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Hog Talk: Dealing · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Hog Market Talk Podcast with Professional Egg Marketing.
• 0:05
  SPEAKER_00: Come here to get fresh updates on what's happening week to week within the Lean Hog Complex.
• 0:10
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_00: And remember to visit swineweb.com, an excellent resource for information in the pork industry, where you can also find this podcast.
• 0:25
  SPEAKER_00: This is your host, Mike Miner.
• 0:26
  SPEAKER_00: Let's cross.
• 0:27
  SPEAKER_00: Today is July twenty-third.
• 0:29
  SPEAKER_00: I've got Luke Wells here with us today.
• 0:30
  SPEAKER_00: How's it going, Luke?
• 0:31
  SPEAKER_01: Well, I am glad I'm in an air conditioned office today, man.
• 0:34
  SPEAKER_01: Mike, we got some we got some heat, huh?
• 0:36
  SPEAKER_00: Corn is sweating outside, is what I keep reading from people smarter than myself.
• 0:41
  SPEAKER_01: It is it it is warm for sure.
• 0:44
  SPEAKER_01: But hey, it's July 23rd.
• 0:45
  SPEAKER_01: That's really not uh so uncommon for this time of year, huh?
• 0:48
  SPEAKER_00: Not incredibly uncommon.
• 0:50
  SPEAKER_00: Kind of like our markets too.
• 0:52
  SPEAKER_01: What is uncommon though is like it seems like we get rain, what, about every six hours?
• 0:56
  SPEAKER_00: That's uh that's very uncommon.
• 0:58
  SPEAKER_00: And and not just us, it's a whole lot of the corn belt as well.
• 1:01
  SPEAKER_00: So uh crop condition scores have been immaculate, 74% good excellent on corn this week.
• 1:07
  SPEAKER_00: Uh we're tracking very, very well uh to have a good corn crop on our hands, anyways, Luke.
• 1:13
  SPEAKER_00: I know there's some some issues here or there with uh tight tassel wrap, things like that, but we'll just skip on past that.
• 1:19
  SPEAKER_01: Tight tassel wrap.
• 1:21
  SPEAKER_00: I know, right?
• 1:22
  SPEAKER_01: I hear you.
• 1:22
  SPEAKER_01: Yeah, a lot of talk around that this week.
• 1:25
  SPEAKER_01: But hey, let's let's talk about corn just for just for a second from an end user's perspective.
• 1:29
  SPEAKER_01: And I mean we we nationwide we we can't really paint a better picture, right, than what we have now, right?
• 1:36
  SPEAKER_01: And 181 would be record the market, nobody's even thinking of 181 type yield.
• 1:44
  SPEAKER_01: Would you say the market is trading a 184?
• 1:46
  SPEAKER_01: 184, 185, yeah.
• 1:48
  SPEAKER_01: Somewhere in there, and that gets us around that two billion carry out, correct?
• 1:52
  SPEAKER_00: Just under a two billion carry out, about 13% stocks to use ratio today.
• 1:56
  SPEAKER_01: Right.
• 1:56
  SPEAKER_01: All right.
• 1:57
  SPEAKER_01: So one, you know, uh, you know, from you know, now this this this corn balance sheet, it's it's look this seems it needs to look hard at the demand side of the equation.
• 2:05
  SPEAKER_01: Yes.
• 2:05
  SPEAKER_00: How much demand can we turn on at low prices?
• 2:08
  SPEAKER_01: And we're not I'm not, you can go as crazy as you want, right?
• 2:12
  SPEAKER_01: I'm not gonna get here and and uh and and but that the the market, the talk analysts, I mean there's there's there's there's definitely numbers north of 185 out there being quote unquote talked about.
• 2:23
  SPEAKER_01: I mean, even up to maybe, I mean, some 190s.
• 2:25
  SPEAKER_00: I mean But it's not that crazy when you start thinking about uh the good excellent scores if you did correlate them for some of the comparable years to yield.
• 2:36
  SPEAKER_00: I mean, having a trend line yield 3.94% above a trend line yield is fine.
• 2:43
  SPEAKER_00: You know, when we're above that trend line yield finally again, i i it's common for us to be three or four percent above it, which would be like a one eighty-eight.
• 2:51
  SPEAKER_00: So that type of a jump is fine.
