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Low Prices Cure Low Prices · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Hog Market Talk Podcast.
• 0:05
  SPEAKER_00: Your weekly deep dive into hog market fundamentals, breaking news, and industry insights.
• 0:12
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:20
  SPEAKER_01: All right, it is September 23rd.
• 0:23
  SPEAKER_01: I've got Jeff with us here today.
• 0:24
  SPEAKER_01: We're going to talk about the hog market.
• 0:26
  SPEAKER_01: How's it going, Jeff?
• 0:28
  SPEAKER_02: You know, I think it's going okay.
• 0:30
  SPEAKER_02: I don't know if this hog market's quite as bad as uh it looks on the from the outside looking in there, Mike.
• 0:35
  SPEAKER_01: Yeah, it's a lot of okay right now in the world of agriculture, which is better than bad.
• 0:40
  SPEAKER_01: But uh first we're gonna start with product values, work through those a little bit, talk about belly specifically, then we're gonna talk about a little bit more of the futures chart, how that's reacting, talk about harvest numbers, then we're gonna talk about weight and uh get into a little bit of inflation talk.
• 0:56
  SPEAKER_01: How's that sound?
• 0:57
  SPEAKER_01: That sounds like a plan to me.
• 0:59
  SPEAKER_01: All right, so product values, maybe not as bad as they were last week, seeing a little bounce back.
• 1:05
  SPEAKER_01: What do you think here?
• 1:06
  SPEAKER_02: Well, you know, the thing that we've been looking at here on the product is you know, the the biggest issue what we had last week was the bellies completely falling out of bed, right?
• 1:15
  SPEAKER_02: So, you know, if if that event hadn't taken place, this I think our feelings around the composite average cutout values would be a lot different.
• 1:25
  SPEAKER_02: Um, you know, and and I think you know, saying, okay, you know, what if bellies would have stayed up at uh you know 140 or something like that.
• 1:34
  SPEAKER_02: That's that's maybe a little bit uh unrealistic, also, Mike.
• 1:39
  SPEAKER_02: But you know, I think the simple math that I keep going through in my mind is like I just don't believe that we need to be at this 86 to 90 cent uh area on bellies.
• 1:50
  SPEAKER_02: Maybe I'm wrong about that, but you know, we we've seen this take place in the hams here uh three weeks ago.
• 1:57
  SPEAKER_02: You know, just have these, it's not uncommon for us to have these big washouts on one particular primal or another, and it's like you know, the mark the product is not going into cold storage.
• 2:10
  SPEAKER_02: Um the the marketplace knows it just wants to clear that product and it needs to it gets to a level really quickly that's really low, and it moves the product and it can moves the product through the system, and so basically just a quick fire sale on a particular prime one.
• 2:30
  SPEAKER_02: I think that's what we've done.
• 2:35
  SPEAKER_01: With uh when we uh really dropped the ham price there a few weeks ago.
• 2:39
  SPEAKER_01: On the belly side, are we seeing something similar?
• 2:41
  SPEAKER_01: Or is this like a man-made problem we've seen in prices lately, or what happened to the belly?
• 2:46
  SPEAKER_02: It is it's possible that we've um that we've got some you know lower uh processing speeds taking place, you know, um from the belly primal to the bacon level.
• 2:59
  SPEAKER_02: Um, but I am afraid that a lot of that has to do with the demand side, much more so than a specific process or or labor issue.
• 3:08
  SPEAKER_02: So I think we have some real demand issues.
• 3:11
  SPEAKER_02: I'm not trying to maybe cover that up so much.
• 3:14
  SPEAKER_02: Our our largest suspicion is it's probably in the quick food service um type of uh environment.
• 3:22
  SPEAKER_02: You know, we've all seen the the Wendy's announcement over the the past week here.
• 3:27
  SPEAKER_02: Um there's some real traffic issues, uh, no matter which you know brand or or chain that you're looking at on the quick service standpoint, and we do move a lot of bacon through that um channel, Mike.
• 3:41
  SPEAKER_02: So it's it's probably some slowdown in some areas there, as well as just overall price.
• 3:46
  SPEAKER_02: We've continued to push bacon prices on the retail level higher and higher.
• 3:51
  SPEAKER_02: And that's the point that I that we've seen in the past um change and have an effect on movement and demand.
