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Hog Talk: Its Time · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Hog Market Talk Podcast with Professional Egg Marketing.
• 0:05
  SPEAKER_01: Come here to get fresh updates on what's happening week to week within the Lean Hog Complex.
• 0:10
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_01: And remember to visit swineweb.com, an excellent resource for information in the pork industry, where you can also find this podcast.
• 0:24
  SPEAKER_01: This is your host, Mike Miner.
• 0:26
  SPEAKER_01: Let's cross.
• 0:27
  SPEAKER_01: Today is July 30th.
• 0:29
  SPEAKER_01: I've got Luke Wells with us here today.
• 0:31
  SPEAKER_01: How's it going, Luke?
• 0:32
  SPEAKER_01: Good, Mike.
• 0:32
  SPEAKER_01: How are you doing, man?
• 0:34
  SPEAKER_01: Pretty good, kinda like the markets.
• 0:36
  SPEAKER_01: We've had a uh entertaining week.
• 0:38
  SPEAKER_01: It's a lot going on in the outside market, so we're gonna touch on that quick.
• 0:42
  SPEAKER_01: Uh talk about the FOMC meeting, talk about some earnings, and then we're gonna kick it over to you to talk about the lean hog market.
• 0:49
  SPEAKER_01: How's that sound?
• 0:50
  SPEAKER_00: Sounds like a plan.
• 0:51
  SPEAKER_01: Alright, well, we had the FOMC meeting today for July.
• 0:55
  SPEAKER_01: Uh the Fed had left rates unchanged, Luke.
• 0:59
  SPEAKER_01: So they are keeping optionality.
• 1:01
  SPEAKER_01: They're staying flexible to uh raise holding or cutting or whatever they want to do on rates going forward.
• 1:09
  SPEAKER_01: This is uh to the safe path that the Fed took today.
• 1:12
  SPEAKER_01: And uh if you don't know what to do, don't do anything, is I guess is kind of the the path they took, anyways.
• 1:18
  SPEAKER_01: So market is hoping for two rate cuts arrested the year starting in September.
• 1:23
  SPEAKER_01: Today it looked a little bit less likely that they would get the September one done based on some of the other marketing factors that Powell looked at.
• 1:31
  SPEAKER_01: Um right now you don't really see a weakening labor market.
• 1:35
  SPEAKER_01: That got talked about a lot in the uh post report uh comments.
• 1:39
  SPEAKER_01: Unemployment uh numbers matter.
• 1:42
  SPEAKER_01: The labor market conditions are pretty much in balance, it looks like.
• 1:45
  SPEAKER_01: Basically, they're just looking for any major change in unemployment.
• 1:49
  SPEAKER_01: If it goes from 4.2 to a 4.7% jump in one month, that's a big deal.
• 1:54
  SPEAKER_01: So that's what they're watching now going forward.
• 1:57
  SPEAKER_01: Um otherwise than that, uh uh really at this point, despite some uncertainty in the economy, it remains in a pretty solid position.
• 2:06
  SPEAKER_01: And indicators are suggesting that and economic growth is probably moderated some.
• 2:12
  SPEAKER_01: So some things to keep an eye on, but uh they think that tariffs are pushing some goods a little bit higher on prices, and uh that we're just starting to see that, but we'll see that more going forward.
• 2:24
  SPEAKER_01: They think that's short term, Powell said, but they want to watch that going forward.
• 2:29
  SPEAKER_01: So they don't want to cut rates because they're worried about that coming up towards the end of the year and having an impact in inflation.
• 2:36
  SPEAKER_01: If inflation goes up, economy or markets look strong, uh, it's gonna be really hard for them to cut rates, it sounded like going forward.
• 2:43
  SPEAKER_01: So the yields were down, stocks were down on the day, US dollar was massively higher in the afternoon session as well.
• 2:50
  SPEAKER_01: So that kind of summed up the FOMC meeting results, Luke.
