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116: Cattle Markets Are Moving Fast Here’s What to Watch with Dan Gerhold · CattleUSA Daily

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  Welcome back to another episode of the Cattle USA Daily podcast.
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  Today we are welcoming back Dan Gearhold with the Cattle USA
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  insurance team and we are excited to bring you guys your
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  market report. What is happening in the world
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  right now? What has happened over the past
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  week? We're discussing all of it and
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  then we even go into the rest of the summer, what we're kind of
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  feeling like for the next few weeks and then going into fall.
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  What does fall look like? What can we anticipate for the
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  markets and managed money over the next few weeks?
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  So without further, let's go ahead and get into this podcast
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  episode of Dan. Welcome to the Cattle USA Daily
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  podcast. Your go to.
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  Source for the latest livestock markets, industry insights and
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  the updates shaping agriculture today.
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  I'm your host Lauren Moylan, a passionate advocate for
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  agriculture. Here to keep you informed.
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  And connected. Now let's dive into today's
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  episode. Dan, happy Friday, welcome back
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  to the podcast. It's been a minute.
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  It has Yep, Yep, a little R&R markets went wild while I was
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  gone and come back and how they go the other directions send me
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  on vacation more often send you on vacation, but you're not
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  allowed to come back because that's when it all went to crap
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  was when you came back. So you're just you got you got
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  to go live at the lake now. Sorry, I'd be willing to take
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  one for the team. Well, what is happening with the
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  markets? What's going on with them?
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  Break it down. A lot of chop this week.
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  You have a big week like last week.
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  Of course you're going to see some chop.
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  You know, either you're going to be straight back down this week
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  or you're going to chop around, find out, you know, what's
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  what's the fundamentals like? Box beef is kind of slid back
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  pretty hard from its spring highs now.
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  Not anything unseasonable, just the dog days of summer finally
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  catching up with us. You know, we went from that
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  three 94395 high and the choice, you know, I think we're pulled
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  pulled back now to 374. So I mean, you're talking about
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  the whopping 5-6 percent correction.
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  This thing still has some room. It could pull back even harder
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  over the next month and I'd be perfectly comfortable.
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  The big billion dollar question would be what do we do coming
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  into this fall and winter? Do we see that at that push back
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  towards that 400 again? You know, as we hear those
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  Christmas rib eye orders, that's basically what's been struggling
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  lately. It's not your burger, your
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  grind, it's not your fats, it's it's your your high end cuts.
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  Not uncommon. It's we all know it's hot dog
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  and hamburger weather. So you know, if the consumer is
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  in love with beef as much as we think they are, I just expect a
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  normal rally back going to the end of that fourth quarter.
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  So just kind of in a lull at the moment, you know, we've got
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  cattle on feed next week, you've got the biannual all cattle
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  inventory report next week. So I think a lot of eyes are on
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  that to see if we're seeing any heifer retention or let me
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  rephrase that, if the USDA is expecting any.
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  But inevitably all of that going into it, you're talking about
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  water traders, how are they positioning themselves for that,
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  both of those reports. So I'm in the camp honestly,
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  fats are probably trading right where they should be on the
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  futures market for the moment. You know, there's still a
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  positive basis, which is what it should be at all time record
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  highs, even though it's abnormally positive.
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  We're talking about 5 to $7.00 in the South and, and you know,
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  you're 10 to $18.00 in the north, which is like I said,
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  abnormally high, but also not abnormal for big bull markets.
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  You know, coming in the next week.
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  It looks like the trade this week is going to be more steady
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  with last week, which I, I kind of view as a disappointment.
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  You know, there was a lot, a lot of us going into this week early
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  thinking we were going to see a higher cash trade and it turned
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  out to be steady. So not the I don't want to see
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  those trends change. You know, we had the had the
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  leverage this week and just didn't do anything with it.
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  It's like that sport, you know, baseball team that just doesn't
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  do anything when they had every opportunity to win.
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  So wouldn't surprise if wouldn't be surprised if we see cash
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  soften or just kind of stagnant again next week.
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  They, you know, Packers are probably going to sit on their
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  hands, wait out for the Catalan feed, see if they can spook this
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  market lower ahead of time, shake some, some low hanging
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  fruit out of the tree early on lower prices and then see what
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  the rest of the week brings next week.