• 3:58
  SPEAKER_02: So I think if you get yourself into a situation where you're starting to feature bacon, um the old days, you know, two or three years ago, we always used to say four dollar bacon moved it a lot of bacon.
• 4:11
  SPEAKER_02: Um whether what that new four dollar number is, I'm not sure if it's still four bucks or if it's four fifty or five or whatever.
• 4:18
  SPEAKER_02: But you know, if we can feature bacon, history would tell us that it it it can move the product.
• 4:24
  SPEAKER_02: And um whether that needs to happen or if we just simply got too low too fast on these bellies, I'm not sure.
• 4:31
  SPEAKER_02: But in my mind, you know, if you're in the more in the$110 to$120 price range, um, feels like that's more of a right price for the belly primal.
• 4:44
  SPEAKER_02: Um if you go along with that with me for a minute um and pretend I'm right about that, you know, if we can get these bellies to rebound in that type of a fashion, that puts another four or five dollars on the composite cutout mic, is where is where I'm going with this.
• 5:02
  SPEAKER_02: Um that pushes your product values more into the ninety-two or ninety-three dollar level.
• 5:07
  SPEAKER_02: Um that's not great, so to speak, but you know, that's that's quite a bit better picture today, you know, than what we're seeing today, I guess.
• 5:17
  SPEAKER_02: That that brings the index back up to what, probably eighty-three for sure.
• 5:22
  SPEAKER_02: Maybe eighty-four.
• 5:24
  SPEAKER_02: Um, so I you know that that puts you in a quite a bit better situation than where we're currently heading.
• 5:29
  SPEAKER_01: That October futures, Kate, if you brought that up here, just shy of$80 here this morning.
• 5:35
  SPEAKER_01: So honestly, we're priced pretty fairly versus where uh the cutout should be at the moment, it would appear or is today.
• 5:45
  SPEAKER_01: So I think that's just fine.
• 5:46
  SPEAKER_01: Kind of in between where it probably should be with the given product values we have, but uh kind of if you base it off of where we should be there in the low 90s, uh, you know, 80 bucks is about right for the time being.
• 5:58
  SPEAKER_01: It would appear like uh we've recovered a little bit the last couple trading sessions in that front month.
• 6:03
  SPEAKER_01: The backbone's are still struggling.
• 6:05
  SPEAKER_01: December's just uh above 70 bucks today, down.
• 6:08
  SPEAKER_01: We're like that uh October's up half a buck there, so a little spread action going on, but uh not exactly a very fun recovery by any means there yet.
• 6:17
  SPEAKER_01: Uh a few things that catch my eye, that 8118 area on that October chart, that's gonna be your 20-day moving average.
• 6:24
  SPEAKER_01: Pretty good resistance.
• 6:25
  SPEAKER_01: That's gonna come around 50% retracement too, so I kind of like that area.
• 6:29
  SPEAKER_01: And then uh, if I wanted to zoom in right on that area too, there's just a minuscule gap around 8140, kind of that folks might be targeting around that area there on that October, which makes a lot of sense, I think.
• 6:41
  SPEAKER_02: Yeah, and we'll and we'll definitely need some additional good news to take place um versus what we're conversing about today, Mike, in order to push us above those type of levels.
• 6:52
  SPEAKER_02: So I think you you run into some pretty tough uh resistance up at those spots for sure.
• 6:58
  SPEAKER_01: It sure looks like it.
• 6:59
  SPEAKER_01: What can you talk to me on for the harvest pace that we've had as of late?
• 7:04
  SPEAKER_02: Well, we continue to be pretty happy on this front, Mike.
• 7:07
  SPEAKER_02: You know, we've we've got some pretty wild gyrations, you know, if you're trying to compare this year's harvest pace compared to last year with the later Labor Day and all that.
• 7:17
  SPEAKER_02: We've talked about that.
• 7:18
  SPEAKER_02: But you know, if you try to focus on you know the week after Labor Day, the week the two weeks after Labor Day, um, you know, you look at last week, um, you know, we came in three and a half, uh just about four percent lower than the year before.
• 7:32
  SPEAKER_02: Well, there's some pretty steep gyrations on a year-ago comparisons is what we really got going on here.
• 7:37
  SPEAKER_02: That's what I wanted to bring to everybody's attention.
