Latest / CattleUSA Daily / 102: What the Mexican Border Reopening Means for the U.S. Cattle Market with Dan Gerhold

Transcript

102: What the Mexican Border Reopening Means for the U.S. Cattle Market with Dan Gerhold · CattleUSA Daily

0:00
Welcome to another episode of the Cattle USA Daily podcast.
0:03
Today we are bringing you guys your market report with Dan
0:06
Gearhold and the Cattle USA insurance team.
0:10
Today we are talking some pretty big news has hit the cattle
0:14
industry. The border is opening back up at
0:17
least for a short period of time and that is definitely affecting
0:21
our cattle markets. We also have had some the rumor
0:25
mill is rumor milling once again.
0:27
We had a week off last week and it's back to it.
0:30
So we discussed some of that. We are discussing what is
0:32
happening with managed money and everything else that is
0:35
affecting the cattle market right now and that is going to
0:37
continue to affect the cattle market over the continuation of
0:40
the dog days of summer is July 4th week, which we all know is a
0:44
turning point in just the vibes of summer and we're about to hit
0:48
those dog days. And So what does that mean for
0:50
the cattle market going forward for the next couple months?
0:53
We are discussing all of that in today's episode.
0:55
So without further ado, let's go ahead and hop into this episode
0:58
with Dan. Welcome to the Cattle USA Daily
1:04
podcast, your go to source for the latest livestock markets,
1:08
industry insights and the updates shaping agriculture
1:10
today. I'm your host, Lauren Moylan, a
1:13
passionate advocate for agriculture, here to keep you
1:15
informed and connected. Now let's dive into today's
1:19
episode. Hey.
1:25
How are you? I'm great.
1:26
How are you? I'm.
1:28
Great. I love the shirt.
1:30
I haven't seen the best part yet.
1:36
My God, did you just order these in bulk?
1:39
Oh, yeah, yeah, I went straight to China.
1:41
I flew over there and picked out a bunch of them.
1:43
Yeah, my. Gosh, so festive I.
1:47
Love it, I love. It.
1:50
It's America. You got to be.
1:52
This week and year. Right.
1:54
Honestly, arguably, yeah. And it's cool down here in
1:57
Kansas. So I would argue that it has
1:59
been the best week so far. So yeah, it's going to be good.
2:02
Love it. It's going to be good.
2:05
You obviously don't have a dog that has insane anxiety though
2:08
and like hates fireworks Because I love 4th of July until having
2:13
a dog that you have a drug for the entire week leading up.
2:17
Yeah, that's a good point that it's not so.
2:19
Fun. It's not so fun then.
2:21
I think mine enjoys it but we don't drug her, we just make her
2:24
ride it out. There you go, I love it.
2:27
I love it. Yeah, big.
2:28
Plans for the weekend. I am getting ready to go to the
2:35
lake. Yeah, Spend a little time with
2:38
the family. Nice.
2:42
Yeah, R and RA little bit much needed you a little.
2:46
Bit we don't have any crazy plans.
2:48
We have Mr. Anxiety over here and so we don't travel for the
2:51
4th typically. So unfortunately we'll be home,
2:56
but we're going to host some friends and do some things
2:58
around here and stuff. So we'll have fun nonetheless.
3:02
Our neighborhood always does. The neighborhood just north of
3:06
us does a pretty big firework show, so we just go sit off, sit
3:10
off our back porch and let them be the pyros for the day.
3:14
So perfect pyros. Yeah, We have a really, really
3:19
big firework show in a town called Lomigo here in Kansas.
3:24
It's like the biggest one in the state.
3:26
And Lomigo is a small town, like it's maybe 2003 thousand people
3:33
maybe, and it does not have the infrastructure for the thousands
3:37
of people that come to this firework show.
3:40
So it's always like such a debacle on the 4th for the
3:45
firework show on Amiga because we don't live very far from
3:47
there. And so the traffic is always
3:48
crazy backed up. But we can see the fireworks
3:51
from our house too, just a little bit.
3:52
So I'm like, it's great because we get to reap all the benefits
3:56
that have to deal with the traffic, so.
3:57
Absolutely good. Yes, yes, yes.
4:01
That's a big plus, yeah. Don't have to fight the crowds.
4:04
Yeah, I wish we were spending it on the lake though.
4:06
We have a boat and all of that jazz, but my family does not
4:10
like spending 4th of July on the lake.