• 2:54
  SPEAKER_01: If you look at some of the other things that all of a sudden flipped the markets kind of back on their right side this afternoon, uh the Meg 7 reporting is going on right now, and Meta, uh Microsoft, they released their earnings and it popped higher.
• 3:10
  SPEAKER_01: Massive growth, awesome results.
• 3:12
  SPEAKER_01: So the equities took right back off.
• 3:14
  SPEAKER_01: Like uh they pretty much forgot about the meeting about 30 minutes later.
• 3:18
  SPEAKER_01: So that's kind of some of the outside market news, but at this point, anyways, given what the Fed did, we'll see some volatility in the markets today.
• 3:26
  SPEAKER_01: Uh nothing that should really spill over too much into the uh other ag sectors, I believe, Luke.
• 3:32
  SPEAKER_00: Gotcha.
• 3:33
  SPEAKER_00: Gotcha.
• 3:33
  SPEAKER_00: Well, you mentioned, you know, the the Fed kind of taking a wait and see approach, right?
• 3:37
  SPEAKER_00: Yeah.
• 3:38
  SPEAKER_00: I think that's a good segue into the hog market.
• 3:40
  SPEAKER_00: We're we're kind of in a little bit of a wait and see approach in the in the hog market.
• 3:43
  SPEAKER_00: And I, you know, just tell a little story to support that.
• 3:46
  SPEAKER_00: We we're, you know, we're we're still in lower seasonal production runs, right?
• 3:50
  SPEAKER_00: But everybody has a calendar.
• 3:52
  SPEAKER_00: I'm not making any argument that uh that hog supply is burdensome.
• 3:55
  SPEAKER_00: In fact, I think it's friendly, right?
• 3:57
  SPEAKER_00: But we're gonna have more production coming at us.
• 3:59
  SPEAKER_00: We know every year, most years, somewhere around the end of July, early August, it's the the top of our cutout.
• 4:06
  SPEAKER_00: And then as we move into bigger production runs, we we drop.
• 4:09
  SPEAKER_00: It's it's why August is at 107 and October's at 89 today, right?
• 4:13
  SPEAKER_00: That's you know, there's always a spread of some sorts in you know, in those markets.
• 4:18
  SPEAKER_00: Uh managed money, they have trimmed.
• 4:21
  SPEAKER_00: I mean, this October contract it, it had been up until yesterday, really kind of consolidated on the 20 and 50-day moving average, right around that 90 give or take a little market.
• 4:31
  SPEAKER_00: Everybody again kind of looking for for the cutout drop.
• 4:34
  SPEAKER_00: Coupled with that, I mean, we've cut what seemingly is kind of unimpactful trade deals, at least to the protein trade, with countries like Japan and South Korea and so on and so forth.
• 4:46
  SPEAKER_00: Uh, you know, the one that's a super big deal to our industry, Mexico, it looks like is going to, you know, receive the 5% bump and we put those tariffs on tomatoes.
• 4:55
  SPEAKER_00: August one's coming right up, can be negotiated after.
• 4:58
  SPEAKER_00: So always a little uncertainty in that.
• 5:00
  SPEAKER_00: We still price really well into Mexico from our our ham price, the main primary send down their versus theirs.
• 5:07
  SPEAKER_00: Um, but you know, we're three and a half or some percent like that close behind exports here today.
• 5:12
  SPEAKER_00: It's the tariffs have hurt us.
• 5:14
  SPEAKER_00: Countries like South America, European Union, they're they're taking a little share away from us, right?
• 5:18
  SPEAKER_00: So I, you know, I think just the market is kind of in, you know, we're not a record long.
• 5:22
  SPEAKER_00: They're on 137,000 contracts, but we're we're plenty long.
• 5:26
  SPEAKER_00: I think we're on 107 or something without looking it up.
• 5:29
  SPEAKER_00: That's not a that's not a that's not a I mean that's still a bullish pork protein perspective.
• 5:34
  SPEAKER_00: And again, I mentioned this kind of consolidation, looking at a cutout drop.
• 5:38
  SPEAKER_00: And the other day, cutout dropped three bucks and it went down to 115.