• 7:39
  SPEAKER_02: Like we had a big week of last year for last week.
• 7:43
  SPEAKER_02: This week we're um we are increasing our kill, uh our expectations are to be a little over that 2.55 type of a number.
• 7:51
  SPEAKER_02: Well, a year ago, that's gonna put us in line with about a year ago.
• 7:54
  SPEAKER_02: Well, that was because we had kind of a shorter week last year, this this time of year.
• 7:58
  SPEAKER_02: So you you mush all that together nice, you know, a lot of signals continue to suggest um we're gonna be in that you know two to two and a half percent lower on uh harvest rates here for the foreseeable future.
• 8:11
  SPEAKER_01: Given that slower rate of harvest, alongside of what we've seen uh on the weight side lately, with uh you get into this time of the year, weights should be going up anyways.
• 8:22
  SPEAKER_01: We're not necessarily seeing that.
• 8:23
  SPEAKER_01: It doesn't look like we're necessarily backing pigs up by any means, does it?
• 8:27
  SPEAKER_02: I don't think so.
• 8:28
  SPEAKER_02: We were we were a little disappointed in the action last week, Mike.
• 8:32
  SPEAKER_02: You know, we had a pretty steep increase.
• 8:34
  SPEAKER_02: Um as you're noting, you know, that seems to be flattening out here uh past couple data month uh points.
• 8:41
  SPEAKER_02: So and I think that will continue.
• 8:43
  SPEAKER_02: We just we had a lot of weather kind of working for us uh you know here recently, get these pigs growing um you know, after some pretty tough heat there late in August.
• 8:53
  SPEAKER_02: Um, but our our motivation is not uh the same this year compared to a year ago um as far as you know the size that we want to be marketing these pigs.
• 9:04
  SPEAKER_02: We we started getting uh into some pretty heavy weights a year ago just because the motivation was so strong to put some extra pounds on, make sure that you get the pounds there.
• 9:13
  SPEAKER_02: If you end up going off the top side of your window on some of the loads, um that was probably better than continually missing to the low side as far as your targeted weights go.
• 9:23
  SPEAKER_02: That's different today.
• 9:24
  SPEAKER_02: That was those loads that go on off the top side get pretty expensive in a hurry.
• 9:29
  SPEAKER_02: So that in itself, you know, those we think we're gonna see some lower weights compared to a year ago.
• 9:35
  SPEAKER_02: And it it feels like this two to two and a half percent lower harvest rates than last year also feels pretty good right now because I think our weights, when it's all said and done, put uh put together three or four week average, um, they're gonna be going pretty much up at the right pace compared to, you know, as you try to gauge the weight um increase versus the seasonal um and make an observation on okay, what's really our underlying supply.
• 10:03
  SPEAKER_02: I I think the Packers are getting that pretty right right now.
• 10:07
  SPEAKER_01: Let's move on to just big big picture items here.
• 10:10
  SPEAKER_01: When I look at the funds and managed money, I I see something happening, Jeff.
• 10:16
  SPEAKER_01: Um one of the things is that uh core CPI, so inflation not including energy and and food essentially, that is still trending a little lower, only 2.4%, um, right within the range of expectations of what they want right now as a targeted goal from the Fed.
• 10:34
  SPEAKER_01: Uh you look at it with food and energy, it's closer to 3.4% and on the rise with recent diesel prices and gas prices getting hiked.
• 10:45
  SPEAKER_01: Uh normally in this environment, we uh we raise rates to try to combat inflation, which we're seeing right now, at least in in some areas.
• 10:54
  SPEAKER_01: And uh we did see that last week there.
• 10:56
  SPEAKER_01: Fed raised 25 basis points.
• 10:58
  SPEAKER_01: Looks like it's gonna be a short-term deal.
• 11:00
  SPEAKER_01: But one of the things I'm noticing is that it's inflation in a very targeted area, which is energy.
• 11:08
  SPEAKER_01: And you're seeing it positioning, I think, already.
• 11:11
  SPEAKER_01: If you just look at at our uh website there at the CFTC Commitment of Traders, uh it we've got a really good breakdown there of where we're sitting versus record long positions.
• 11:21
  SPEAKER_01: For example, on the corn side, we're at 426,000 longs, records 431.
