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The Battle for Margin Has Shifted in Cattle · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Cattle Talk Podcast.
• 0:05
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insights shaping the industry.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: Well, hey everybody, thanks for joining us on the Cattle Market Talk Podcast.
• 0:27
  SPEAKER_02: My name is Lucas Peters, filling in for Mike Minor, and it is August 28th today.
• 0:33
  SPEAKER_02: And in the ProAg podcast studios, we have Jace Crock joining us.
• 0:37
  SPEAKER_02: How's it going, Jace?
• 0:38
  SPEAKER_02: Good.
• 0:39
  SPEAKER_02: How are you?
• 0:39
  SPEAKER_02: Oh, doing really well.
• 0:41
  SPEAKER_02: Actually, a fairly boring week in the cattle uh space compared to the last few, huh?
• 0:46
  SPEAKER_02: So uh we didn't have any weird uh groundbreaking tweets or news releases coming out on Thursday, Friday nights, which always uh makes life a little easier, and the futures were pretty stagnant this week.
• 1:00
  SPEAKER_02: Why don't we start there, Jace?
• 1:01
  SPEAKER_02: What uh what can you show us or what let's talk a little bit about market action this week?
• 1:06
  SPEAKER_01: Yeah, I think we've we've seen managed money trim their position quite a bit on the live cattle side and on the feeders.
• 1:13
  SPEAKER_01: Um we've seen a little bit of action just around the rising corn prices.
• 1:19
  SPEAKER_01: We've seen feeders head lower at a quicker rate there, but the live cattle had a had a tougher day on Monday.
• 1:26
  SPEAKER_01: Um and so we're gonna it looks like we're gonna end the week lower, but it it relatively pretty flat after it after all the news that we've seen this week with cash and all that.
• 1:37
  SPEAKER_01: But yep.
• 1:38
  SPEAKER_02: No, you're you're exactly right.
• 1:40
  SPEAKER_02: So what uh what are the numbers you're hearing on cash on uh on a Friday as we sit here today?
• 1:45
  SPEAKER_01: Yeah, so we got 218 pretty early in the week up in the north here.
• 1:50
  SPEAKER_01: Um that was traded Monday and Tuesday, and then not really traded since.
• 1:55
  SPEAKER_01: And the the guys in the south held out and they're getting bid 222.
• 2:00
  SPEAKER_01: There's been a few takers there, some asking prices at 224.
• 2:03
  SPEAKER_01: So a little bit interesting that the board's lower today, allowing for I mean, all of those sales have been at a good basis level.
• 2:11
  SPEAKER_02: Gotcha.
• 2:11
  SPEAKER_02: Gotcha.
• 2:12
  SPEAKER_02: So uh one thing you did mention there on uh the rising corn prices, uh, corn continued to rip higher this week.
• 2:19
  SPEAKER_02: Um, man, I thought we're up over 80 cents, I think, on Deese corn over the last few weeks.
• 2:25
  SPEAKER_02: Uh, that's obviously gonna start playing into uh some rising feed cost for our uh for our cattle feeding customers, um, and anybody feeding livestock for that matter.
• 2:36
  SPEAKER_02: Uh, you know, one of the things that's helped us out in this whole cycle and beef demand as we've just been making these cattle bigger and bigger and bigger, that's gonna get a little harder or potentially harder to do with uh$550,$6 corn uh staring us in the face.
• 2:52
  SPEAKER_02: How as as you've been talking to your customers this week and seeing what corn price, talk a little bit about those rising feed costs and what what that could mean for our producers.
• 3:00
  SPEAKER_01: Yeah, so just the the rule of thumb has been that uh 10 cent rise in corn is a one cent rise in your cost to gain.
• 3:09
  SPEAKER_01: So if you put on 80 cents, you maybe went from a$95 cost to gain to a 103.
• 3:15
  SPEAKER_01: So that that matters, but we have seen over the past few years the spread between corn and live cattle prices got extremely wide.
• 3:24
  SPEAKER_01: And that's what allowed them to put on the weight at the end because you you do have a significantly higher cost to gain from 16 to 1700 pounds than you do from 12 to 13.
• 3:36
  SPEAKER_01: So I do think it does start to come into play here, especially especially when you look at where the crop is.
• 3:43
  SPEAKER_01: You don't have as big a crop in the south like you look at Kansas and Western Nebraska.
• 3:49
  SPEAKER_01: So getting corn out there is gonna be a little tougher for them.
• 3:53
  SPEAKER_01: So I I think you will see cost of gain rise.
• 3:56
  SPEAKER_01: I think you'll see weights be taken down a little bit, which you know that that's a little bit of a different discussion, but you can kind of pull cattle ahead that way by just trimming your weights.
• 4:07
  SPEAKER_02: Yeah, good uh good point.
