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Hog Talk - Down by 30 in the 4th quarter · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Hog Market Talk Podcast.
• 0:06
  SPEAKER_00: Your weekly deep dive into hog market fundamentals, breaking news, and industry insight.
• 0:13
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: Today is October 15th.
• 0:23
  SPEAKER_02: I've got Luke Wells back with us today to talk about the hog market.
• 0:26
  SPEAKER_02: How's it going, Luke?
• 0:27
  SPEAKER_01: You know, it's going pretty good, Mike.
• 0:28
  SPEAKER_01: I mean, all things considered.
• 0:30
  SPEAKER_01: How are you doing today?
• 0:31
  SPEAKER_02: Not too bad.
• 0:32
  SPEAKER_02: I I'd say it's uh not the best time to be talking about the hog market, but a very necessary we're gonna try to take a glass half full perspective, but man, it's the market's in tough shape.
• 0:42
  SPEAKER_01: It's uh it's uh it's a little gotta give yourself a little pep talk every day, buddy.
• 0:46
  SPEAKER_02: Well, on the hog side at least, one thing did get a little bit easier.
• 0:48
  SPEAKER_02: What we're gonna do is talk about input side a little bit on the corn and soybeans.
• 0:52
  SPEAKER_02: Then we're just gonna get right into uh what this hog market looks like and and if it's ever gonna fix itself and how that could be, Luke.
• 0:59
  SPEAKER_01: Yeah, sounds good.
• 1:00
  SPEAKER_01: Start with corn, let's start with the maybe a positive.
• 1:02
  SPEAKER_02: Yeah, one of the positives on the corn market is you've had two massive reports quarterly stocks report and the Wazday report that added nearly half a billion bushels onto the balance sheet on corn and ending stocks.
• 1:14
  SPEAKER_02: And that was between a few things.
• 1:16
  SPEAKER_02: Old crop carryover with the quarterly stocks looked like in the Western Corn Belt uh specifically in last year's crop.
• 1:22
  SPEAKER_02: We carried over a big crop into this year, and that was no surprise, uh, but it was a little bit bigger than anticipated.
• 1:29
  SPEAKER_02: The so that would be the first part of it, a week or so after the WASDA came out, and we found a pretty massive yield, which was uh definitely caught some folks off uh off guard here at a 181 plus.
• 1:41
  SPEAKER_02: And you know, the trending yield was lower in August and September, and then a pretty big jump up in the October report.
• 1:48
  SPEAKER_02: And uh as we're getting into harvest here, not much corn's been done, not enough to really get a huge conclusion, probably from boots on the ground on what this corn crop looks like in the U.S.
• 1:58
  SPEAKER_02: But the one thing it has done regardless is it's given us numbers that we're gonna be stuck with for a while here.
• 2:04
  SPEAKER_02: You know, typically you don't change a lot in oven dies for production out of the USTA, so probably wait till January.
• 2:10
  SPEAKER_02: But what it has given us is a pretty big setback in these grain markets, which uh for the road crop guys, if you don't have it sold, a little inconvenient.
• 2:18
  SPEAKER_02: But for the for the hog producers out there, that is one aspect of your business trying to help you out today in margins, isn't it, Luke?
• 2:25
  SPEAKER_01: Yeah, absolutely.
• 2:26
  SPEAKER_01: It's it's it's helpful and it's it's needed, right?
• 2:29
  SPEAKER_01: Um, and so we'll we'll definitely welcome from an end user's perspective.
• 2:33
  SPEAKER_01: And you know, unfortunately, switching over to the revenue side, right?
• 2:36
  SPEAKER_01: The revenue side for the hogs is really in a tough spot.
• 2:39
  SPEAKER_01: So pork industry is still looking at a very negative forward curve.
• 2:42
  SPEAKER_01: Uh, a lot of skepticism in the market.
• 2:45
  SPEAKER_01: Still a very large managed money short.
• 2:48
  SPEAKER_01: Um, we haven't given them uh uh a reason to cover.
• 2:51
  SPEAKER_01: And I'll try to kind of end with maybe a few things that we're we're optimistic and hopeful of, right?
• 2:56
  SPEAKER_01: But uh the front end of this thing is it's really sloppy, Mike.
• 3:00
  SPEAKER_01: We we had a pretty big harvest, like 262 last week, which is a short percent and a half over a year ago.