4:12
Just how busy it is. Yeah, because how busy it is, it
4:16
gives my stepdad insurmountable amounts of anxiety, like taking
4:22
the boat out on the 4th of July weekend.
4:24
He hates Memorial Day weekend and he hates the 4th of July
4:26
weekend just because of how crowded it is with people.
4:30
He's, Oh my gosh, If it was just my mom and I, we could totally
4:33
do it. But like putting the boat in and
4:36
out and all of that, just it's too much.
4:39
It's too much. I don't all.
4:43
Right. What's what's happening in the
4:44
markets? What's what's going on in the
4:46
world of all of that jazz? Full of weeks ago, Lauren, I
4:51
think we did a podcast on rumors and how there was more and more
4:55
of them coming all the time and it seems like a common theme
4:57
anymore is let's see what rumor we can throw at the wall and
5:01
make it stick. You know last week I believe it
5:04
was the Amarillo, TX Tyson strike market sold off a little
5:09
ahead of time expecting a strike and then as they talked about
5:13
getting a deal and it looked like it was going to happen they
5:18
put some money back on the market and lo and behold Monday
5:23
afternoon the USDA releases a report that they're going to
5:26
open the border in stages So once again yesterday the market
5:32
decides it's going to sell off again.
5:35
You know, you had a big grain report on Monday and you had
5:38
month end and quarter end. So those are all factors as
5:41
well. But by and large, everything's
5:43
trained this Mexico border up until, you know, we'll see at
5:47
8:30 this morning what it starts trading.
5:49
But it sounds like they're going to open five of the 7-8 ports, I
5:54
believe for entry. It's going to be phased in over
5:58
a period of time. You know, July has three of them
6:02
and then finish up the last two in August and September.
6:05
I am a little bit nervous that there is a pile of feeder cattle
6:08
waiting to get in here because we are the market for those
6:11
cattle. I do expect them to be bigger
6:13
than normal. So what that looks like is if
6:16
we're going to throw those, those cattle on feed and let's
6:18
say we get everything open and we're back to you know roughly
6:21
75% of our normal imports for the for the next three say two
6:26
months. Now we're we're going to start
6:27
adding inventory to that late December, January, February,
6:31
March market is what you're looking at.
6:33
So by and large, I don't think those imports are going to
6:37
affect us upfront. The fat cattle market, I think
6:39
we're going to go back to trade in cash here pretty quick once
6:41
we get past this holiday shorten week, you know, with lower kills
6:45
because of that. Once we get past the thin trade
6:47
on the board, you know, a lot of these traders take off for the
6:50
the weekend early. So trading can get pretty thin
6:53
here today and tomorrow, but we'll see what happens.
6:56
It looks like cash has an opportunity to turn the corner
6:59
and maybe steady off and possibly go higher.
7:01
These feed yards know that we still have the leverage.
7:04
Even though we got into some calf kill, we've still got the
7:07
leverage. Boxes are high.
7:09
Kill numbers aren't where I want to see them, but that's OK.
7:11
The cattle aren't there to kill, so you're not going to get those
7:13
kill numbers. By and large, like I said, we
7:16
get, I told you last week, we get past 4th of July, things can
7:19
usually turn in and start looking a touch better.
7:22
So optimistic on that front. Feeder cattle make me nervous
7:26
though, Lauren, I, I won't lie, they have been extremely
7:28
overvalued compared to different futures.
7:31
Not uncommon for this time of year because a lot of people
7:34
like betting on the come for the winter fat cattle market.
7:37
But Long story short is, as I mentioned, there's a pile of
7:41
feeder cattle waiting to cross the border.
7:43
So let's before we step into that, let's also look at what's
7:47
the rainfall been across the grass regions.
7:49
So those guys that turned out yearlings this spring, when do
7:53
they plan to come off? We always have to look at
7:55
pasture conditions. We always have, you know, we're
7:58
always talking to guys, hey, it's getting rain the last
8:00
couple weeks, everybody for the most parts got a lot of rain.
8:03
So what does that mean? We're going to leave those
8:05
cattle out there, make them bigger this year with the price
8:08
of those calves being so high? It's it's full blown makes sense
8:14
it the market's telling you to do it, make your yearlings
8:17
bigger instead of dumping early and turning around and having to
8:20
buy back higher. So my personal prediction is
8:24
we're going to leave those grass yearlings out there.
8:26
We're not going to be pulling them off in July or August like
8:28
you know, we may have if it would have dried out.
8:31
So let's start looking to late August, September, October, when
8:35
we're going to see that big run of those yearlings.
