around two-year lows for what their net bot position is.
• 7:58
  SPEAKER_01: They rarely ever go net sold in the cattle complex.
• 8:04
  SPEAKER_01: Um, and it's been a long time since we've had kind of a bare minimum.
• 8:07
  SPEAKER_01: I think you go back September 17th of 2024, their net bought position was around 38,000 contracts, and they were sitting at 42,000, I believe, as of this last week.
• 8:21
  SPEAKER_01: Considering a$9 sell-off in cattle futures this week, I imagine they lightened up some more.
• 8:28
  SPEAKER_02: Uh, very interesting.
• 8:30
  SPEAKER_02: Uh, a few other things just worth mentioning.
• 8:33
  SPEAKER_02: Uh we've seen something, which is is always a thing in the cattle world.
• 8:39
  SPEAKER_02: You give the cattle guy hope.
• 8:41
  SPEAKER_02: And uh last week with that rally that we were seeing, uh feeders got pretty expensive there.
• 8:46
  SPEAKER_02: So if those did not get hedged, uh sitting, I mean, they didn't make sense when we bought the things, but now they really don't make sense.
• 8:53
  SPEAKER_02: So a lot of guys are in a pretty tough position there just buying cattle that don't work so well, especially if we're a week behind the eight ball here, uh, just to put it lightly.
• 9:02
  SPEAKER_02: So uh with those with the border reopening there, banning exports potentially, uh, banning feeder cattle exports places.
• 9:11
  SPEAKER_02: I mean, uh, we'll see what happens there.
• 9:13
  SPEAKER_02: But overall, uh this border opening is a little bit more bearish further out, it seems like in these future smart markets.
• 9:21
  SPEAKER_02: Yeah.
• 9:22
  SPEAKER_02: All right.
• 9:22
  SPEAKER_02: Well, thank you for your time today, Mike.
• 9:24
  SPEAKER_02: I appreciate it.
• 9:25
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• 9:28
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• 9:32
  SPEAKER_02: Thank you, Mike, for joining us today.
• 9:34
  SPEAKER_02: I appreciate it.
• 9:35
  SPEAKER_01: Thank you.