• 3:06
  SPEAKER_01: This week is probably gonna step back to about a year ago, but next week, probably right back up, you know, just a little above 2.6 again, percent and a half over.
• 3:14
  SPEAKER_01: We're you know, we're having having quite a few hogs hit the market.
• 3:17
  SPEAKER_01: Um, a little contrast to the USDA hog and pig report that came out.
• 3:21
  SPEAKER_01: It was kind of calling force set into a percent and a half less hogs.
• 3:25
  SPEAKER_01: Very short-term view, a couple weeks, right?
• 3:27
  SPEAKER_01: But uh plenty, plenty of hogs on the market.
• 3:29
  SPEAKER_01: And it's I mean, it's just the the fundamentals are soggy, Mike.
• 3:32
  SPEAKER_01: Um, you know, in the negotiated cash market, you've become a price taker, not a price negotiator.
• 3:38
  SPEAKER_01: We're running really high daily harvest rates, plants are full, lots of contract hogs.
• 3:44
  SPEAKER_01: Um, and uh, you know, packers are using their leverage uh to you know, we're a lot a lot of cash hogs traded with the six in front of them this week.
• 3:52
  SPEAKER_01: Um, and so so that that piece is is not optimistic.
• 3:55
  SPEAKER_01: Uh uh demand still, we haven't found a price where we can stabilize that.
• 4:00
  SPEAKER_01: Um port cut out at you know,$80 is kind of a number where you hold the line, right?
• 4:05
  SPEAKER_01: We we dipped below that a couple times this week.
• 4:08
  SPEAKER_01: We were below it, high 79 or something like that, that last week.
• 4:11
  SPEAKER_01: And you know, kind of every primal is is is is struggling, right?
• 4:15
  SPEAKER_01: It's it's we many times you have one primal maybe lifting up another, you know, we're just we're we're flat.
• 4:21
  SPEAKER_01: And we've we got too much mark, too much pork on the market today um uh relative to current demand structures, and it's created a uh a very negative uh futures curve, very negative margins.
• 4:32
  SPEAKER_01: So the the industry's in a tough spot.
• 4:35
  SPEAKER_01: Um, you know, as we kind of like roll forward, okay.
• 4:38
  SPEAKER_01: I described the challenges, and they're not behind us.
• 4:41
  SPEAKER_01: Um, you know, it's it's it's really around um one global pork supplies, and you know, it's we we haven't added sows domestically here in the states, right?
• 4:51
  SPEAKER_01: But with production's better, it gets better, and it's every industry, right?
• 4:54
  SPEAKER_01: You get better at what you do, health is a little better.
• 4:57
  SPEAKER_01: Um, but globally, the the market's expanded.
• 5:00
  SPEAKER_01: China has more sows, Brazil has more sows, you know, just as an example.
• 5:05
  SPEAKER_01: Uh, and August exports came out.
• 5:06
  SPEAKER_01: That's always official exports are always looking in the rear view, right?
• 5:10
  SPEAKER_01: Um, but we'll I'll draw a line and a tangent here.
• 5:13
  SPEAKER_01: We we had a poor August export month, and we dropped our year-to-date number down, um, went from like 22% of pigs exported and in July to like 20 in August, just as a proxy.
• 5:23
  SPEAKER_01: And a big part of that was Brazil.
• 5:25
  SPEAKER_01: We've been hearing a lot about Brazil and the meat trade, especially the last few months, but really all year.
• 5:31
  SPEAKER_01: And when you look at price, um, it really started to diverge about the first of the year, first of 26.
• 5:37
  SPEAKER_01: And you saw Brazilian hog price going down because of their oversupply.
• 5:41
  SPEAKER_01: And our hog break price in the U.S.
• 5:43
  SPEAKER_01: is relatively recent, last couple months, right?
• 5:46
  SPEAKER_01: So it's a very wide spread.
• 5:48
  SPEAKER_01: And we heard a lot of pressure on the export side with Brazil competing very hard against Mexico, uh, into Southeast Asia, Philippines.
• 5:55
  SPEAKER_01: Brazil was needing to clear pork, right?
• 5:57
  SPEAKER_01: And China being oversupplied is not importing as much.
• 6:00
  SPEAKER_01: And so I think you know, some of that August setback and exports, um, we we saw that manifest itself.
• 6:05
  SPEAKER_01: Now, the landscape is changing.
• 6:07
  SPEAKER_01: One, the eye on the prize still is Mexico.