8:37
In the meantime, before they announce this Mexican border, I
8:40
was thinking, okay, feeders are going to stay stupid high here
8:43
for July, August because of that.
8:46
But now that they're opening that border here, now we have
8:48
some ample supplies to start feeding that pipeline,
8:51
especially in the South. So there's always that shift.
8:55
Cattle can, you can load cattle on trucks and ship them all the
8:58
way across the country. Not a big deal.
9:00
There was a shift when they shut down that border that hey, all
9:03
those southern yards who wanted to stay full, a lot of those
9:06
guys shifted east. So anybody feeding those eastern
9:10
feeders, they all of a sudden had to shift too, because their
9:13
prices went high. You know, we saw a really narrow
9:16
spread between the eastern feeders and the western feeders
9:19
as far as cash goes. That wasn't was abnormally
9:23
narrow because of those southern yards going out there and trying
9:27
to capture that inventory. So now that you're bringing
9:30
those Mexicans back into the picture, maybe those southern
9:33
yards back off the east a little bit, maybe they back off the
9:36
north. You know, out of Kansas, you got
9:37
Flint Hill cattle coming off here any day.
9:40
So you know you're going to see a shift in those yearlings.
9:42
Now where where they're coming from, where guys are going as
9:47
always, you know, the North is going to stay high just because
9:49
it's Northern cattle feeders spend a lot of money on feeders.
9:52
So but by and large, you're going to see a shift.
9:55
So if we're starting to fill that summer hole I was looking
9:58
for on those those yearling feeders.
10:00
Now all of a sudden we've got some risk in this feeder cattle
10:03
market. Let's combine that with the
10:06
third prong, corn. If whoever's listening to this,
10:09
they might be rolling their eyes because they look out their back
10:12
door and they see corn as phenomenal everywhere.
10:16
Like I said, everybody got some rains.
10:18
Corn markets looking like it should go lower just on the
10:21
fundamentals and we're going to make a very large crop.
10:23
As of right now, it's looking good.
10:25
But let's not forget counter seasonal sell offs can often
10:30
lead to counter seasonal rallies.
10:31
So if we put a bottom in this corn market, what do the funds
10:35
do with their managed money position and feeder cattle, I
10:39
think they're over half of the total trading in the feeder
10:42
cattle market right now. So if they decide they're going
10:45
to flip their position in the corn, they're probably not going
10:48
to hold on to that long position in the feeder cattle at the same
10:51
time. So we could see them pull out of
10:53
that feeder position at the same time we could see corn start to
10:56
bottom. Maybe we see feeders, you know,
10:59
take a little break, take a breath of air at the same time.
11:02
Do I think we're going back to 275 in the next two months?
11:05
No, I'm looking for this market to possibly correct.
11:10
You know, we already corrected down close to 3 bucks.
11:12
If it gets much worse, we're looking at 290.
11:15
I think there was a gap down there at like 284 or something
11:18
would be a target. It's on my mind.
11:20
But by and large, if we're still looking for fat cattle to rally
11:23
over the next two to three months, we're probably going to
11:26
see feeder cattle stay high. So and when I say you could see
11:30
a counter seasonal rally in corn, I'm not talking about a
11:33
buck or two bucks by any means, you know, 40-50 cents.
11:36
And by and large, that's probably not going to affect the
11:39
feed yards willingness to buy corn or buy feeder cattle.
11:42
You know, they're they're still going to be interested cattle
11:45
feeders going to feed just as much as a farmers going to farm.
11:48
So those are kind of the things I'm looking for right now.
11:51
Hog market kind of taking it on the chin here towards the end of
11:55
last week and this week had a hogs and pitch report.
11:58
But overall, I think you know, choice box beef up at 390.
12:04
I think that's going to stabilize our pork cut out here
12:06
pretty quick. So we get past this 4th, I think
12:10
we get into more seasonal trading dog days of summer, you
12:14
know, people staying and staying inside cooking burger, you know,
12:18
cooking cheap food to get through the rest of summer here
12:21
and. Yeah.
12:23
Does the hog market get affected much by the border opening back
12:26
up? By and large, no, no, no.
12:30
It's a, you know, we import a lot of feeder pigs out of
12:34
Canada, some fat hogs. Yeah, that's what I was
12:36
thinking. Yeah.
12:37
And I mean, last I heard, I think last week we started
12:41
feuding with Canada again over some tariffs on tax.
12:43
So let's not discount that either.
