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USDA Offering $500 Million to Small Beef Processors · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Cattle Talk Podcast.
• 0:05
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insights shaping the industry.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: This is Mike Minor.
• 0:22
  SPEAKER_02: I've got Jeff with us here today.
• 0:24
  SPEAKER_02: How's it going?
• 0:25
  SPEAKER_01: It's going good, Mike.
• 0:26
  SPEAKER_01: Thanks for having me on.
• 0:27
  SPEAKER_02: Good deal.
• 0:28
  SPEAKER_02: We're going to talk about the cattle market here a little bit today.
• 0:31
  SPEAKER_02: Happy to have you on on July 2nd, ahead of the weekend here.
• 0:36
  SPEAKER_02: No trade tomorrow.
• 0:37
  SPEAKER_02: So the markets are closed here this afternoon.
• 0:41
  SPEAKER_02: Friday off, long weekend, and then back at it again Sunday night for the grains into Monday morning.
• 0:47
  SPEAKER_02: So on the cattle market, kind of just a we're on a little bit of a red streak here on futures.
• 0:53
  SPEAKER_02: I wanted to start there, Jeff.
• 0:55
  SPEAKER_02: Uh we're selling off a little bit.
• 0:56
  SPEAKER_02: Very unlike the cattle futures last still not so long, six years.
• 1:01
  SPEAKER_01: Yeah, they've uh they've kind of taught you a lesson not to get too comfortable with uh a market that's slipping lower, but a little bit longer red stretch than what we normally would uh see here.
• 1:13
  SPEAKER_01: You know, we've seen a lot of these breaks and and we've been able to rally right back to the old highs and surpass those highs, Mike.
• 1:20
  SPEAKER_01: Um I'm I'm not so sure that that's gonna happen again in this case, you know.
• 1:25
  SPEAKER_01: Um a few things that we've always been looking at uh and talking about, one of those is the seasonality of this business, right?
• 1:32
  SPEAKER_01: I mean, since we've added the weight and since we added the days on feed, you know, now the shortest time of year um in the market ready supply would be in that uh June time frame.
• 1:45
  SPEAKER_01: So as we left June behind us here, um I kind of feel like we're the clock is ticking a little bit as far as uh each week that goes by, you get a just a few more cattle of the new crop um cattle that get interested or or more available, if you will, uh to be sold into the cash market, Mike.
• 2:07
  SPEAKER_01: Um and uh I think you know that that's maybe the one of the top things that makes us just a little bit more nervous on this market than maybe what we've seen in the past.
• 2:17
  SPEAKER_02: All right, I like it.
• 2:18
  SPEAKER_02: How does that take us into the the cash activity this week?
• 2:24
  SPEAKER_02: Because when you look at the August live futures, you're 239, 22 and a half, and as I've quickly scanned what cash cattle have been trading at, they are a little lower, three or five bucks lower this week, but still mid-250s.
• 2:39
  SPEAKER_02: So a positive basis is something we've got normal to, don't get me wrong, but pretty good spread this time of the year, isn't it?
• 2:46
  SPEAKER_01: Yeah, no doubt.
• 2:47
  SPEAKER_01: And that's what's motivating um the the pulling ahead of some of these cattle and and and maybe even getting rid of some that uh have plenty of weight to them.
• 2:59
  SPEAKER_01: We've kind of have both sides of the coin going on because we're not we're not really seeing like huge drops in uh the you know carcass weights that are going to town, so we're not pulling it super aggressively um on that supply mic, but we do know of some situations where people have some uh new crop calves on feed, and you know they're they can put more weight on them, um, they can move them a little bit quicker, and and as you the marketplace is enticing us to move those cattle maybe a little quicker than what we um originally thought.
• 3:34
  SPEAKER_01: And and so that's where the you know the$15 plus basis that they continue to keep in the marketplace, that's what it's trying to do.
• 3:42
  SPEAKER_01: The market's trying, you know, gauging, okay, how much does it take here to move a few more head of cattle?
• 3:49
  SPEAKER_01: And and each week that goes by, of course, those that same inventory will put more weight on.
• 3:55
  SPEAKER_01: People will be a little bit easier to let those go, and that's what uh the August futures is trying to anticipate.
• 4:02
  SPEAKER_02: Sure seems like slaughter volumes seem to be dictated by processing margins at this point.
• 4:08
  SPEAKER_02: When the margins improve a little bit, they really ramp it up.
• 4:11
  SPEAKER_02: Uh going into the holiday, this it's always interesting seeing how the Packer uh one anticipates a holiday and two reacts right after it.
• 4:21
  SPEAKER_02: Uh box prices have weakened a little bit going into the holiday here.
• 4:25
  SPEAKER_02: Uh, what do you think that's gonna provide through the 4th of July?
• 4:29
  SPEAKER_02: One of the key weekends, holidays of the year for meat demand in every category.
• 4:35
  SPEAKER_02: Uh what do you think here?
• 4:36
  SPEAKER_02: Light retail inventories right now could set us up pretty good if we do come out of this weekend short, but probably a reason they are too.
