Latest / Professional Ag Marketing Podcast / Kick to the Head

Transcript

Kick to the Head · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the egg markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: Today is November 10th.
• 0:24
  SPEAKER_01: I've got Nick with us here today.
• 0:26
  SPEAKER_01: How's it going, Nick?
• 0:27
  SPEAKER_00: Good.
• 0:27
  SPEAKER_00: How are you, Mike?
• 0:28
  SPEAKER_01: Very good.
• 0:29
  SPEAKER_01: Well, we're gonna talk uh about a couple things here.
• 0:31
  SPEAKER_01: We're gonna talk about the WASD report first that came out yesterday on the grain markets, and then we're gonna talk a little bit about this cattle market and quite the kick to the head that we've had here going on lately.
• 0:43
  SPEAKER_00: Sounds good.
• 0:44
  SPEAKER_01: Alright, so WASD report yesterday on the grain prices came out, uh supply and demand situation.
• 0:51
  SPEAKER_01: We did raise yield on corn and soybeans.
• 0:54
  SPEAKER_01: Corn raised yield for the United States up to 174.9 for the US, up from 173.
• 1:02
  SPEAKER_01: The soybean market we raised from 49.9 bushels, uh, raised it up to 49.9 from 49.6.
• 1:11
  SPEAKER_01: So it was an increase in production.
• 1:13
  SPEAKER_01: Soybean stocks uh, you know, were able to take that in stride okay.
• 1:17
  SPEAKER_01: They still remain with uh ending stocks at the tightest level in eight years, but the corn market, that's gonna be the the highest projected ending stocks we've had in the last five years.
• 1:27
  SPEAKER_01: And uh we put some pressure on these grain prices in the last 24 hours here, Nick.
• 1:33
  SPEAKER_01: The soybeans took it a little bit hard after the report.
• 1:36
  SPEAKER_01: That was probably a little bit more of a surprise, I would say, for the markets.
• 1:40
  SPEAKER_01: And we also had an 80 cent rally uh the week before that m that uh that report as well on the soybeans that we were able to correct uh correct a little bit on.
• 1:51
  SPEAKER_01: So that was day report is behind us for the month of November with no other major changes globally.
• 1:57
  SPEAKER_01: You know, the wheat market, you had a few decreases in production globally, but Russia was able to offset it.
• 2:03
  SPEAKER_01: And then uh Argentina, Brazil, no major changes for production there, but it is worth noting they're currently uh worth monitoring with their weather forecast going forward here through December, January, some of the dryness throughout Brazil, uh, besides that southern tip, which is gonna be a little bit too wet.
• 2:21
  SPEAKER_01: So continue to watch that weather.
• 2:23
  SPEAKER_01: That's probably what's gonna push these grain markets around quite a bit in the uh near term here now.
• 2:28
  SPEAKER_01: Going forward is uh Brazil weather, and uh we're gonna watch crude oil a little bit here, see if we can get a rally out of that that would support these uh grain markets.
• 2:38
  SPEAKER_01: Otherwise, it's uh yeah pretty tough for corn to get out of its own way right now, isn't it, Nick?
• 2:43
  SPEAKER_00: Yeah, for sure.
• 2:44
  SPEAKER_01: Yeah.
• 2:45
  SPEAKER_01: What can you tell me about the cattle market?
• 2:48
  SPEAKER_01: I wanted to dive into that right away, Nick.
• 2:50
  SPEAKER_01: Uh we've really had a kick to the head here recently since the September 15th highs that we put in this cattle market uh has really taken off quite a bit of uh uh quite a bit of uh price here.
• 3:03
  SPEAKER_01: What can you say about that?
• 3:04
  SPEAKER_00: Yeah, well it has been quite the bearish show, Mike, since that last cattle on feed report there in September.
• 3:10
  SPEAKER_00: We do get another one coming out here next week.
• 3:13
  SPEAKER_00: And I think uh the market is just looking at these reports as um as kind of their indicators of of the supply situation kind of flattening out and and um yeah we're just sending these futures lower without a lot of relief.
• 3:29
  SPEAKER_00: I think uh it's it's it's the funds have decided they're gonna exit for now and and um uh yeah they're not giving us really any retracements to speak of.
• 3:42
  SPEAKER_00: Um I think the the biggest reasons for their exit is is the combination of those cat bearish cattle and feeder ports as well as um kind of some indicators in the economy, you know, with these trucking rates falling hard and not as many goods uh um moving around the country is kind of some signs that they needed to exit and and uh you know because obviously that will affect uh beef protein demand going forward.
• 4:13
  SPEAKER_00: We all think it's it's quite a bit too early relative to the supply situation for this cattle market to dive lower, but um the reality is they're they're shifting it hard lower, and and we gotta kind of deal with the ramifications now.
• 4:30
  SPEAKER_00: Um I think as we as we look at the supply situation for 2024, it looks like that's gonna be really flatlined to 23 just because uh we're still not retaining heifers back, and and until we start retaining heifers, the uh the uh the numbers should be pretty similar to this year.
• 4:55
  SPEAKER_00: Uh we have seen some beggar feeder cattle imports out of Mexico and Canada, and um, and so that's contributing to a little bit uh more on the beef supply as well as a little bit lower exports and and all of it's kind of contributing to some some fund exiting here.
