Latest / Professional Ag Marketing Podcast / Buoyancy of Beef Demand

Transcript

Buoyancy of Beef Demand · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_00: Good thing they're easy to Welcome to the Cattle Talk Podcast.
• 0:06
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insights shaping the industry.
• 0:13
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: Good afternoon.
• 0:22
  SPEAKER_02: We've got Jace here with us today.
• 0:24
  SPEAKER_02: It's October 9th.
• 0:25
  SPEAKER_02: We're going to talk about the cattle market.
• 0:26
  SPEAKER_02: How's it going, Jace?
• 0:28
  SPEAKER_02: Pretty good.
• 0:28
  SPEAKER_02: All right.
• 0:29
  SPEAKER_02: Well, let's talk about a few things.
• 0:30
  SPEAKER_02: We got Wazday, we got cutout, we got cash.
• 0:33
  SPEAKER_02: Uh, where do you want to start off with today?
• 0:36
  SPEAKER_01: Well, I think um a little bit interesting is just the futures trade.
• 0:41
  SPEAKER_01: We've seen we've seen the futures have a couple good days, really good days this week, and kind of an unexplained one on Wednesday there.
• 0:49
  SPEAKER_01: And then today stronger on cash.
• 0:52
  SPEAKER_01: And was the report bringing corn down really helped the feeders out.
• 0:55
  SPEAKER_01: So I think that's what I think that's what we were seeing on that end.
• 0:59
  SPEAKER_01: But cash is cash is stronger this week, which is kind of contrary to where we thought October could be.
• 1:06
  SPEAKER_01: But a little bit interesting there that we're getting there's some 222 bids up in the north here, not as far north as northwest Iowa or southwest Minnesota, but in Nebraska we're seeing those bids and stronger than last week by two to three bucks and strengthen the southern bid as well, which they've been running higher.
• 1:25
  SPEAKER_01: They were 226 last week.
• 1:27
  SPEAKER_01: They're probably about similar this week.
• 1:29
  SPEAKER_01: So just interesting trade there going into the fall.
• 1:32
  SPEAKER_02: A few other supporting items right now would be the equity markets as well.
• 1:36
  SPEAKER_02: SP 500 near record levels.
• 1:38
  SPEAKER_02: That's probably not hurting either.
• 1:40
  SPEAKER_02: Seemed like uh some of the worries about expensive diesel that's been getting fixed as well.
• 1:45
  SPEAKER_02: Diesel price has been coming down uh quite a bit as of late.
• 1:48
  SPEAKER_02: That's probably helping out the idea that uh maybe some beef demand could be better.
• 1:53
  SPEAKER_02: The Wednesday one I thought was really interesting because that was right after the announcement that we could blend red fuel in in uh anything ag related for hauling.
• 2:02
  SPEAKER_02: And my top headline I found on using one of our AI bots is said one of the top reasons it was up that day was because that was supposed to help out beef demand if uh if uh we could blend red fuel and save some money there.
• 2:14
  SPEAKER_02: So I I thought that was interesting that to the computers and algos out there, that was triggering a buy signal on the cattle.
• 2:21
  SPEAKER_02: So that was one of the more interesting headlines I found this week.
• 2:24
  SPEAKER_01: Yeah, that's very that's very interesting.
• 2:26
  SPEAKER_01: And we've seen we back to your point on the SP, we kind of see the wealth effect a little bit when it comes to this cattle market, is people feel like they've got money to spend because they look at that 401k rather than their current cash situation.
• 2:42
  SPEAKER_01: So that is interesting.
• 2:44
  SPEAKER_02: Very much so.
• 2:45
  SPEAKER_02: We had a WASD report today that came out.
• 2:47
  SPEAKER_02: Uh, corn absolutely tanked on that.
• 2:49
  SPEAKER_02: We were down limit uh some of the day after that report.
• 2:53
  SPEAKER_02: Uh 181 plus yield, we've quietly found, or in a very loud way, found over 400 million bushels of corn in the U.S.
• 3:01
  SPEAKER_02: over the past two weeks, Jason.
• 3:03
  SPEAKER_02: Uh, what impact do you think that had on the cattle market today?
• 3:07
  SPEAKER_01: I don't know that it has a huge impact on the fat cattle side of things, and you are getting to a time of year where it can have a little less of an impact on the feeders than than other times of the year, but it is having an impact on the feeders.
• 3:20
  SPEAKER_01: I think, I think them getting above that 340 mark is pretty is pretty big in the in the front couple months there.
• 3:27
  SPEAKER_01: But there is also a piece on the feeders that they've got a lot of rain in Kansas, Oklahoma, Texas, where they're growing wheat, and they can they can run those calves pretty cheap and and turn them into yearlings.
• 3:40
  SPEAKER_01: So I think I think a bit of that is happening on the feeder cattle side in in conjunction with the with the corn price being lower.
• 3:48
  SPEAKER_02: I didn't have Jake get it here before the report, but on a one-minute delayed chart on the uh or on one minute breakdown on the feeder cattle, like November chart, for example, uh skyrocketed right at about 11 o'clock today.
• 4:00
  SPEAKER_02: So that feeder market definitely was influenced by that WASD when it came out, uh, just for the immediate short term there, it looked like.
• 4:06
  SPEAKER_02: So, what can you tell me on overall demand cutout?