12:47
That's coming up here this month is tariff deadlines and it
12:51
sounds like we're going to play some hardball, at least for now.
12:56
You know that that could be bears to this market as well.
12:59
You know, I, we'll see what equities do if, if they're going
13:02
to affect cattle or not, but all this stuff, there's a lot of
13:05
geopolitical risk in this market right now.
13:08
I think probably more of that than financial risk from
13:12
equities just selling off. I'm in there.
13:14
Those charts look phenomenal, making new all time highs here
13:17
this week. So it's just we've, we've got a
13:20
lot of risk around the corner, plain simple cause by the
13:23
government and we're not immune to that risk.
13:28
So that's that's something we need to keep our eye on.
13:31
Yeah, no, 100% it's great. But it also sucks in a lot of
13:36
ways that like, unfortunately, there's a lot of scenarios that
13:39
are out of our hands and not even a part of the weather or
13:44
anything like that, that are just up to the odds.
13:47
This is truly just a device of unfortunately government
13:52
decisions and things like that, that we can't control.
13:55
The feeder market and the border opening back up overall is a
13:59
great thing for our cattle industry.
14:02
Like we, we need Mexican feeders, we need them, we rely
14:06
on them for our supply and demand structure that we have
14:09
here in the States. And so it's important that it
14:11
opens back up. But I know a lot of producers
14:14
are worried about what that means and the potential
14:18
possibility for screwworm coming and everything that goes along
14:22
with that. But I think it's one of those
14:24
scenarios where we have to play the risk and reward standpoint
14:28
of there's only so long that we can push those feeders off.
14:32
I mean, they could have kept the Mexican border closed for many
14:35
more months. But when they closed it, they
14:37
said, hey, this is probably going to be an open and close
14:40
scenario. We're going to open it.
14:42
We're going to close it. We're going to open it, we're
14:44
going to close it as that risk continues to get higher than the
14:48
reward would be. And right now we're at a point
14:51
where, like you said, we've had some feeders getting fat down in
14:55
Mexico and they're coming went in a lot heavier than they
14:58
typically would. And so they're probably all
15:00
lining up right now, knocking on the door like we're ready as
15:03
soon as the gates go down, we're barreling in because we don't
15:07
know how long it's going to stay open for either.
15:09
Exactly. So it's playing that balance
15:12
which is difficult. Yeah, yeah.
15:15
And given where we are in the the cattle cycle with our
15:17
numbers being low like they are, yeah, everybody wants to see our
15:21
cow herd increase and and we want to to build more demand so
15:26
we can build back this hurt. But at the same time, let's not
15:31
discount the fact that right now we're at 60-70 year lows on our
15:35
cow numbers. We need those feeder cattle
15:38
right now. Yes, it would affect our markets
15:41
more. You know, it's 1.2 to 1.4
15:44
million head a year depending on the year.
15:46
So yeah, that's it's going to put a little pressure on us
15:49
until that equal equilibrium balances out.
15:54
But Long story short is we don't want to run this cattle market
15:58
so high that we price the consumer out.
16:00
We don't want to lose that demand.
16:02
If we don't have those feeder cattle at a time and period
16:06
where we have really no low numbers, we're going to
16:10
eventually do that. You price out that demand,
16:13
you're going to price out a packet plant.
16:15
It's just a trickle down chain of events and now we don't want
16:18
to see that. So we need to get that border
16:20
back open so we can keep all those plants down South online
16:24
and yeah, move on and keep the consumer eating beef every day.
16:28
Yeah. And I think the biggest concern
16:29
with those southern plants is statistically when we see a
16:32
plant closed, we don't see that plant open back up.
16:35
And so it's one of those situations and scenarios where
16:38
we need to fix this now before it becomes an issue that is
16:43
irreversible because opening a plant back up once it closes, we
16:46
just, we don't see that happening.
16:48
It's rare, Yeah, it is rare. Your, your least efficient
16:52
plants closed 1st and you know, your least profitable of course
16:55
goes along with that and, and you don't, don't want to do
16:58
that. I've got a plant about 30 miles
17:00
from my house. I think it's been open and
17:02
closed three times, you know, and, and every day with this
17:05
market like this, I know they're hurting.
17:07
It's, it's not a big plant, it's not efficient plant, but it
17:11
worries me. We're going to see a fourth time
17:12
where they shut it down. You don't want to see any of
17:14
those plants shut down, especially small, large, it
17:17
doesn't matter. You want to keep that kill
17:19
capacity because at the end of the day, kill capacity is what
17:22
matters most to the feed yards. That matters most of the
17:25
background or that matters most of the calf guy.