• 4:45
  SPEAKER_01: Well, like you know, Mike, I mean the the market really likes to rally that box beef, especially on the choice side of the things, um, really likes to rally going into the fourth of July.
• 4:56
  SPEAKER_01: And as you were pointing out, um we're not seeing much of that this year.
• 5:02
  SPEAKER_01: Um so the the the next question will be if we didn't have this twenty-thirty dollar spike going into the fourth of July, will we or won't we see the twenty or thirty dollar drop after the fourth of July?
• 5:17
  SPEAKER_01: That's gonna be because that that's a very strong seasonal.
• 5:21
  SPEAKER_01: Um and that's gonna get really interesting here and into next week and and the week after.
• 5:28
  SPEAKER_01: We we are seeing a few lower values coming right into the holiday here.
• 5:33
  SPEAKER_01: Um I don't know what's gonna happen there.
• 5:35
  SPEAKER_01: We're we certainly um are continuing to keep our kill levels you know very low, like you were indicating, but we also are putting quite a bit of meat out there right now, the past three, four weeks ago.
• 5:48
  SPEAKER_01: And we were we were worried about this happening sometime in in August, and we weren't sure how the market was gonna react to it, Mike.
• 5:55
  SPEAKER_01: Um, you know, as far as the point in time at which the number of cattle that you're harvesting, the additional weight that we've put on year over year, and the additional imports that we're seeing, when that was all gonna come together and actually increase the amount of meat that the US that's available to the U.S.
• 6:16
  SPEAKER_01: consumer, um increase that over top of last year.
• 6:21
  SPEAKER_01: Now that's actually happened the past couple weeks as we snuck our kill levels up just a little bit.
• 6:27
  SPEAKER_01: Now, one of those data points is this uh past week, um, which you know is probably a little bit overinflated coming into this very shortened holiday week, right?
• 6:39
  SPEAKER_01: But um we're kind of at that point when we're we're between the the lower numbers going through the system and the increased weights, we're down three percent on production, but we are still showing a five percent increase in net imported meat.
• 6:56
  SPEAKER_01: So we're at the point right here, right now, we're putting a little bit more meat out to the US consumer than we did a year ago.
• 7:03
  SPEAKER_01: We also have very similar cutout values than what we seen a year ago, going into a time frame where that usually likes to drop.
• 7:12
  SPEAKER_01: Um, so that's all gonna be very interesting in the next couple weeks, be paying attention to.
• 7:16
  SPEAKER_02: Anything to be said about the western part of the Corn Belt where you've got South Dakota, uh, Nebraska, Kansas, Wyoming, Montana.
• 7:26
  SPEAKER_02: Anything to be said about the weather?
• 7:28
  SPEAKER_02: Uh we've been picking up some extra rainfall here recently in that part of the world.
• 7:33
  SPEAKER_02: Is that going to change anything in the replacement market?
• 7:38
  SPEAKER_02: Cow anything like that?
• 7:39
  SPEAKER_01: It it definitely is going to matter.
• 7:42
  SPEAKER_01: Um, you know, just a quick review.
• 7:44
  SPEAKER_01: We we were convinced here, oh shoot, was that maybe mid-winter or something, Mike?
• 7:49
  SPEAKER_01: We were pretty convinced um we were seeing more heifers being retained.
• 7:53
  SPEAKER_01: We were seeing more, you know, less cows go to town um in that and then it just didn't rain all spring.
• 8:01
  SPEAKER_02: Got dry.
• 8:01
  SPEAKER_01: Yep.
• 8:02
  SPEAKER_01: And uh we definitely feel like we've seen more cows go to town.
• 8:06
  SPEAKER_01: We've seen some heifers come back into the feed yards because of the weather situation.
• 8:12
  SPEAKER_01: Now, what's done is done.
• 8:15
  SPEAKER_01: Um you know, it's it's it's gonna be hard to bring those heifers back into the herd at this point.
• 8:21
  SPEAKER_01: It's gonna be really hard to bring those cows back into the herd, by the way, Mike.
• 8:24
  SPEAKER_02: If they're especially if they're dead.
• 8:27
  SPEAKER_01: Exactly.
• 8:28
  SPEAKER_01: Only, yeah, that's that's gonna be tough.
• 8:30
  SPEAKER_01: Um, so you know, a lot of that we're we've kind of made that bet, but I think the motivation is gonna quickly come back to hey, how do we get some more inventory around us, right?
• 8:40
  SPEAKER_01: And so you're you might see the cow kills slow down a bunch as those ranchers really fight to keep our everything they have around um on inventory and and maybe try to get some brought back from some other portions of the world.
• 8:56
  SPEAKER_01: Um and then you know, fast forward into next fall and to next winter, motivation's gonna be there to grow the cow herd in my mind.
• 9:03
  SPEAKER_01: And so if you've got the rain, if you've got the grass, you got the feed, that's gonna happen.
• 9:08
  SPEAKER_02: Could be some major long-term implications because of that.
• 9:11
  SPEAKER_01: Yep.