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  But overall, it's, it's just the, the summer cattle market,
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  you know, County Fair season. I was, I was pretty optimistic
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  and hopeful that we were going to put a 230 summer low in there
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  what, 3 weeks ago in the north and you know, 2:20 and 2:22 in
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  the South. I was, I was hopeful that was
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  going to be our summer low and we can, we can moon shot this
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  thing, but inevitably we, there's still a lot of summer
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  left. We've we've still got to come
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  into that big slug of calves here in September, October in
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  the north should start seeing some really, really tight
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  numbers in the South as far as cash markets concerned.
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  You know, we had that shut down December, January, not a big
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  import time for for Mexican feeders anyways.
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  But you know, those, those cabs that would have crossed
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  inevitably they're going to start, they would have been set
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  for this, you know, late August, September, October market.
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  So I'm still optimistic for that time frame, especially as you're
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  aware, I'm in the camp that we're probably seeing some
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  heifer retention going on right now.
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  I know the entire industry is not thinking that, but I'm
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  pretty confident it's begun. I don't think to a large scale
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  by any means, but you wouldn't see $4000 bread effers if, if
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  guys weren't eagerly buying them.
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  So overall the feeder cash market is just been
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  unbelievable. I mean, you watch those sales up
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  north and you're talking eight 50s bringing 349320.
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  You know, you're seeing 10 weights, 310 elevens it.
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  You just can't, you can't, you can't make this up.
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  It just came out of nowhere. Yeah, this markets been
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  extremely strong forever, but there's a ton of risk as well.
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  You know, I ran a poll on social media because the last two
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  months there was a lot of guys buying feeder cattle that didn't
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  pencil against deferred future. So in the cattle industry, we
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  call that betting on the come. It's very, very common.
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  So I ran a poll to see if anybody was using the rally we
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  had last week in futures to hedge off their risk.
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  Did not like what I saw. And we'll find out when we get
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  out to those finishing dates if they needed those hedges or not.
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  But inevitably, I think a lot of people are scared to manage risk
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  just because they've been run over on their hedges so hard.
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  It's a perfect example why LRP and put options are a viable,
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  viable tool to use for markets like this.
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  Because inevitably, I mean, some of these hedges are 20 to $30
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  underwater. Or an LRP would only be, you
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  know, 5 to 10 bucks in premium. You know, make 800 bucks Ed and
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  give up 100 bucks a head to LRP. I'd do that.
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  So I'd like to see producers start stepping up their
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  aggressiveness on hedging. I made some comments earlier
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  this week that that I'd like to see as we we start placing
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  cattle that are going to be, you know, market ready fast after
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  the first of the year. I'd, I'd like to start pushing
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  towards closer to that 100% hedging mentality.
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  You know, whether we're using that LRP futures hedge
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  contracts, puts, you know, there's, there's all these tools
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  in the toolbox and, and depending on the time of the
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  year in the producer, we can talk through it with them.
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  But I'd still like to be more aggressive on the hedging side
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  because we're at such elevated levels and we just don't know
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  when we finally hit, hit that plateau or that peak when it
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  comes to consumer spending. So it's been unbelievable.
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  I was caution myself, never get bearish in the summer months.
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  So there's still opportunities going into the fall and winter,
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  but inevitably, you know, this market could slip away from us
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  at any time. So I think we've got to be
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  prepared, you know, get those, get the floor set, the floors
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  set for now. If we get that big run up on the
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  fall, that's definitely possible.
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  You can step in and sell some futures or contracts and cattle
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  or just you can continue to play in the cash space.
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  So it's just there's a pile of risk on these cattle right now.
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  Yeah, I think we've said it a ton in the past few weeks that
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  the market is extremely volatile right now and there is a lot on
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  the line for a lot of people. And we've said it before and
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  I'll say it again, that we need to start looking at risk and our
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  risk management tools that we have as business tools and a
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  part of our toolbox, like you said in our playbook that we're
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  using in all of our businesses. It's just one of those things
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  that we, we have to start opening ourselves up to it and
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  not let ourselves get in situations where we are losing
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  our tail every single time. And look at it as it's like an
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  expense just like fetus, right? We've got to have feed to feed
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  our cattle. We've also got to have
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  protection to be able to continue to buy cattle, continue
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  to keep our businesses viable in the end of the day.
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  Absolutely. I mean, it's, it's been said
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  many times by many people right now, you know, 1 fat steer is
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  worth more than a semi load of corn, you know, and now you're
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  knocking on one fat steer and a lot of places is worth what an
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  acre of, of grassland might be or two fat steers, you know,
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  depending on the location. But that doesn't happen very
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  often in history. Have cattle been worth what they
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  are, you know, compared to corn and compared to land.
