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Transcript

Holiday Hog Harvest Kerfuffle · Professional Ag Marketing Podcast

• 0:01
  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.
• 0:21
  SPEAKER_02: All right, today is September 10th.
• 0:23
  SPEAKER_02: I've got a new guest with us here, Nathan from Professional Ag Marketing.
• 0:28
  SPEAKER_02: He's going to talk about the hog market here with us today.
• 0:30
  SPEAKER_02: How's it going, Nathan?
• 0:31
  SPEAKER_02: It's going well.
• 0:32
  SPEAKER_02: Hello, Mike, and hello, world.
• 0:33
  SPEAKER_02: It's good to be here today.
• 0:35
  SPEAKER_02: Awesome.
• 0:35
  SPEAKER_02: Well, let's just do a little bit of a start here on the uh supply side, then we'll work towards demand, and then we'll do a little bit of a wrap-up.
• 0:43
  SPEAKER_02: So, what what can you tell me about the supply side with a lot of the fluctuations we've seen uh kind of revolving around the Labor Day holiday?
• 0:51
  SPEAKER_01: Absolutely.
• 0:52
  SPEAKER_01: Yeah, we've got a pretty interesting uh scenario playing out on the supply side of the hogs right now.
• 0:57
  SPEAKER_01: Um, starting off with harvest here, um, you did have uh Labor Day on Monday, of course.
• 1:03
  SPEAKER_01: Uh so we're gonna have a four-day uh week of harvest.
• 1:06
  SPEAKER_01: So harvest this week will be less um than we typically see in a normal week.
• 1:11
  SPEAKER_01: Um that's nothing out of the normal.
• 1:13
  SPEAKER_01: And looking at the harvest chart, um, it can be misleading because right now you would think we're in that supply dip.
• 1:20
  SPEAKER_01: Um, but this data point as of this year uh would be from last week's harvest, which was a full five-day harvest.
• 1:28
  SPEAKER_01: Um, and that's being compared with last year's harvest on Labor Day, which was a four-day harvest.
• 1:34
  SPEAKER_01: So, summary of that is in a five-day harvest this year, uh, we harvested pretty much the same amount of pigs as last year in a four-day harvest.
• 1:43
  SPEAKER_01: Um that just tells you um we're not in an overburdensome uh supply situation for number of pigs.
• 1:50
  SPEAKER_01: Uh and as well this week, when the harvest numbers come out, they will be lighter due to that missed day because of Labor Day.
• 1:57
  SPEAKER_01: Um estimates are coming around a 2.3 right now, whereas last year was around a 2.5 on kill.
• 2:04
  SPEAKER_01: Um, so we're probably gonna run around 200,000 less pigs uh than year prior.
• 2:10
  SPEAKER_02: So supply really, from a number standpoint, doesn't seem to be a problem.
• 2:14
  SPEAKER_02: Uh weights, I know this time of the year we can pull up the graph as well, Cade.
• 2:18
  SPEAKER_02: Uh, but weights typically start to go up here, but that doesn't seem like uh real burdensome at this point either from the supply side, does it?
• 2:26
  SPEAKER_01: Exactly.
• 2:26
  SPEAKER_01: Yeah, that's correct.
• 2:27
  SPEAKER_01: Uh and uh with with harvest being what it has been in the past few weeks, we've been uh similar or lighter than year ago levels.
• 2:35
  SPEAKER_01: You'd expect us to be backing up some pigs.
• 2:38
  SPEAKER_01: Um and evidence of that would be weights beginning to rise.
• 2:42
  SPEAKER_01: Um and looking at the the combined producer and packer-owned weights, um, if you pop over that one, Cade, um they have been moving sideways and trending actually slightly less as we've been harvesting less pigs.
• 2:54
  SPEAKER_01: Um so once again, playing into that idea that supply is not burdensome right now.
• 3:00
  SPEAKER_01: Um and looking at packer-owned weights specifically, um, they also have been trending lower uh to a little bit higher extent.
• 3:09
  SPEAKER_01: Um so moving lower, and this could be some evidence uh that they're running short on their supply, and we could potentially see them uh entering into the cash market in a little bit bigger way going forward here over the next couple weeks.
• 3:23
  SPEAKER_01: So maybe you see some firmness into the cash market over that time period.
• 3:27
  SPEAKER_02: This seems like a little bit of a change.
• 3:29
  SPEAKER_02: I mean, you can see in all of those charts there, we've been pretty heavy most of the year, so for us to be at this time of the year, we start to back off on the kill a little bit, and you don't see really weights that much higher than prior year here.
• 3:44
  SPEAKER_02: A little bit of a change of pace there compared to what we've seen.
• 3:47
  SPEAKER_02: So very interesting.