• 9:12
  SPEAKER_01: I would, I would, I would think it's gonna be really interesting to be watching.
• 9:15
  SPEAKER_02: Well, we're gonna wrap this podcast up talking about the Trump administration because how dare we not mention them during a market podcast.
• 9:23
  SPEAKER_02: But the USDA announced a$500 million uh funding plan to expand the the U.S.
• 9:30
  SPEAKER_02: domestic fertilizer production market.
• 9:32
  SPEAKER_02: Also, they uh they were working on some money thrown at the Packers as well.
• 9:37
  SPEAKER_02: So, what can you tell me about the money and where it's going?
• 9:40
  SPEAKER_01: Well, uh part of the normal that we've gotten used to the last couple of years here, we we have uh some big numbers and some things, some crazy stuff that gets thrown out there, not a lot of detail, right?
• 9:53
  SPEAKER_01: And so we'll see where this all lands, but uh incredibly interesting that um you know we we have we write these big checks and then we um exclude some of the industry from those dollars, right?
• 10:08
  SPEAKER_01: I mean the fact that uh he they basically came out and say, hey, we're we're not giving this to the big four.
• 10:14
  SPEAKER_01: Um the big four kills eighty percent of the cattle, Mike.
• 10:19
  SPEAKER_01: So it's like we are pinpointing um handing some money out to twenty percent of an industry.
• 10:24
  SPEAKER_01: Uh it's a very interesting approach, I guess.
• 10:27
  SPEAKER_02: That's a big I mean that because they're doing five hundred million through payments uh to eligible beef processing plants.
• 10:33
  SPEAKER_02: Like that's a big number for 20%.
• 10:36
  SPEAKER_01: Exactly.
• 10:36
  SPEAKER_01: Take that 500 million and give it 20% of the industry, that starts to talk about some big dollars, some quick math on that.
• 10:43
  SPEAKER_01: If you kill, you know, roughly 30 million head or so a year, um, 20% in the four to four and a half million head, you know, that's you're you're pushing over a hundred dollars a head for an entire year's worth of business.
• 10:57
  SPEAKER_01: That's that's impactful.
• 10:59
  SPEAKER_01: Um, so what does it mean, if anything?
• 11:01
  SPEAKER_01: And then of course it's you know, I'm sure it'll all turn out different than uh the way it looks today, but what does it mean if anything?
• 11:08
  SPEAKER_01: I mean, you've got those regional packs.
• 11:11
  SPEAKER_01: Um, if they get that kind of cash in their pocket, it it's gonna impact how much they can pay for the fat cattle.
• 11:18
  SPEAKER_01: So it might uh kind of falsely inflate um cash cattle at some point.
• 11:24
  SPEAKER_01: Um we don't have any understanding of the timing of all this, but that's what I'd be watching for.
• 11:29
  SPEAKER_01: I mean, yeah, you could say, well, it's only 20% of the industry, Jeff.
• 11:33
  SPEAKER_01: How's that matter?
• 11:34
  SPEAKER_01: But you can get three regional packers out there bidding on cattle, and you can significantly change the cash cattle market because of that.
• 11:43
  SPEAKER_02: Very well, the the herd is at a 75-year low, I believe.
• 11:48
  SPEAKER_02: So uh still not a ton of incentive to really expand the herd from the producer standpoint at this point.
• 11:56
  SPEAKER_02: So it'll be interesting to see how this shakes out.
• 11:59
  SPEAKER_02: Uh, a little bit harder to just write the cattle guys some checks and and influence that market the way they want.
• 12:05
  SPEAKER_02: So it'll be interesting.
• 12:07
  SPEAKER_02: Any other final thoughts?
• 12:08
  SPEAKER_01: I don't I think just uh we're really encouraging our customers, you know, think about uh your inventory here.
• 12:14
  SPEAKER_01: It's the right time of year from a seasonal perspective to to really dig in deep and and make sure we're comfortable with what our inventory looks like and what that coverage looks like.
• 12:25
  SPEAKER_01: I'm not saying you have to run out and hedge them all, um, but maybe you can throw some floors on with some LGM.
• 12:31
  SPEAKER_01: Um there's some new rules coming out, uh new crop year this year, so we can increase that um ending weight on the LGM.
• 12:39
  SPEAKER_01: We'll be digging through that here in the coming weeks, trying to figure out what our best approach is.
• 12:44
  SPEAKER_01: But you can do some things that aren't super intrusive, um, at least kind of cover your baseline.
• 12:50
  SPEAKER_01: So I think it's a it's a good time of year in this whole cycle to be taking a really hard look at that.
• 12:56
  SPEAKER_02: All right.
• 12:57
  SPEAKER_02: Well, thank you for joining us today.
• 12:59
  SPEAKER_02: Have a fantastic weekend.
• 13:00
  SPEAKER_02: Please click the link in the description below to get access to things like our daily market commentary and other cool market data that you may find interesting on our website at professionalagmarketing.com.
• 13:12
  SPEAKER_02: Thanks for joining us today, Jeff.
• 13:14
  SPEAKER_01: Thank you guys.