• 4:09
  SPEAKER_02: Probably a discussion for a different day as we we see this, but you know, you bring up a good point of some of these areas that are struggling with the drought in these cattle feeding markets, it's it's gonna make the problem worse because now they're gonna have to crank the basis up to get corn to move west, and uh yeah, not gonna help them out much.
• 4:25
  SPEAKER_02: Uh something we'll be watching at future podcasts, I'm sure.
• 4:29
  SPEAKER_02: Uh, you know, one thing that uh we kind of or I mentioned there at the start, we didn't have a a tweet or anything set off uh a firestorm in the market like last week's uh announcement there on the uh the imported beef uh or what Trump wants to see on uh trying to lower uh ground beef prices specifically uh with a 300,000 metric ton increase in imports there.
• 4:52
  SPEAKER_02: Um talk a little bit about that.
• 4:54
  SPEAKER_02: You know, we had a week to digest it and look at some numbers and things.
• 4:57
  SPEAKER_02: What are we seeing there, Jace?
• 4:59
  SPEAKER_01: Yeah, so I think when you when you see his tweet activity over the past few years, uh he's he's used to being able to change markets just with a tweet.
• 5:10
  SPEAKER_01: And I think that's that's a tough thing when you look at the balance sheet globally, even on the beef side.
• 5:17
  SPEAKER_01: There's there's not enough beef in this world to do to do the things that he would like to do.
• 5:23
  SPEAKER_01: You know, Brazil's trimmed their production down five percent or so this year, and so you so you kind of it's hard to imagine that having a huge impact, but uh 300,000 metric ton of this trim, the only country that it really affects, that's that's for above quota, that they wouldn't be tariffed.
• 5:45
  SPEAKER_01: And the only country that affects is Brazil, and Brazil probably doesn't have that meat to to get here anyway.
• 5:52
  SPEAKER_01: So I I I think it I think it affects it a little bit, but maybe not as much as as we think it is.
• 5:59
  SPEAKER_01: Maybe it's a third.
• 6:00
  SPEAKER_01: Yep.
• 6:00
  SPEAKER_02: Yeah, good point.
• 6:01
  SPEAKER_02: I I'm surprised the amount of headlines that that uh has gotten over the past week just on on normal news stations, right?
• 6:09
  SPEAKER_02: Uh I just the other night I came home and flip on uh CBS News or something, and they're talking about this imported beef and hamburger hamburger prices, ground beef prices, meat prices in general.
• 6:20
  SPEAKER_02: Uh, and then you start comparing it to everything else that costs more money, and it seems like it's a drop in the bucket.
• 6:26
  SPEAKER_02: Not sure why uh Trump decided to go down this aisle and and look at beef prices, but farmers have been caught in the crosshairs before, and I doubt it'll be the last uh there.
• 6:37
  SPEAKER_02: Uh, one thing that potentially uh will help this beef supply and and getting uh get more cattle in the country is the Mexican border opening.
• 6:46
  SPEAKER_02: And we saw uh one of the openings uh started, uh I guess this past Monday.
• 6:52
  SPEAKER_02: Saw some cattle coming across.
• 6:53
  SPEAKER_02: Anything grab your attention on on that announcement or that now that we actually do have one opening uh for the uh border?
• 7:01
  SPEAKER_01: Yeah, I think I think it's gonna going to matter.
• 7:05
  SPEAKER_01: It does, it's not huge numbers now.
• 7:07
  SPEAKER_01: There's 600, 700 head a day.
• 7:09
  SPEAKER_01: That they'll be ramping that up.
• 7:11
  SPEAKER_01: There, that's what they're allowing through at this time.
• 7:14
  SPEAKER_01: They'll be opening, they'll be phasing into opening this thing to about 1,300 head a day, which which matters.
• 7:21
  SPEAKER_01: That gets you a few hundred thousand cattle over the course of a year.
• 7:24
  SPEAKER_01: Um, but then also they're they're looking at opening other ports and you know the ones in New Mexico that are 40 to 50 percent of our import crossings from Mexico.
• 7:36
  SPEAKER_01: So that I think that all matters, but it is sort of the death by a thousand cuts sort of theory there with we've seen we've seen beef production tick lower here for the past uh uh four years, just uh in big chunks.
• 7:53
  SPEAKER_01: And uh we've got used to seeing those those big chunks affect the market, but it it's kind of had less of an effect than that you would think six percent lower production would or that sort of a thing.
• 8:05
  SPEAKER_01: But now you're starting to see if a little more beef gets imported, and even this year, like we're at 17% of our productions imported versus last year at like 12.
• 8:15
  SPEAKER_01: Yep.
• 8:15
  SPEAKER_01: So that's another that's another five percent there.
• 8:19
  SPEAKER_01: If you can import some of this trim that they're talking about, that could be up to 2.6 percent more of our production.