• 6:09
  SPEAKER_01: Mexico is the biggest pork importer in the globe.
• 6:12
  SPEAKER_01: Their hog price is still very high, meaning they have demand to import pork.
• 6:15
  SPEAKER_01: That's good.
• 6:16
  SPEAKER_01: Um, how we got there maybe isn't the best.
• 6:19
  SPEAKER_01: Brazilian pork price, and we don't have a graph up on this, I'll just describe it.
• 6:22
  SPEAKER_01: It's gone up a little.
• 6:24
  SPEAKER_01: U.S.
• 6:24
  SPEAKER_01: hog prices went down a lot.
• 6:26
  SPEAKER_01: My point is where there's been a wide spread all year.
• 6:28
  SPEAKER_01: Now our hog prices are uh are together, they're converged.
• 6:32
  SPEAKER_01: And so if there's a little bit of optimism, I hear on the meat trade, I'm hearing a little bit of optimism um from the export desks.
• 6:39
  SPEAKER_01: So that's good.
• 6:40
  SPEAKER_01: And this is an analogy.
• 6:42
  SPEAKER_01: I don't know if it's the best one, but it's one I've been using this week talking with people.
• 6:45
  SPEAKER_01: It's you know, kind of like football fourth quarter, we're down by 30.
• 6:49
  SPEAKER_01: That's pretty dire.
• 6:50
  SPEAKER_01: Doesn't mean the game's over, right?
• 6:51
  SPEAKER_01: Um, but pork industry, it's it is backed into a tough, tough spot here.
• 6:56
  SPEAKER_01: And demand is is the major issue.
• 6:58
  SPEAKER_01: And when your best line of defense is low prices, clear, low prices, that's not the line of defense you want to run, but that is like we're down by 30 in the fourth quarter, as an example.
• 7:08
  SPEAKER_01: So maybe we get a little bit of pickup on export.
• 7:11
  SPEAKER_01: Um, you know, also domestically, we've struggled.
• 7:14
  SPEAKER_01: We've struggled against beef.
• 7:15
  SPEAKER_01: Consumer still picks beef.
• 7:17
  SPEAKER_01: Uh, we've struggled against the poultry, against chicken, and and pork is again like it's it's it's it's had a challenge, and we're seeing that in in our prices, and it also has to pull through.
• 7:27
  SPEAKER_01: It's not just what you know our farm gate price is or the cutout price is, it's what's the price at the retail level.
• 7:33
  SPEAKER_01: And again, pork, uh, we have a lot of work to do on demand.
• 7:37
  SPEAKER_01: The industry's working on demand, it never happens fast enough, and and it is the biggest challenge, the biggest fight, the biggest opportunity we have, uh, especially with our shifting consumer, our younger consumer, because not as pork-centric as our baby boomers.
• 7:50
  SPEAKER_01: We all know that.
• 7:51
  SPEAKER_01: I won't get into that too deep, but um, we are seeing some things kind of, you know, none of this is silver bullet, none of this means absolutely right.
• 7:58
  SPEAKER_01: But if you look at talking about pull through to the retail, get the price down at the retail level and the grocery stores.
• 8:04
  SPEAKER_01: We are seeing uh uh featuring uh activity up.
• 8:07
  SPEAKER_01: I think we were around 92% feature rate this week versus 78% a year ago.
• 8:13
  SPEAKER_01: So that's good.
• 8:14
  SPEAKER_01: We get more you know moving through uh the retail and featuring is one thing, it's also price.
• 8:19
  SPEAKER_01: Um, we're finally seeing some downward price movement.
• 8:22
  SPEAKER_01: I I think uh Jake has a couple of graphs up, and and and bacon price is moving lower, hoping to clear more product out.
• 8:29
  SPEAKER_01: Loin price is moving lower, hoping to clear more product out, and and and grounds, ground pork is moving lower, right?
• 8:36
  SPEAKER_01: So if we can start to see that, we we still think price price does matter.
• 8:41
  SPEAKER_01: Um, there's definitely preference and taste and all that, but uh you know, we're you know, that we're at a spot here where we're we're testing contract lows, lowest cutoff prices we've seen in several years.
• 8:54
  SPEAKER_01: Dece is right around hold the line, 66 bucks.
• 8:57
  SPEAKER_01: It traded in the high 65s earlier in this morning's session, right?