• 5:14
  SPEAKER_01: So it's a demand problem, not really here today, but potentially in the future, and supply still remains tight, correct?
• 5:23
  SPEAKER_00: Yeah, right um well right now we do have a you know a supply problem.
• 5:28
  SPEAKER_00: We we we did back some cattle up, weights are are pretty high, well, highest they've been for this time of year, and sh and on a sh you know sharp trend higher.
• 5:39
  SPEAKER_00: So that you know we do have a a supply problem right now, but um and and that's really been driven by the Packer too and his reluctance to bring kills up.
• 5:51
  SPEAKER_00: But um, but uh yeah, I think you know we we kind of work our way out of that going into spring, but obviously the the question remains if we can if we can hold demand uh you know this next year into 24 and and right now it appears that the funds don't think so.
• 6:11
  SPEAKER_01: Inflation has been one of the most commonly used words in the last couple of years here as we uh work our way around the post-COVID era here.
• 6:20
  SPEAKER_01: But uh one of the things worth mentioning this week is you know, you look at the East Coast and uh something as simple as a McDonald's Big Mac meal being worth$17.5 today in the East Coast, yeah, that that meal is getting more difficult for the average American consumer to uh to acquire and continue to pay for.
• 6:44
  SPEAKER_01: As we continue to ramp up inflation and make it difficult for families to eat at something as simple as McDonald's, uh that cuts into beef demand pretty dramatically.
• 6:56
  SPEAKER_01: And at longer term here, I think that seems to be the the root fundamental problem in this cattle market that we've recognized here.
• 7:04
  SPEAKER_01: Would you say that's correct?
• 7:06
  SPEAKER_00: Yeah, definitely.
• 7:07
  SPEAKER_00: Um, you know, it's hard to look at choice beef and say that we have a problem yet today, you know, we're still right around that 300 level in choice beef, but but certainly I think uh um, you know, that is to come yet, and and and I think there's there's things going on, like we say in the economy today that suggest that that gets weaker here in the 24.
• 7:28
  SPEAKER_01: I would completely agree, and uh I think the uh the volatility we've experienced in the cattle market here, a little bit of a shock because we haven't seen a lot of back and forth on this rally so far.
• 7:39
  SPEAKER_01: It's been such a long rally and such a steady climb higher without many corrections along the way, that uh this is definitely creating some panic peters out there here today.
• 7:51
  SPEAKER_01: Uh uh so we'll have to have to really watch ourselves through this rally, obviously.
• 7:56
  SPEAKER_01: Uh what can you tell us about the cash market and what the current fundamentals there are telling us?
• 8:01
  SPEAKER_00: Yeah, so that's the one uh thing that's really unique today, you know.
• 8:05
  SPEAKER_00: Obviously got a positive$6 basis here to the December futures here in November.
• 8:12
  SPEAKER_00: Um basis is really telling you to to get cattle moving.
• 8:17
  SPEAKER_00: Um, you know, and so that we just harp on that especially, that um if you got anything um close right now to to get some bids and get get trucks underneath them cattle, but uh you know, and that really was driven by the that October December spread getting a little wide and and guys rolling some hedges out to decease and then obviously the marginal refeed too.
• 8:43
  SPEAKER_00: Um you know, kind of making the desire to to keep feeding these cattle and that but now uh with this shift in basis, I think we're definitely um definitely want to get them cattle moving.
• 8:56
  SPEAKER_01: Any final thoughts for our listeners here this week, Nick?
• 9:00
  SPEAKER_00: Well, yeah, I think um we're all kind of questioning what to do here and and uh you know our our uh we do have a lot of calves and and cattle placed in the last couple months that especially lighter calves for that August and October time frame of next year that that um probably still you know are close to break even, you know, in this in this low 170s.
• 9:28
  SPEAKER_00: And might not be a bad idea to look at some option coverage on those cattle um because uh yeah, who knows where this thing could bottom out at yet if the funds truly want to exit their entire long position.
• 9:41
  SPEAKER_00: So I think we're looking at that.
• 9:42
  SPEAKER_00: And then also on the nearby for this spring stuff.
• 9:45
  SPEAKER_00: I mean, yeah, we're even though a lot of those break-evens are in the mid-180s to even 190s, we gotta we gotta probably look at getting some coverage under them too, um, on some on some retracements or even now, depending on our level of coverage.
• 10:03
  SPEAKER_01: A very difficult decision to be made here, as guys especially are placing some cattle here today.
• 10:08
  SPEAKER_01: Uh obviously it's gonna take quite a bit of time, strategy.
• 10:12
  SPEAKER_01: Really work through it here with your risk manager, and I appreciate your time here today, Nick.
• 10:16
  SPEAKER_01: Thank you for joining us.
• 10:17
  SPEAKER_01: Can't wait for you to come on next time.
• 10:19
  SPEAKER_00: Thanks, Mike.
• 10:21
  SPEAKER_01: And thank you to all our listeners.
• 10:23
  SPEAKER_01: Please reach out to us at professional eggmarketing.com.
• 10:26
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 10:31
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 10:38
  SPEAKER_01: See you next time.