• 5:41
  SPEAKER_00: Today it bounced back to to 116.
• 5:43
  SPEAKER_00: October came up 50 cents or 47 and a half cents, right?
• 5:46
  SPEAKER_00: But you know, and then on top of all that, Mike, if you look at some seasonals, you know, as we enter this time frame when we know we're transitioning into a little more production and prices are high.
• 5:56
  SPEAKER_00: Cutout in the upper teens is a high price.
• 5:59
  SPEAKER_00: Um, you know, the the market's a little more hypersensitive to the drop.
• 6:04
  SPEAKER_00: Seasonals suggest a lot of times we sell off the October and December contracts a little bit in this time, and then we'll uh adjust accordingly relative to what spot fundamentals bring forward.
• 6:13
  SPEAKER_00: So, you know, with all that, uh the market is betting a little bit on the bear side, you know, 107 August expiration today.
• 6:21
  SPEAKER_01: Talk me through the number of 107, and I mean we've got drug down the past couple days here, but that has to, I mean, the next couple weeks here, it's hard to see that dropping much more, isn't it?
• 6:32
  SPEAKER_01: Or what's happening?
• 6:33
  SPEAKER_00: Well, the market's betting the cutout's gonna drop.
• 6:35
  SPEAKER_00: It's it's it's that simple because index today is about 110.
• 6:37
  SPEAKER_00: Now it's not uncommon to have a bit of a positive basis here, but that those days are numbered.
• 6:42
  SPEAKER_00: Um I think we've got a 12 or 13 trade, two weeks, you know, over two weeks' trade days left, right?
• 6:46
  SPEAKER_00: But you know, the market's you know, the market's kind of in a position here that that that cutout really starts that seasonal decline.
• 6:53
  SPEAKER_00: We'll see if it does or doesn't.
• 6:54
  SPEAKER_00: And now we're talking about I think, right?
• 6:56
  SPEAKER_00: And I always tell my clients when I say I think, right, who, you know, nobody knows, right?
• 7:01
  SPEAKER_00: But it's you know, I I I believe probably the cutout highs in.
• 7:04
  SPEAKER_00: Some of our you know, listeners maybe might disagree with me, right?
• 7:07
  SPEAKER_00: But it's it's it's a high price.
• 7:09
  SPEAKER_00: We're gonna have some additional production runs coming.
• 7:11
  SPEAKER_00: Now, it's about the rate of decline.
• 7:13
  SPEAKER_00: And if cutout holds, you know, in this upper teens, I think it was 116 this afternoon.
• 7:17
  SPEAKER_00: Yeah, it actually was 15 cents higher.
• 7:19
  SPEAKER_01: I was just happy to see that be a little higher after yesterday's.
• 7:22
  SPEAKER_01: Versus a little lower.
• 7:23
  SPEAKER_00: Yeah, exactly.
• 7:24
  SPEAKER_00: Yeah, 107's uh a little cheap, but it won't that August it it can't stay it'll get corrected pretty right, and we'll just watch this meat trade as the week goes out.
• 7:32
  SPEAKER_00: August 1, we'll see if there's any Mexico retaliation or not.
• 7:36
  SPEAKER_00: They've threatened some pork retaliation on the tomato tariff.
• 7:39
  SPEAKER_00: Um, but just a just uh a little little pause.
• 7:42
  SPEAKER_00: Basis is right for removing your October coverage, you know, forward margins where they're not as good as they've been, they're still really good.
• 7:48
  SPEAKER_00: But uh, we still have a lot of really good stuff ahead of us.
• 7:52
  SPEAKER_00: We got continuing moderated feed costs, you know.
• 7:55
  SPEAKER_00: We have good forward margin opportunities, you know, the cattle herd, as we learned on last Friday's report, not getting any smaller.
• 8:01
  SPEAKER_00: I mean, no shocker there, right?
• 8:03
  SPEAKER_00: But protein demands in a good spot.
• 8:04
  SPEAKER_00: We got some bumps in the road on uh on trade.