• 9:00
  SPEAKER_01: Um we need to we need to find a spot where we can kind of dig in and and and and buy back a little bit of demand.
• 9:06
  SPEAKER_01: Um, and long term, the industry has to focus on getting demand through choice and taste and preference and how you present the product and whatnot, Mike.
• 9:14
  SPEAKER_01: So yeah, it's all that wrap it around.
• 9:17
  SPEAKER_01: Um pork industry is in a is in a tough spot.
• 9:20
  SPEAKER_01: Um, so it's in hunker down mode.
• 9:22
  SPEAKER_01: Uh do everything you can to make your operation as efficient as possible.
• 9:26
  SPEAKER_01: But you know, even though corn's now got a you know a four in front of it on the futures curve than a five, we're still cost of production somewhere in the mid-80s, right?
• 9:35
  SPEAKER_01: And and you know, we've got meat price at 79 and index price at 74 and trending lower.
• 9:40
  SPEAKER_01: Um that's a tough spot here.
• 9:42
  SPEAKER_01: So um definitely gonna have uh gonna have some tough, tough quarters ahead here.
• 9:48
  SPEAKER_01: Um, and uh uh yeah, the futures curve is reflecting that.
• 9:52
  SPEAKER_01: So we stay focused on trying to look at maybe some of those demand bumps.
• 9:56
  SPEAKER_01: We need to stay focused on the demand fight.
• 9:59
  SPEAKER_01: Um, that's one of the biggest priorities for our industry right now, and see if we can't uh can't get a little bit of momentum change on that.
• 10:06
  SPEAKER_01: But like I said, changing the consumer demand, changing our presentation, our products, how we deliver them, like that.
• 10:13
  SPEAKER_01: That's a it's a long game, not a short game.
• 10:15
  SPEAKER_01: And that's that's a battle we're in here right now, Mike.
• 10:18
  SPEAKER_02: Well, the hog margin sheet going home last night, negative 11.
• 10:21
  SPEAKER_02: So been hovering right around that negative six to about negative 10 here recently.
• 10:26
  SPEAKER_02: Uh, going home last night.
• 10:27
  SPEAKER_02: But yeah, domestic consumers, just to start there as we kind of wrap this up, uh, they've been pinched, and pork hasn't been able to take advantage of that yet.
• 10:35
  SPEAKER_02: It's actually probably hurt it a little bit, being more of that middle meat.
• 10:39
  SPEAKER_02: And uh we are starting to see featuring pick up on that.
• 10:42
  SPEAKER_02: So that's the good news.
• 10:43
  SPEAKER_02: Hopefully, retail can push some of these pork products.
• 10:47
  SPEAKER_02: We learn how to cook it a little bit better and really drive some demand into that pork market domestically, uh, because inflation's still hot, consumers are still going to be pinched, diesel's still expensive, and uh the equities are taking a little hit here.
• 11:00
  SPEAKER_02: So we'll see if uh we can improve some demand domestically there.
• 11:03
  SPEAKER_02: On the export front, uh, a little change in the Brazilian real that skyrocketed this week uh after the election news there uh with a more fiscally responsible uh candidate supposedly there coming in.
• 11:15
  SPEAKER_02: So one of their biggest three currency up days ever.
• 11:18
  SPEAKER_02: And uh the other two events had actually only been uh very similar events where we kind of had election shocks down there, but nonetheless, that makes our pork a little more expensive.
• 11:28
  SPEAKER_02: And uh, you know, our price keeps going down and there's going up here a little bit, and Mexico is still super expensive.
• 11:34
  SPEAKER_02: So hopefully exports can improve here a little bit too.
• 11:38
  SPEAKER_01: Absolutely.
• 11:39
  SPEAKER_01: Yeah.
• 11:39
  SPEAKER_02: All right, everybody else, please click the link and subscribe below.
• 11:42
  SPEAKER_02: We've got cool things like daily market commentary if you want to get access to some cool tools and market research data, kind of like Jake was showing there.
• 11:50
  SPEAKER_02: Uh, please reach out to us and and uh we would love to chat with you.
• 11:54
  SPEAKER_02: If you're down by 30, I would say Tom Brady's the best quarterback to have to try to bring you back.
• 11:58
  SPEAKER_02: And I would like to think professional egg marketing is uh that quarterback for your hog operation and hog risk management.
• 12:05
  SPEAKER_02: So please give us a call and have folks like Luke Wells try to help you out.