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  So I think we really have to look hard and realize, you know,
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  it's, it really doesn't matter who the producer is or what size
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  they are. The amount of dollars they're
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  playing with right now is pretty extreme.
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  And you can still be bullish and optimistic for this market
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  because demand is still rock solid.
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  But inevitably someday we'll lose that.
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  We don't know when. And, and the best thing you can
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  do is have it ahead of time. Precisely any other highs, lows,
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  things that we need to chat about that are going on in the
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  markets right now? Rain's getting a nice bounce
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  today. Kind of wonder if that has more
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  to do with the Russia some more sanctions put on.
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  Excuse me, You know, it's, I don't know, great corn crop and
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  just about everywhere you go, there's guys that that have some
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  corn down, there's guys that you know, got drowned out, but
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  inevitably there's a lot of acres of corn that got planted
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  and it's looking pretty phenomenal nationwide.
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  I don't think we have a huge amount of risk in the corn
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  market to 5 bucks, but you know, you could see a bounce here to
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  450 wheat market also getting a nice bounce.
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  Like I said, probably more to do with Russia Today.
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  It'll be interesting as we open next week up what that does
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  optimistic for the moment. Just a lot of chop a lot of chop
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  everywhere. Just really finding out what
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  these this managed money, what these funds can do.
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  It doesn't matter who you are, what your position is, you know,
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  trading trading paper right now, you're getting beat up one day
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  or the next. Yes, this is definitely just a
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  hold on and write it out while we can type of next few weeks.
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  And that's pretty much the definition of the dog days of
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  summer. It's a trend we see pretty well
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  every year. It's nothing new.
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  We're just just got to push through for a few more weeks and
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  then we can look towards the fall and hopefully we're sliding
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  that scale back up to a little bit above the higher optimism as
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  far as the way that the market is going to continue to go for
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  the fall. Any thoughts on fall?
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  I know you kind of touched on it a little bit.
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  We don't have our crystal ball, wish we did, but any thoughts as
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  we start to transition into that?
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  Looking for a bigger hole here late September, October,
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  November, December. Looking for a big hole on the
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  cash back cattle side. It'll be interesting to see what
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  the slaughter paste does. Obviously they're not in a hurry
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  to ramp up slaughter and make that hole larger because it's
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  just going to push boxes lower and make their margins worse.
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  But inevitably I'm looking for a big hole out there and I'm
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  really hoping that the producers use that leverage that that they
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  should have when we get out there.
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  If I'm right, you know, feeder cattle are probably going to be
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  a result of that. It's not uncommon to see that
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  September, October feeder yearling, feeder price, you
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  know, step back as guys start pulling off grass and we get
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  some bigger numbers coming. But once again, I can't, I can't
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  get wildly bearish feeder cattle right now just from what feed
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  yards are willing to pay. I mean, you're selling 340 fat
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  cattle in the north right now. Why not buy a yearling steer
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  where it's priced? The sell buy works, but at the
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  same time there's a pile of risk.
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  I mean I remember when the first eight wait steer brought 3
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  bucks. I thought that was insane.
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  And now 340. I mean come on, what are we?
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  Are we going to hold out and sit on our hands to protect and wait
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  for 4 bucks? I mean, what's the magic number,
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  I guess is my question for these guys.
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  So it we've got a lot of potential for this fall.
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  It's just a matter of getting through there without causing
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  too much damage. I'd like to see choice boxes
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  really hold that 355 number this summer and then we've got that
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  potential to probably run it back towards that 38385 level if
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  we do that. I think the consumer still going
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  full speed at the beef counter. Retailers have really tried to
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  improve their margins here in the last, I would say 2-3 weeks.
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  I think that's going to continue as it normally does this time of
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  year. So it just buckle up, hold on.
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  Hopefully you know it's not a complete train wreck over the
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  next 60 days and and we get through it absolutely.
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  Well Dan, as always, thank you for your time and coming on
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  sharing just your thoughts, opinions and everything else
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  that's going on in the markets. We appreciate it.
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  As always to all of you listeners out there, we talked a
• 13:37
  lot about risk today. If you want to get yourself
• 13:39
  covered, make sure you get down to the show notes and check out
• 13:42
  our Cattle USA insurance link where we partner with Dan and
• 13:45
  his team to offer that to you guys at just really, really
• 13:49
  great times to get on to it now and get yourself covered.
• 13:52
  So check out those show notes, get a hold of our team and we'd
• 13:56
  be more than happy to help you with that.
• 13:58
  Dan, thank you for your time. And to all of you listeners out
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  there, have a the last rest of your week and we'll see you all
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  next time. Have a good one y'all.