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Hog Weights Falling: What it Means for Cutout · 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 impact.
• 0:12
  SPEAKER_00: Trading commodity futures and options involved to total with the block and is not suitable for all investors.
• 0:21
  SPEAKER_01: Today is July 23rd.
• 0:23
  SPEAKER_01: I've got Mike Fitzgerald joining us from the Mechanicsville office.
• 0:27
  SPEAKER_01: How's it going today, Mike?
• 0:28
  SPEAKER_02: It's great.
• 0:29
  SPEAKER_02: Thanks for having me.
• 0:30
  SPEAKER_01: Awesome.
• 0:30
  SPEAKER_01: Well, this is a Hog Talk podcast.
• 0:32
  SPEAKER_01: Let's give a big shout out to the futures here who have actually tried to go up recently, Mike.
• 0:37
  SPEAKER_01: We've uh had a nice little run, uh August futures.
• 0:41
  SPEAKER_01: We've traded just up over to uh 102 here recently.
• 0:44
  SPEAKER_01: Uh what can you tell us about a little bit of the futures action recently?
• 0:48
  SPEAKER_01: Kind of what we've seen for this change in pattern here since the beginning of June.
• 0:53
  SPEAKER_02: Yeah, they definitely have had a bullish tone to these hog futures.
• 0:58
  SPEAKER_02: Obviously, I think we we beat these things up enough back in June.
• 1:03
  SPEAKER_02: So the the recovery bounces a little bit expected.
• 1:07
  SPEAKER_02: Um, but yeah, we have had a lot of good fundamental improvements here in the last couple weeks.
• 1:14
  SPEAKER_02: We've seen things like the cash market has kind of continuously, week after week, made new highs, and the cutout finally made a new year-to-date high recently and continues to move up.
• 1:30
  SPEAKER_02: And hog futures are pretty enthusiastic with some of this news.
• 1:35
  SPEAKER_01: When you say they're pretty enthusiastic, is that more front-heavy, back heavy?
• 1:39
  SPEAKER_01: What's your take on on what futures are accounting for at the best?
• 1:45
  SPEAKER_02: Both.
• 1:48
  SPEAKER_02: They both had a lot of enthusiasm in it.
• 1:50
  SPEAKER_02: And I I get that that's kind of a scapegoat for a answer here.
• 1:54
  SPEAKER_02: Like in the example I would give you would be August hogs first.
• 1:59
  SPEAKER_02: August hogs are traded as high as 102 this week.
• 2:03
  SPEAKER_02: Um, they are still well ahead of what of what fundamentals suggest it should be, right?
• 2:11
  SPEAKER_02: Uh the industry is staring down negative basis levels, kind of like we have been all year long.
• 2:17
  SPEAKER_02: So not only has cutout and cash market improved, but August hog futures kind of represent that the cutout and cash markets have to improve more over the course of the next few weeks.
• 2:29
  SPEAKER_02: And there's about three weeks left of the August contract.
• 2:32
  SPEAKER_02: Now, with the deferred contracts, when I say they've been pretty enthusiastic, if I if I just grabbed normal seasonal tendencies, and we we spent some time staring at these this morning a little bit.
• 2:45
  SPEAKER_02: Um hog futures would usually have a pretty deep discount in them for months like October or December.
• 2:54
  SPEAKER_02: Um, and they do have a discount.
• 2:56
  SPEAKER_02: Like the example I could give you today would be October Hog Futures at 88.
• 3:00
  SPEAKER_02: That that that is$13 lower than what August is.
• 3:04
  SPEAKER_02: Um I think the last three or five years, it would it would be closer to$15 or$16 lower than what August Hog Futures is.
• 3:15
  SPEAKER_02: So it's it's got a little narrower spread than normal.
• 3:18
  SPEAKER_02: There's plenty of enthusiasm, I think, in those deferred contracts.
• 3:21
  SPEAKER_02: Obviously, a lot of producers in my neck of the woods would would be talking up things like a flatter cutout this year, right?
• 3:30
  SPEAKER_02: If the cutout has been relatively flat for months, and if the cutouts doesn't have a huge run up in it in August, hog futures probably don't have to price in a huge drop as we head into October.
• 3:43
  SPEAKER_02: Hence spreads would be a little narrower.
• 3:47
  SPEAKER_01: What can you tell me about the supply situation you think going into the summer here?
• 3:51
  SPEAKER_01: Just what you've seen lately.
• 3:53
  SPEAKER_01: Uh, maybe just start on total numbers and then we can work on uh some weights, things like that.
• 3:58
  SPEAKER_01: What are you seeing from the supply side, Mike?
• 4:00
  SPEAKER_02: Yep.
• 4:01
  SPEAKER_02: Last week, um, and and has been the case for the last couple weeks.
• 4:06
  SPEAKER_02: We we anticipate what the harvest numbers are going to be.
• 4:09
  SPEAKER_02: Um, the USDA continues to revise these numbers lower in hindsight.