17:28
End of the day, we need to get that the border open.
17:32
I do think we need to control that screw worm as well.
17:36
You know, we're six months away from having the potential
17:41
outbreak here slow down. You know, the closer we get to
17:45
winter, we can control a little bit better.
17:46
And it sounds like the sterile fly program is ramping up.
17:49
So I'm optimistic. I just don't want to like I
17:55
said, managed money is holding a big position in feeder cattle.
17:58
They get news like that they're going to back it up out of a few
18:01
contracts. If, if the feeder cattle index
18:03
stays up here, if cash feeder stay up here at these prices
18:07
we're seeing, you know, three 20s threes, you know, even the 9
18:11
and 10 weight steers are bringing 3 bucks.
18:13
And it's just like, but if, if those prices stick around, I
18:17
think the board's going to have to respond and and work back
18:20
higher the deeper we get into summer.
18:21
So expect some volatility, you know, with that manage that
18:26
risk. 1000% Any other highs or lows, key points in the market
18:30
that we need to touch on today? I'm not sure.
18:33
I think we covered a lot pretty quick there.
18:35
OK, Yep, I agree. We get past the 4th of July.
18:39
Packers are going to be buying for a full kill week next week.
18:41
With boxes where they are, it's pretty normal for them to ramp
18:44
their kills up as soon as they get profitable.
18:47
I'd like to see that stay that way.
18:49
I want to see them make about 5 bucks a head so that they speed
18:52
that chain up. But it's the dog days of summer.
18:56
So this is where they make their hay.
18:57
They really make money on these. As we get deeper into these new
19:00
crop calves, it it can improve. So if we can turn hold this cut
19:04
out level up above, you know, up above this 380 all the way
19:08
through summer, I think you're going to support this, this kill
19:11
number here, maybe move it a touch higher.
19:14
And then as we get deeper into August, September, October, you
19:18
know, that's where I really start getting bullish on the
19:20
supply side. So I'm very, very optimistic.
19:23
I just hope something doesn't wreck us before we can enjoy
19:26
that that short supply out there.
19:28
That is the key. That is the key that we are.
19:31
Let's keep the rumors to a minimum.
19:33
Let's keep everything else. Just, you know, we're going into
19:36
the dog days of summer, like you said.
19:37
Let's just, you know, maybe ride this wave about instead of, you
19:41
know, deciding that needs to be a roller coaster summer, we can
19:44
just ride the wave and make our way into the fall and say we
19:49
survived and call it a day type of situation.
19:52
So no, I agree 100% on all that. Let's turn July 4th back into a
19:57
steak holiday. I mean I understand it's hot
20:00
dogs and and hamburgers but. I mean, let's turn it around.
20:05
Rib eyes have been softening in price, so let's turn that right
20:08
around and throw steaks back on the grill.
20:11
Let's go. Hey, we're going to throw some
20:13
steaks on the grill around here, but we're not really great to
20:16
look at because we just have a freezer full of beef.
20:18
So we're not the ones going to the store and buying the beef,
20:21
but we can at least encourage people and our consumers to put
20:25
some steak back on the grill. Absolutely.
20:26
For the fourth hey, it's America's like it's America's
20:29
birthday. We we should be celebrating to
20:31
the nines. Absolutely super food.
20:34
Come on y'all. Let's go.
20:36
Let's get some steak on there. Let's get some some prime rib.
20:40
Let's let's smoke a brisket. Go crazy, go crazy.
20:44
Get some of those like get some of those more high quality cuts
20:47
on there. Love it, I agree.
20:51
Perfect. Well, Dan, as always, thank you
20:54
so much for your time today. To all of our listeners out
20:56
there, make sure, like Dan was saying, it is going to be a
20:59
volatile market going into these dog days of summer.
21:02
Make sure you check out our show notes where we have our Cattle
21:04
USA Insurance link where we partner with Dan and his team to
21:08
provide you guys some great LRP rates and everything like that.
21:12
So make sure you go check that out, get a hold of Dan and his
21:15
team and everyone else at the Cattle Cattle USA Insurance team
21:19
and we'll get you hooked up where you need to be.
21:21
As always, thank you so much for listening.
21:23
We hope you guys have an amazing 4th of July weekend and we'll
21:27
catch you all next week on another episode.
21:29
Have a good one y'all.