• 8:07
  SPEAKER_00: That's not a new thing.
• 8:09
  SPEAKER_01: I mean, the news about Brazil today, increased tariff levels against the city.
• 8:12
  SPEAKER_00: Yeah, people just they just they just can't like avoid a bull train, right?
• 8:15
  SPEAKER_00: I mean feed it, feed it, feed it, right?
• 8:18
  SPEAKER_01: Protein market, I mean, overall is you know more friendly because of that, right?
• 8:22
  SPEAKER_00: Yeah, exactly.
• 8:23
  SPEAKER_00: And that and that's a good guy to pork.
• 8:24
  SPEAKER_00: I mean, we higher beef prices support higher pork prices.
• 8:27
  SPEAKER_00: I I know we all as pork producers don't have the the amount of that spread captured we'd like to, right?
• 8:32
  SPEAKER_00: But it's it's good for us.
• 8:33
  SPEAKER_00: We're it doesn't hurt.
• 8:34
  SPEAKER_00: We're not expanding our sow herd.
• 8:36
  SPEAKER_00: I mean, the the market's in a good spot.
• 8:38
  SPEAKER_00: Um, but uh you know, these kind of margins that have been offered and and still are are there, I mean, we're just we got a little runway ahead of us and we we needed it, and it looks like we're holding our our sow herd stable at the moment.
• 8:48
  SPEAKER_00: And you know, if high corn prices, it's hard to make money when that corn to pork spread gets that tight, right?
• 8:54
  SPEAKER_00: Um, but and cost of capital, interest rates, we started off, you know, they're not falling yet.
• 8:59
  SPEAKER_00: New construction is expensive.
• 9:01
  SPEAKER_00: We're just kind of in a hold and rebuild mode, and you know, that's that's that's that's all right for now.
• 9:06
  SPEAKER_00: That's all right.
• 9:06
  SPEAKER_00: So we yeah, we like where the industry is.
• 9:08
  SPEAKER_00: We got a lot of good stuff ahead of us here, and uh, you know, things, you know, cash market this week, um, you know, got up, you know, a couple bucks shy of cutout again.
• 9:17
  SPEAKER_00: Um, you know, I think you're gonna kind of can see that.
• 9:19
  SPEAKER_00: If if cutout drops, backers will drop the cash a little, but they they still need pigs.
• 9:23
  SPEAKER_00: Fundamentals are really quite strong, and and um, yeah, we're excited about the the days, weeks, months, quarters ahead, Mike.
• 9:29
  SPEAKER_01: I do not love the October on probably charts.
• 9:34
  SPEAKER_01: Technically, it looks a little weaker there.
• 9:36
  SPEAKER_01: Bounced up against 20 day a lot recently and just continue to reject that Luke.
• 9:41
  SPEAKER_01: So that's something I'm watching quite heavily.
• 9:43
  SPEAKER_00: That 100 day is very vulnerable technically.
• 9:45
  SPEAKER_00: You're absolutely right.
• 9:46
  SPEAKER_00: That's on the October, that's at 8680, basically.
• 9:49
  SPEAKER_00: And you know, we we had a little bit of a sell-off a couple weeks ago.
• 9:52
  SPEAKER_00: It was after really uh the Mexico announcement over the weekend, and the the 100 day is what stopped it last time.
• 9:58
  SPEAKER_00: But yeah, technically that that if if the bears want to if cut out shows a little weakness, they want to reach that.
• 10:03
  SPEAKER_00: We get a little bad bad news in trade.
• 10:05
  SPEAKER_00: That it's we we had a little bit of vulnerability there, without a doubt, Mike.
• 10:08
  SPEAKER_01: All right.
• 10:08
  SPEAKER_01: Well, thank you for your time today.
• 10:10
  SPEAKER_00: Take care, sir.
• 10:10
  SPEAKER_01: And thank you to all our listeners.
• 10:12
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 10:16
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 10:21
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 10:27
  SPEAKER_01: See you next time.