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Cattle: "Hole" Thing · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_01: Welcome to the Cattle Market Talk Podcast with Professional Ag Marketing.
• 0:04
  SPEAKER_01: Come here to get your fresh updates on what's happening week to week within the cattle market.
• 0:09
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_01: Today is May 22nd.
• 0:18
  SPEAKER_01: I've got Jeff with us here today.
• 0:19
  SPEAKER_01: How's it going?
• 0:20
  SPEAKER_01: It's going good, Mike.
• 0:21
  SPEAKER_01: How about yourself?
• 0:22
  SPEAKER_01: Not too bad.
• 0:23
  SPEAKER_01: Welcome to the second cattle podcast here.
• 0:26
  SPEAKER_01: Week two.
• 0:27
  SPEAKER_01: We are going to have a fun few things to talk about.
• 0:30
  SPEAKER_01: I want to talk about the cash market, box beef, and talk a little bit about the cash highs.
• 0:35
  SPEAKER_01: They're all higher, Mike.
• 0:36
  SPEAKER_01: They're all higher.
• 0:37
  SPEAKER_00: What else do you want to talk about?
• 0:38
  SPEAKER_01: Alright, next topic.
• 0:41
  SPEAKER_01: Where do you want to start?
• 0:42
  SPEAKER_00: Well, I think uh part of what we wanted to cover today was just you know talking through kind of how this portion of the cycle is different and as it relates to end weights and average daily gains and days on feed and that sort of stuff, Mike.
• 0:57
  SPEAKER_00: Um but you know, so if we jump into that topic.
• 1:00
  SPEAKER_01: So let's start at the normal thing.
• 1:02
  SPEAKER_01: What what do you normally see in that?
• 1:05
  SPEAKER_00: So, you know, normal seasonals for years and years, as you looked at that, you know, we would look at uh third week in March as the common topic around our office, you know, as far as okay, this is often when futures want to give up.
• 1:19
  SPEAKER_00: Um, and sometimes, you know, and quite often actually they can give up quite a bit.
• 1:23
  SPEAKER_00: So I if you've talked to us in the past, that's always been our story.
• 1:27
  SPEAKER_00: And a little bit of that comes into play of um it's probably a week or two in front of what was seasonally would be the normal cash high.
• 1:38
  SPEAKER_00: So as you fast forward to the last three years, uh we've had cash highs happening the first part of June.
• 1:46
  SPEAKER_00: The reason for that is basically as you keep these cattle to heavier weights and keep them on feed for an extra 30 to 60 days in some extreme situations, you do change the seasonality of the industry.
• 2:03
  SPEAKER_00: So why the cash happens, of course, uh high happens historically in March or April, is you um it's the gap between the old crop supply, which is usually drawing to a close that time of year, and when the first um number of the new crop calves come to the marketplace.
• 2:24
  SPEAKER_00: So that's a natural hole.
• 2:26
  SPEAKER_00: Yep, natural hole is just based on mostly the northern and um and some of the south you know, calving dates up in this part of the world, but it's largely driven by.
• 2:35
  SPEAKER_00: Um, so fat if it basically you push everything back a month or two as you go to these heavier weights with this extreme margin over feed.
• 2:44
  SPEAKER_00: Okay, so that's why we think in the past few years you've seen the highs come in June.
• 2:51
  SPEAKER_00: Basically, there's nobody that wants to sell a new crop calf in April or May.
• 2:59
  SPEAKER_00: They want to make them bigger, they want them to uh come to town more in June and July.
• 3:06
  SPEAKER_00: So what the market ends up doing is rallying until that point, until you start drawing some new crop calves into the marketplace, and then it can start going down from a seasonal or yeah, seasonal standpoint.
• 3:19
  SPEAKER_01: And we're running, I mean, it's worth noting, what about 5% heavier on weights than what like the five-year average is.
• 3:26
  SPEAKER_00: Yeah, and that's and that's been an ongoing story, and I think that storyline will probably continue, but it is you know, the gap between the five-year average and uh the current weights has continued to widen, of course.
• 3:38
  SPEAKER_00: And yeah, and that's one of the things we're gonna be watching going forward because we do think we're starting to get um just a f the first feedlots, if you will, interested in selling a few some of those new crop animals, Mike.
• 3:55
  SPEAKER_00: So what's happening, and and that's why you see this extreme positive basis, especially in the north, of you know, a little over 230 cash, um, with June futures at 215 and then you know August at 210.
• 4:09
  SPEAKER_00: There's just an extreme motivation to try to pull just a few of these numbers.
• 4:15
  SPEAKER_00: It it doesn't take very many.
• 4:17
  SPEAKER_00: Uh if once you start bringing in some of the new crop calves, it doesn't take very many to significantly lower the uh cash price.
• 4:25
  SPEAKER_00: So I I think that's what we're experiencing today.
• 4:28
  SPEAKER_00: Um, I know I suspect the cash high, at least short term, here is gonna come in the next couple weeks as we uh bring in, you know, we're just hearing the first ones starting to talk about bringing in cattle that maybe they thought was gonna were gonna weigh you know 1600 or or better on the steer side, maybe bring those in in the late 15s instead of just start pulling everything a little bit earlier than what they expected.