• 11:28
  SPEAKER_01: So we're very close to a record long in corn, soybeans, soybean oil, anything that basically goes right alongside of the energy market or energy plays a part of it.
• 11:38
  SPEAKER_01: But one of the things we're seeing is that they've faded away from owning any proteins on this inflation side.
• 11:44
  SPEAKER_01: The cattle side, they've stripped a lot of their longs away here over the past couple months.
• 11:49
  SPEAKER_01: They're only at 45,000 long now, managed money on cattle versus a 156 record.
• 11:55
  SPEAKER_01: Um, you're looking at the lean hog market, a new record short last week on those funds.
• 12:01
  SPEAKER_01: So they're obviously not buying up too much uh for concerns of inflation on the protein side.
• 12:07
  SPEAKER_01: Um, they're part of the problem, honestly, it looks like from our point of view, uh, seeing that you know, if uh if inflation is a problem, the food prices have been a part of it and energy.
• 12:18
  SPEAKER_01: But it seems like they're more willing to buy the energy portion of this deal than than the hog side, haven't they, so far?
• 12:25
  SPEAKER_02: Yeah, and I don't think that's uncommon.
• 12:27
  SPEAKER_02: Um, you know, as we think bigger picture about um, you know, where this uh where this inflationary hedge wants to go, right?
• 12:35
  SPEAKER_02: Where that money wants to flow.
• 12:37
  SPEAKER_02: It's it's hogs are usually the last one on that list, and for good reason, you know, you look at a long-term term historical chart, um, you know, the the hog market just hasn't really been able to participate in the in the inflationary moves in the past.
• 12:52
  SPEAKER_02: Now, um, with that said, um, you know, we we've looked at some prior years, Mike, you know, as we tried to look at, okay, what's what have this uh big money been doing in some other years where we've seen some pretty heavy inflation?
• 13:07
  SPEAKER_02: And you know, we kind of picked that 21 through the first half of 23 type of era.
• 13:12
  SPEAKER_02: And they did run a positive um 50,000 type of a position on the hogs, uh, you know, pretty routinely through that time frame.
• 13:22
  SPEAKER_02: Um, kind of 50,000 on the lower side uh of their position.
• 13:27
  SPEAKER_02: So from a negative 30,000 that they're sitting at today, um, I think there's some optimism there.
• 13:33
  SPEAKER_02: And and if we push that back uh into that mid-range, you know, that certainly puts some higher futures values out there.
• 13:41
  SPEAKER_02: It's just what what we don't love about this conversation is certainly um corn and soybeans is probably going to be their first choice as some sort of inflationary offset, right?
• 13:53
  SPEAKER_02: So we expect more money to continue.
• 13:55
  SPEAKER_02: Now, they're too, they're at 400,000.
• 13:58
  SPEAKER_02: Um, two to two fifty might be a little bit more normal.
• 14:02
  SPEAKER_02: Yeah, two to maybe three fifty, take that back.
• 14:05
  SPEAKER_02: But um, so you're on that top side of that for sure, but big picture longer term, you know, expect some more money to be sitting in the grain market than there is sitting in the hog market.
• 14:17
  SPEAKER_01: A little disappointing from the input side.
• 14:19
  SPEAKER_01: Today we're down pretty good.
• 14:20
  SPEAKER_01: I mean, we're down eight cents on corn and we're down twelve on the soybeans.
• 14:25
  SPEAKER_01: Uh, meal's been pretty steady, maybe a buck or two lower here.
• 14:28
  SPEAKER_01: I was hoping for a little bit bigger of a setback today in the meal market, so that's been a little disappointing, Jeff.
• 14:34
  SPEAKER_01: Anything else that you can wrap your mind around and and and uh uh clue us in here uh to finish up our podcast this week.
• 14:42
  SPEAKER_02: I think that pretty much covers it, Mike.
• 14:44
  SPEAKER_02: Appreciate it.
• 14:44
  SPEAKER_01: All right.
• 14:45
  SPEAKER_01: Well, for everyone else, please click the link on the description below.
• 14:48
  SPEAKER_01: You can get a hold of our things like daily market commentary and other cool research data that we've got out there these days.
• 14:55
  SPEAKER_01: So thank you for hopping on today.
• 14:57
  SPEAKER_01: Thank you, Jeff.
• 14:57
  SPEAKER_01: We'll see you next time.