• 4:14
  SPEAKER_02: So last week we harvested about one percent less pigs, um, which is a nice change of pace because we I think we spent the last two months prior to this harvesting one percent more pigs.
• 4:27
  SPEAKER_02: So finally got into a few tighter numbers.
• 4:30
  SPEAKER_02: Like the chatter in the industry today would be boy, are we in a hole, or is this kind of a weight-impacted thing?
• 4:37
  SPEAKER_02: And and heat temperature slowed pigs down.
• 4:40
  SPEAKER_02: And I guess for right now, I would lean a little bit more in the latter, which would say the heat that the Midwest has faced over the last few weeks has has slowed down marketing some.
• 4:52
  SPEAKER_02: And it's not not necessarily that we're short of pigs, it's more like we're just calling up the packer and canceling a few loads because they didn't grow very well.
• 5:01
  SPEAKER_01: Hop over to the weight side there, Kate.
• 5:03
  SPEAKER_01: Uh, let's have Mike talk about you.
• 5:05
  SPEAKER_01: You mentioned the heat and the impact that's been having um on this uh uh on the marketings here.
• 5:12
  SPEAKER_01: What would be your take on weights and how that's uh reacted with some of the heat?
• 5:16
  SPEAKER_02: Yep.
• 5:17
  SPEAKER_02: So you have the producer owned one pulled up there, and I I have some numbers in the top of my head.
• 5:22
  SPEAKER_02: Maybe if you uh if you click on the combined, would be a little better reference point for me here.
• 5:27
  SPEAKER_02: Um couple weeks ago, industry average carcass weights were sitting five pounds heavier than a year ago.
• 5:34
  SPEAKER_02: I mean, it was it was a really big spread, and we had some of the heaviest carcass weights we've had in years, going back to even when when COVID was taking place, right?
• 5:46
  SPEAKER_02: And our our packing plants were shutting down, and a lot of us were starting to wonder where in the world we're gonna market these pigs or what we're gonna do with them.
• 5:53
  SPEAKER_02: We had them getting fed rationing diets and things like that, trying to slow them down.
• 5:59
  SPEAKER_02: So we're rivaling carcass weights of that magnitude today.
• 6:03
  SPEAKER_02: Um, and they fell off a lot, so we were five pounds heavier, and as of this week, I think we're closer to three pounds heavier year over year.
• 6:12
  SPEAKER_02: So we're narrowing that gap in quite a bit with this heat.
• 6:16
  SPEAKER_01: Nice overall production.
• 6:18
  SPEAKER_01: You think uh anything else you've been seeing to have an impact there?
• 6:22
  SPEAKER_01: Should we hop over to demand?
• 6:24
  SPEAKER_02: Yeah, I mean, I'll just reference a little snippet here on the production side.
• 6:29
  SPEAKER_02: Having carcass weights drop an extra two pounds relative to where we were at a year ago went a long way towards lowering pork because at the end of the day, that's that's what the hog producer is trying to sell is the pork.
• 6:41
  SPEAKER_02: And we got to supply this stuff to the export market.
• 6:44
  SPEAKER_02: Anything we can do to lower that number down is gonna help our ability for the cutout to go up.
• 6:51
  SPEAKER_02: Um, you go back a couple weeks ago, even though we only had one percent more pigs, we had three and a half percent more pork.
• 7:00
  SPEAKER_02: So now you fast forward it to this past week, you had one percent less pigs, and we only had one percent more pork.
• 7:08
  SPEAKER_02: So that's why I think you're starting to see the cutout move.
• 7:12
  SPEAKER_01: Speaking of a cutout, we posted a 103.50 last night, but we've seen a little trend change there.
• 7:18
  SPEAKER_01: We've seen bellies and hams start to increase a little bit lately.
• 7:21
  SPEAKER_01: So let's get into the demand side of things, Mike.
• 7:24
  SPEAKER_01: What do you see out of that?
• 7:25
  SPEAKER_02: Uh uh it's BLT season, second half of July.
• 7:30
  SPEAKER_02: And I don't want to be one, I don't want to call out necessarily some of the stuff going on in in the world with um this lettuce issue that's been taking place.
• 7:40
  SPEAKER_02: That does give me a little bit of a fear of BLT season from a timing perspective, um, with with lots of states getting impacted by this.
• 7:49
  SPEAKER_02: Um, but it's BLT season, the second half of July, bellies have a tendency to run up and they get exaggerated a lot of times too high, and they get exaggerated sometimes too low.
• 8:02
  SPEAKER_02: Um, so if you reference that graph and sitting in front of you there today, we've we've been comparing this year to 2024, I feel like for quite some time.
• 8:12
  SPEAKER_02: Even in 2024, the belly market still mattered in the second half of July.
• 8:18
  SPEAKER_02: The one thing you always want to be a little cautious about when it comes to bellies is if you have one belly too few, the price really goes up.
• 8:27
  SPEAKER_02: If you have one pork belly too many, the price really falls off hard.
• 8:32
  SPEAKER_02: And and that's seen most years.
• 8:35
  SPEAKER_02: There's a really strong seasonal tendency to this thing.