• 3:49
  SPEAKER_02: Anything else on the supply side before we work over to the demand side?
• 3:52
  SPEAKER_01: No, I think you summed it up pretty well there.
• 3:55
  SPEAKER_01: Um, definitely not acting as a headwind.
• 3:57
  SPEAKER_01: Um, looking at just the numbers purely should be acting as a tailwind, giving us some support here.
• 4:02
  SPEAKER_02: So let's talk about the problem, the elephant in the room then.
• 4:05
  SPEAKER_02: Let's talk about demand.
• 4:06
  SPEAKER_02: It seems like uh we've had some very interesting volatility lately uh regarding the uh the the demand side of the category.
• 4:16
  SPEAKER_02: The carcass cutouts have been all over the board here lately, bellies, hams.
• 4:20
  SPEAKER_02: Tell me a little bit about what you've been seeing.
• 4:23
  SPEAKER_01: Exactly.
• 4:24
  SPEAKER_01: Yeah, just like you said, uh cutout has been all over the place um late last week and into this into this week, uh dipping down into that 92 type range, uh, lower than we expected to see it and lower than we wanted to see it.
• 4:38
  SPEAKER_01: Um largely due to the consistent weakness in the ham market.
• 4:42
  SPEAKER_01: We've been seeing that uh for a few weeks now.
• 4:45
  SPEAKER_01: Uh they are finding some support down near 70, uh up to 7707 as of last night's print.
• 4:53
  SPEAKER_01: Um so might see some strength going forward in the hams, and certainly from these levels, we think we can see some strength.
• 5:00
  SPEAKER_01: Um all this started with a labor issue uh with some temporary visas expiring.
• 5:06
  SPEAKER_01: Um so as we go forward here, I believe enough time has passed where we should start to see that be remedied and we can start to get some value added back into these hams.
• 5:16
  SPEAKER_01: Um so now the elephant in the room, so to speak, bellies.
• 5:19
  SPEAKER_01: Um, of course, last Thursday and Friday um just moving sharply lower, uh, a lot of volatility, which isn't extremely abnormal this time of year.
• 5:29
  SPEAKER_01: Uh bellies typically see a seasonal drop this time of year.
• 5:33
  SPEAKER_01: So while we were disappointed, we weren't incredibly surprised by this, uh, but they have seemed to found some support here down near the 120-ish level.
• 5:42
  SPEAKER_01: Um they were about 15 bucks higher in the PM cutout report yesterday.
• 5:46
  SPEAKER_01: Um just playing into the volatility uh in this cutout, hams and bellies um have moved us a little bit lower here in the past week.
• 5:55
  SPEAKER_02: Do you think this is more domestic or export-driven weakness?
• 6:02
  SPEAKER_01: Yeah, I'd say in the hams uh we export a large amount of our hams.
• 6:06
  SPEAKER_01: Uh hams are likely more due to exports, um, but bellies probably more a supply-side factor as well as a domestic demand uh issue.
• 6:16
  SPEAKER_02: Let's talk about the consumer themselves because demand seems to be the recurring issue throughout most of the year here that we've talked about.
• 6:24
  SPEAKER_02: Uh how do you think the consumer is sitting today?
• 6:27
  SPEAKER_01: Yeah, and there's really only one way to put it uh with the consumer is they're not in great shape at the moment.
• 6:33
  SPEAKER_01: Um you've got high inflation, uh, largely due to energy prices.
• 6:38
  SPEAKER_01: Um you can pull up the crude oil chart here, Cade.
• 6:42
  SPEAKER_01: Uh crude oil is up another four dollars in the front month contract.
• 6:46
  SPEAKER_01: Uh the continuation of the US-Iran conflict uh really is not treating our consumer well.
• 6:53
  SPEAKER_01: Um you've had high gas prices all summer.
• 6:56
  SPEAKER_01: Um, of course, energy inflation bleeds over into everything.
• 7:00
  SPEAKER_01: Um it takes gas, it takes diesel to get all goods to market.
• 7:03
  SPEAKER_01: Um so the consumers just pinched.
• 7:05
  SPEAKER_01: We'll get another CPI report coming out here soon, um, and that'll give us some more evidence as to what we're seeing.
• 7:12
  SPEAKER_01: Uh but I really think it just plays into the energy markets, and until we get uh the Middle East and the Strait of Hormuz opened up, uh that's gonna continue.
• 7:22
  SPEAKER_01: Um specifically diesel here.
• 7:24
  SPEAKER_01: Um diesel prices are at record national average highs right now, uh, and we're heading into harvest in a period of high diesel usage.
• 7:32
  SPEAKER_01: Um so my thought is that's not gonna be remedied anytime soon.