• 4:55
  SPEAKER_00: Um that should cause some lower cash prices.
• 4:59
  SPEAKER_00: I know it's a dangerous uh observation or um to or prediction, you might say, but I think uh seasonally that's what we've seen the past few years.
• 5:09
  SPEAKER_00: I think it's gonna be a replay again here this year.
• 5:13
  SPEAKER_01: Fantastic weather through this winter as well probably helped us put on some extra pounds.
• 5:18
  SPEAKER_00: That's for sure.
• 5:19
  SPEAKER_00: That's for sure.
• 5:19
  SPEAKER_00: And that should also have uh a few more cattle ready, maybe a little sooner than what they anticipated as well.
• 5:25
  SPEAKER_00: That could be the other reason.
• 5:26
  SPEAKER_00: But I was gonna go back to the weights, I guess.
• 5:28
  SPEAKER_00: I'm glad you brought that up.
• 5:30
  SPEAKER_00: I we're still gonna pay attention to those.
• 5:32
  SPEAKER_00: Um the ones that we post are old, um, but they don't really separate all that data out until you get uh two weeks past.
• 5:41
  SPEAKER_00: So keep that in mind as as maybe you're looking at some of the charts and stuff that we put out.
• 5:46
  SPEAKER_00: But um I think if we start to see those weights dip, if that's combined with some lower cash prices, uh I think we can that's the kind of the final leg of the story that's being told here, Mike, and is part of what we'll be watching.
• 6:01
  SPEAKER_01: Some of the things I've been watching here, more on the feeder cattle side lately, just because they've been really big movers and shakers, up 335 today.
• 6:09
  SPEAKER_01: August here closed just shy of 300 again.
• 6:12
  SPEAKER_01: We are about a buck short of that gap that it put in between the 14th and 15th of May.
• 6:17
  SPEAKER_01: So uh getting awfully close to going and filling that.
• 6:20
  SPEAKER_01: You're still a good, I'd call it uh about eight bucks off the highs that we put in there last week, but still uh pretty good strength here this week.
• 6:30
  SPEAKER_01: Good strength, uh buck, two bucks higher in the cash market for live cattle uh getting traded here already, going into uh Thursday today.
• 6:38
  SPEAKER_01: Uh pretty nice daily trade here this week, I thought.
• 6:42
  SPEAKER_01: I think the futures after we saw following the end of last week, after the big drop-off, and then we saw futures kind of close higher, and cash closed higher at the end of last week.
• 6:54
  SPEAKER_01: There's no panic selling.
• 6:56
  SPEAKER_01: Um we're holding right on top of that 20-day moving average.
• 6:59
  SPEAKER_01: The futures at the beginning of this week seemed like they wanted more appreciation out of it.
• 7:04
  SPEAKER_01: Those 20 cent higher days were a little disappointing.
• 7:07
  SPEAKER_01: Today was our biggest day of the week here.
• 7:10
  SPEAKER_01: Uh, keep an eye on that futures market as we get near those old highs here.
• 7:14
  SPEAKER_01: Uh a pretty vulnerable stage here going forward, it seems like.
• 7:18
  SPEAKER_01: So fundamentals seem good.
• 7:19
  SPEAKER_01: Uh box beef, mountains high again, and uh numbers don't seem to be really changing fundamentally, but like you said, we could be coming into uh a few more cattle here coming up, and we'll have a better idea of that tomorrow, won't we, Jeff?
• 7:33
  SPEAKER_00: Yeah, they do have the uh cattle on feed report coming out um after the close there on Friday, so we'll get another fresh look at at least what the USDA's posting for some cattle on feed and placement numbers.
• 7:45
  SPEAKER_00: Obviously, is the big one that we watch there.
• 7:48
  SPEAKER_00: Um back to the box beef thing.
• 7:51
  SPEAKER_00: That too can be a seasonal thing here, Mike.
• 7:53
  SPEAKER_00: Um you know, going into Memorial Day next week, of course, there might be some leftover business pushing that those values just a little bit higher this week.
• 8:02
  SPEAKER_01: Yeah, really nice chart action out of that, but pretty typical to kind of peek that one out right around this time of the year.
• 8:08
  SPEAKER_00: Still good signals there.
• 8:10
  SPEAKER_00: I mean, one of the things we like to what we always say when we're watching domestic demand for protein, especially for beef, is you need it to rally when it's supposed to, right?
• 8:20
  SPEAKER_00: So you need it to go on its seasonal rallies.
• 8:23
  SPEAKER_00: Um, if it comes back after that and settles down some, that's probably just a signal of some really good healthy markets.
• 8:31
  SPEAKER_00: And so far, that's definitely what we've been seeing as we've seen that creep.
• 8:36
  SPEAKER_00: I think the old high was in the 340s, if I remember correctly, from uh our discussions last week, but you know, now we're up into the 360 area.
• 8:45
  SPEAKER_00: No question that's impressive.
• 8:47
  SPEAKER_01: All right.
• 8:48
  SPEAKER_01: Well, thank you for your time this week.
• 8:49
  SPEAKER_01: We'll catch you next week.
• 8:51
  SPEAKER_00: Thank you, Mike.