• 8:37
  SPEAKER_02: I think our belly market right now has gone up$30 from where we were at just recently.
• 8:45
  SPEAKER_02: And you'll look back at across all these years, it might take weeks for the belly market to go up$30 or$50.
• 8:52
  SPEAKER_02: And a lot of times when you get somewhere in the middle of August, the belly market has a tendency to lose several weeks' worth of gains all in one day.
• 9:03
  SPEAKER_02: Um, and as soon as BLT season ends, or as soon as you get closer to having some Saturday kills in the mix again, that one does start to fall off.
• 9:13
  SPEAKER_01: Interesting.
• 9:14
  SPEAKER_01: Conscious optimism, right?
• 9:16
  SPEAKER_01: Yeah, yeah, very much so.
• 9:19
  SPEAKER_01: Any other thoughts export-wise, um, domestic demand, anything else worth mentioning that you see from a demand perspective, maybe consumer sentiment, anything like that?
• 9:29
  SPEAKER_01: No, I maybe I'll hit on exports.
• 9:31
  SPEAKER_02: Um, exports have been um the shipments have slowed, I feel like, some recently, and our new sales have also slowed some recently.
• 9:42
  SPEAKER_02: And and if you sell pork, like for example, last week, whatever whatever we made for new sales last week is stuff that gets shipped in the weeks ahead.
• 9:51
  SPEAKER_02: I've seen that starting to taper off some from where we began the first half of the year at.
• 9:56
  SPEAKER_02: It's something that we need to keep our eyes on, especially as we go forward.
• 10:01
  SPEAKER_02: Um, because a lot of our businesses with Mexico and a lot of that is hams.
• 10:06
  SPEAKER_02: Um, you don't want to see exports slowing down, and I and I do think that writing is on the wall a little bit, so I'm like our actual shipments are starting to slow down here lately, but it's summer.
• 10:19
  SPEAKER_02: Our grilling season demand is is at its peak.
• 10:22
  SPEAKER_02: Um, you're at some of your tightest supply point in time.
• 10:27
  SPEAKER_02: Hams have also done really well lately.
• 10:29
  SPEAKER_02: Just again, cautious optimism on that one.
• 10:36
  SPEAKER_01: For a while on both of those.
• 10:38
  SPEAKER_01: So any other final thoughts, action items for our listeners here this week on the hog market, Mike?
• 10:44
  SPEAKER_02: Um, if you're just looking at some, if you're looking for a fundamental improvement in hogs uh to help kind of stimulate these hog futures higher in the meantime, we're definitely in that time of year right now.
• 10:57
  SPEAKER_02: So take a good look at what your margins look like as you're going out into the future.
• 11:02
  SPEAKER_02: Um, I think margins are going to look really good for months like October and December at this point.
• 11:07
  SPEAKER_02: And then they start to get pretty rough still as you as you start forecasting margins out into the first quarter of next year.
• 11:14
  SPEAKER_02: But kind of time to catch up, I think, on making sure we all know where we need to be.
• 11:20
  SPEAKER_01: Oh, that makes sense.
• 11:22
  SPEAKER_01: Well, thank you for hopping on today, Mike.
• 11:24
  SPEAKER_01: Thank you for spending some time with us.
• 11:26
  SPEAKER_01: Uh, I know the hog market's been a little quiet the last few days compared to some of these markets, mainly on the input side there.
• 11:33
  SPEAKER_01: The grain markets are really rallying uh to some pretty key resistance levels there.
• 11:38
  SPEAKER_01: Soybeans making new highs, so meal's been running along with it, but the corn market has a little catching up to do there.
• 11:44
  SPEAKER_01: Maybe the weather rally, uh, weather premiums still kind of pulled out of that corn market being a little bit later in the year.
• 11:50
  SPEAKER_01: So something to mention there too, just with margins getting squeezed a little bit.
• 11:53
  SPEAKER_01: Yes, hog features have been going up, but the input side's going against it a little bit too.
• 11:58
  SPEAKER_01: And uh some other outrageous items like uh fuel has really gone up a lot.
• 12:03
  SPEAKER_01: Uh diesel, egg diesel both have uh gone quite uh gone up quite a bit here as of late.
• 12:09
  SPEAKER_01: So any further comments on the input side, Mike?
• 12:12
  SPEAKER_01: Nope, I'm good.
• 12:13
  SPEAKER_01: All right.
• 12:13
  SPEAKER_01: Well, thank you for joining us today.
• 12:15
  SPEAKER_01: Please click the link on the description below, everyone.
• 12:17
  SPEAKER_01: Hit the subscribe button.
• 12:18
  SPEAKER_01: Uh go check out our uh items like the daily market commentary, other cool market research data, just like Kate is pulling off of our website here today on uh ProEg Power.
• 12:28
  SPEAKER_01: Thank you for joining on, and well, uh can't wait for you next time.
• 12:32
  SPEAKER_02: Sounds good.
• 12:32
  SPEAKER_02: Thank you.