• 7:36
  SPEAKER_01: Demand for diesel isn't going down in the next couple months, and supply does not seem to be increasing.
• 7:42
  SPEAKER_02: A lot of people keep asking me what to do about uh diesel fuel here.
• 7:46
  SPEAKER_02: If they haven't done much going into harvest already, it's a tight spot.
• 7:50
  SPEAKER_02: I normally just say buying something at record high prices is is typically uh not advised upon if you don't have to.
• 7:58
  SPEAKER_02: Now, going into fall, you have to, so try not to buy more than you have to from the looks of it.
• 8:03
  SPEAKER_02: But at the same time, this war doesn't seem to be getting uh over anytime soon here.
• 8:07
  SPEAKER_02: That's just been escalating as of late.
• 8:09
  SPEAKER_02: The consumer's tight saving rates of income is down to 2.7% of income is being saved right now.
• 8:16
  SPEAKER_02: That's the lowest ever.
• 8:17
  SPEAKER_02: So the consumer is strapped.
• 8:19
  SPEAKER_02: They uh keep spending money that we don't really have, especially in the bottom uh half of this economy.
• 8:25
  SPEAKER_02: So been a K-shaped economy, and the bottom bottom part of the K is not looking so hot.
• 8:30
  SPEAKER_02: Uh the energy inflation makes up about half of our inflation gauge, so it's the biggest part of it.
• 8:37
  SPEAKER_02: Uh it's record high diesel prices, like you talked about.
• 8:41
  SPEAKER_02: Gas isn't quite as expensive, so there's a little bit of a spread there, but it's still expensive.
• 8:46
  SPEAKER_02: Um, so uh something worth noting there, anyways.
• 8:49
  SPEAKER_02: But the input side continues for this hog producer to look at uh, you know, a corn market that keeps getting more expensive.
• 8:57
  SPEAKER_02: It seems like corn and soybeans are really driven in the day-to-day movements right now based upon what happens in the oil market and wheat.
• 9:05
  SPEAKER_02: Those two seem to be driving everything around the corn and other oil seed markets here as of late.
• 9:13
  SPEAKER_02: And a big part of that as well, obviously the Russia-Ukraine war or conflict there continues to escalate a little bit.
• 9:20
  SPEAKER_02: Chances of any peace talks have been uh ending this last weekend.
• 9:24
  SPEAKER_02: We saw peace talks uh not really wrap up that great either, even with the U.S.
• 9:29
  SPEAKER_02: involved.
• 9:30
  SPEAKER_02: So that was a little discouraging to this market.
• 9:32
  SPEAKER_02: But seen the highest price we've had in probably three years on the wheat market and highest price ever on diesel here, so uh pretty tight and not getting any better for the consumer.
• 9:42
  SPEAKER_02: September 15th and 16th is the next FOMC meeting.
• 9:46
  SPEAKER_02: Uh so we're gonna get the next chance at how the Fed is gonna respond to uh what we're seeing right now in in the inflation sector and if we're gonna raise rates or not.
• 9:56
  SPEAKER_02: So that'll be interesting to watch next week with Warsh.
• 10:00
  SPEAKER_02: Any other wrap-up items that you find relevant here this week?
• 10:03
  SPEAKER_02: WAS Day coming out tomorrow.
• 10:05
  SPEAKER_02: That'll be interesting on uh the input side as well, Nathan.
• 10:09
  SPEAKER_01: Exactly.
• 10:09
  SPEAKER_01: Yep, we've got that coming tomorrow, so that's something to watch.
• 10:12
  SPEAKER_01: And and uh to wrap up this whole talk here on the hog market with uh we talked about some negative things and and we are a little bit lower on the market than we'd like to be right now.
• 10:21
  SPEAKER_01: Um, but I would focus on the supply side factors right now, um, giving us some support potentially over the next uh few weeks here.
• 10:30
  SPEAKER_01: Uh and we do have a seasonal tendency to increase in this market uh throughout the next week or so.
• 10:37
  SPEAKER_02: All right.
• 10:37
  SPEAKER_02: Well, thank you for your time today, Nathan.
• 10:39
  SPEAKER_02: We'll catch you next time.
• 10:40
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• 10:42
  SPEAKER_02: That'll take you to things like our daily market commentary or other cool market research info.
• 10:48
  SPEAKER_02: So thank you for your time today, everyone.
• 10:50
  SPEAKER_02: Thank you, Nathan.
• 10:51
  SPEAKER_02: Great to have you on for the first time.
• 10:53
  SPEAKER_02: Uh many more to come.
• 10:54
  SPEAKER_02: Thank you, Mike.
• 10:55
  SPEAKER_02: It's been a pleasure.