• 4:09
  SPEAKER_02: What are you seeing there?
• 4:10
  SPEAKER_01: So, this is this is an interesting piece that we found this week.
• 4:14
  SPEAKER_01: So, cattle harvest has been lower.
• 4:16
  SPEAKER_01: We saw a couple of the ice raids that affected our our harvest the last couple weeks.
• 4:22
  SPEAKER_01: It was up pretty good this week at like 548,000.
• 4:26
  SPEAKER_01: So decent harvest there.
• 4:28
  SPEAKER_01: And beef cutout didn't have a big reaction to it.
• 4:31
  SPEAKER_01: I thought that would kind of pull it quite a bit lower, and it it hasn't so far.
• 4:36
  SPEAKER_01: Um we're actually at record levels for this time of year on the cutout.
• 4:41
  SPEAKER_01: But I did I just find this a little bit interesting.
• 4:45
  SPEAKER_01: The the cutout is very much like the like the Vikings offense.
• 4:49
  SPEAKER_01: If you looked at the if you looked at the Vikings and just their offense, you wouldn't say they're 4-0, but their kicker has been the reason that they've you know kept it special teams.
• 5:00
  SPEAKER_01: Special teams.
• 5:01
  SPEAKER_01: That's what the ribs done on on the beef cutout.
• 5:04
  SPEAKER_01: Ribs have just been phenomenal into the into the fall here and have have kept that propped up, ribs at record levels for all time during this time period.
• 5:14
  SPEAKER_01: So I think that's that's a big factor there.
• 5:17
  SPEAKER_01: And we talk about the K-shaped economy, and it's a very small percentage of US consumers that I think it's like eight or ten percent of US cons uh of uh beef consumers or of the the US population that consumes 50% of the beef.
• 5:36
  SPEAKER_01: So that's that's interesting there, but also just another one inflation uh I and I don't have the real perfect numbers on it, but inflation from 1950 to 1996 was pretty high.
• 5:51
  SPEAKER_01: Beef beef demand did not outpace that.
• 5:54
  SPEAKER_01: The it was traded like a commodity, you know, it stayed it stayed below inflation.
• 6:00
  SPEAKER_01: And since 1996, which the reason I used 1996 is that was the introduction of uh what we what we see now as the grid.
• 6:09
  SPEAKER_01: We started seeing premiums for meat quality, and since then we've seen beef beef cutout outpace inflation, which is not not typical of a commodity.
• 6:19
  SPEAKER_01: Um, but just that just kind of goes into the whole demand story.
• 6:23
  SPEAKER_01: We wonder why it's still as strong as it is, but we do, and and I I I don't say that to say that it's completely inelastic, because I do think there are things that that do hurt this beef market eventually, but and we're gonna see that over the next couple of years with bigger supply.
• 6:40
  SPEAKER_01: But in the meantime, we've seen that outpace it just because of quality.
• 6:44
  SPEAKER_02: And I think that's so since 1996, uh, when we switched to more of the grid models, that's helped improve our production quality of steak, for example, in the United States.
• 6:58
  SPEAKER_02: And you think that makes it a little bit better of a uh good that you would say, where even when times get a little bit worse for consumers, they still want that good product.
• 7:10
  SPEAKER_02: And before that might not have been the case before 1996, you're saying.
• 7:15
  SPEAKER_01: Right.
• 7:15
  SPEAKER_01: And I mean, they just got paid for quality at that point, and it kept improving.
• 7:19
  SPEAKER_01: And now you're to a point where grid premiums are a big, especially now when margins are tight, grid premiums are a big focus right now.
• 7:27
  SPEAKER_01: You know, you might you might lock in a group at a break-even and you might end up making$180 on that group because they gridded 20% prime or something.
• 7:37
  SPEAKER_01: But just since 1996, or about that time, we were at 30 to 40% choice and higher beef quality.
• 7:46
  SPEAKER_01: And right now we're over 60% choice.
• 7:50
  SPEAKER_01: So that that is a that is a tangible number.
• 7:53
  SPEAKER_02: It's some interesting uh things to wrap your head around with the meat markets overall from a macro perspective, not just beef.
• 8:02
  SPEAKER_02: So uh we'll get into that next week as well.
• 8:04
  SPEAKER_02: What else do you got for me here this week before we wrap up?
• 8:07
  SPEAKER_01: Yeah, I I think this rally in the in the futures here has provided a good opportunity.
• 8:14
  SPEAKER_01: If you bought some calves for next spring, next summer, if you have some open inventory yet there, it is uh probably a good opportunity for that.
• 8:22
  SPEAKER_01: We see the we see the Mexican border opening.
• 8:24
  SPEAKER_01: We see things that could, you know, there's the higher a price is, the higher the risk is in that in that space, even if we don't feel like that risk is um as eminent as as it it maybe is.
• 8:38
  SPEAKER_01: But I just look at the Mexican feeder cattle crossings and starting to see that tick up with Santa Teresa open and just making sure that we're protecting ourselves, especially when you get above break even out there.
• 8:50
  SPEAKER_02: All right.
• 8:50
  SPEAKER_02: Well, thank you for your time.
• 8:51
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• 9:01
  SPEAKER_02: Thank you for your time today, Jace.
• 9:02
  SPEAKER_02: We'll see you next time.