• 8:27
  SPEAKER_01: You think of the Mexican feeder cattle being about 3%, and you just you just slowly get to a point where maybe you do have as much as you had last year, and you start to build from there.
• 8:37
  SPEAKER_02: Yep.
• 8:38
  SPEAKER_02: No, that's uh excellent.
• 8:39
  SPEAKER_02: I like how you phrase that list of a thousand cuts, right?
• 8:42
  SPEAKER_02: Like it's uh when you're going down, it's big chunks, and now all of a sudden it's just all these little things start adding up of you know, border opening, more imports, a little free tariff to send more imports in cheaply, uh, making the cattle bigger, like all these things start adding up of uh we can actually raise more beef uh or get more beef out of these cattle uh with lower numbers.
• 9:05
  SPEAKER_02: Um uh continued this week, similar talking points for the last two weeks on the podcast on packer leverage.
• 9:12
  SPEAKER_02: Uh, we kind of saw those packer numbers that I know we watch and look at uh really turn positive here.
• 9:18
  SPEAKER_02: Um, and it does seem like they're getting still maintaining the upper hand on the leverage.
• 9:24
  SPEAKER_02: Uh any comments on that or just kind of same old that it's been the last couple of weeks?
• 9:29
  SPEAKER_01: Well, I think you've noticed it a little more this week with the cash that they're getting down south versus up here.
• 9:34
  SPEAKER_01: Almost all of the packing capacity has been Nebraska and North.
• 9:38
  SPEAKER_01: You know, we saw it in saw it in Illinois with the Jocelyn plant, we saw it in Lexington.
• 9:44
  SPEAKER_01: And so you're you're seeing you're seeing a basis shift there, and they're definitely getting the upper hand in the north, especially.
• 9:51
  SPEAKER_02: Yep.
• 9:52
  SPEAKER_02: Uh, and at least on the radar right now, nothing looks like it's moving the needle on that real hard anytime soon, but of course, we are very much aware that news can change uh very quickly.
• 10:03
  SPEAKER_02: Um, I did want to talk a little bit.
• 10:05
  SPEAKER_02: Uh, you and I were talking before the podcast on different topics, and you know, a year ago at this time, we were talking internally a lot about uh, you know, different segments of this cattle industry and who's making money and losing money, and how it will it might have been a little too far slanted to the cow calf guy last year.
• 10:24
  SPEAKER_02: Um, and you had some interesting observations that it seems like that uh is that has kind of right-sized uh uh in the industry.
• 10:32
  SPEAKER_02: Um, why don't you talk to our listeners about that?
• 10:35
  SPEAKER_01: Yeah, so like last year we had too many feedlots, too many shackle spaces, and too few calves coming out.
• 10:43
  SPEAKER_01: So you saw you saw those prices get outrageous, and they they still they still have been relative to history, but they are you're starting to see a packer that's making a little bit of money.
• 10:54
  SPEAKER_01: You're starting to see corn prices go up, so the feeders are going down a little bit.
• 10:59
  SPEAKER_01: You're starting to see you saw less forward contracting this fall, and so you're just you're seeing a leverage shift a little bit towards the the feeder who's who's not as excited to place a calf that's gonna lose a couple hundred dollars and more wanting to get something that breaks even that he can work with a little bit with his with a cheaper cost to gain or some advantage that he has on that end, and a packer that's got fatigued from losing money over the past few years.
• 11:28
  SPEAKER_01: So you're starting to see that shift, but you haven't seen it shift all the way.
• 11:32
  SPEAKER_01: So the opportunity is still really good for the cow calf guy.
• 11:36
  SPEAKER_02: Yep.
• 11:37
  SPEAKER_02: Yep, that's uh it's a little less than last year, but it's still really good hitting historical terms.
• 11:42
  SPEAKER_02: Uh, and so that's uh I'm gonna we'll we'll call it good on that because it's still good for our our cow calf producers out there and a little bit challenging maybe for some of our feeding uh customers, but uh yeah, hopefully there's uh some some brighter news on the horizon uh there.
• 11:58
  SPEAKER_02: Any uh closing comments or things for the week or things you're looking forward to for next week, Jace?
• 12:03
  SPEAKER_01: Well, I think we're at a I think we're at a point here where the the live cattle will kind of decide where they're gonna head for the fall, and just maintaining coverage is very important, even at these levels.
• 12:16
  SPEAKER_01: So there's there's many ways that you can do that, and we can we can help out or talk through anything on that end.
• 12:22
  SPEAKER_02: That's uh excellent advice.
• 12:24
  SPEAKER_02: Really appreciate that.
• 12:25
  SPEAKER_02: Uh, for all the uh guys that are out there chopping feed uh here this weekend, be safe.
• 12:30
  SPEAKER_02: And we will talk to you again next week on the Cattle Podcast.