• 2:53
  SPEAKER_00: It's just the whole thing we've printed a 180 yield for six straight years and haven't got it yet.
• 2:57
  unknown: Okay.
• 2:58
  SPEAKER_01: You go back in history though, right?
• 2:59
  SPEAKER_01: There's been a few years too that's that catch up.
• 3:02
  SPEAKER_01: We've had some pretty big year-to-year yield bumps, just haven't seen it recently.
• 3:06
  SPEAKER_01: Yeah.
• 3:06
  SPEAKER_01: My whole point with this is just you know, we're in a transition phase.
• 3:09
  SPEAKER_01: The last few years of the row crop producer have had an excellent run.
• 3:13
  SPEAKER_01: Yes, it's been balance sheet uh growth.
• 3:16
  SPEAKER_01: Supplies change, you know, now they need to be in a little more balanced sheet preservation mindset.
• 3:21
  SPEAKER_01: Uh thing things change.
• 3:22
  SPEAKER_01: If we do get better than a 185 yield, which we just kind of is not outside the realm of possibility, you know, like a 187, what's that put us to like almost a 23, 22 something?
• 3:33
  SPEAKER_00: 2187.
• 3:34
  SPEAKER_00: Now that's if you didn't really change anything else on the balance sheet.
• 3:37
  SPEAKER_01: But my yeah, and my point with that is we we we get over a 185 yield.
• 3:41
  SPEAKER_01: There's only so much demand can do.
• 3:43
  SPEAKER_00: It can only turn on so fast.
• 3:44
  SPEAKER_01: It can only turn on so fast.
• 3:46
  SPEAKER_01: I mean, so just think about that as an end user.
• 3:48
  SPEAKER_01: I mean, we we still like to forward margin out there from a risk management on the livestock side.
• 3:53
  SPEAKER_01: We still need to protect corn against our hog sales, and with that and said, we also need to be thinking differently.
• 3:59
  SPEAKER_01: We're now we're in a carry market and we're gonna be in a carry market.
• 4:02
  SPEAKER_01: We need to try to avoid buying the carry, right?
• 4:04
  SPEAKER_01: Yeah, we need to really start thinking about fall.
• 4:06
  SPEAKER_01: There's probably gonna be some systems are gonna get plugged.
• 4:10
  SPEAKER_01: There's gonna be some great basis opportunities likely coming around this fall, right?
• 4:14
  SPEAKER_01: And so just we're having a lot of discussions with our customers about let's start thinking about our strategy now.
• 4:19
  SPEAKER_01: Let's make sure we got our bids set, our basis set, right?
• 4:22
  SPEAKER_00: But uh which that's been a very active game this week.
• 4:24
  SPEAKER_00: We've seen a lot of basis weakening for new crop here, and uh people are starting to flood the corn in already.
• 4:30
  SPEAKER_01: Yeah, absolutely.
• 4:31
  SPEAKER_01: And I mean, and if also from you know, from a seller's side, right?
• 4:35
  SPEAKER_01: I mean, or no nobody, you you you you're very much in the row crop side, right?
• 4:39
  SPEAKER_01: I mean, five dollars, that's not if people are thinking five dollars, I'm talking from a like that's they need their expectation reset, right?
• 4:46
  SPEAKER_01: So likely.
• 4:48
  SPEAKER_01: So now it's about it's a bushels game, right?
• 4:51
  SPEAKER_01: And their costs are going lower with bigger yields, right?
• 4:53
  SPEAKER_01: So we're just think about where ownership can transfer.
• 4:56
  SPEAKER_01: It seems like around that 430 D sport, there's some some willing under, not yet, right?
• 5:01
  SPEAKER_01: But now we get closer and closer to harvest.
• 5:03
  SPEAKER_01: So anyway, just kind of start that obviously uh puts us in a great spot from a cost of production standpoint, from a from a livestock uh perspective.
• 5:10
  SPEAKER_01: Uh, we get it's we're we're and it's welcome.
• 5:13
  SPEAKER_01: We've fought through several years of very high cost corn, very expensive basis corn.
• 5:17
  SPEAKER_01: So welcome change, just adjust, creating some amazing opportunities.
• 5:22
  SPEAKER_01: But you know, we just say now we're through the end of July, we're good.
• 5:24
  SPEAKER_01: Well, now it's almost the end of July.
• 5:26
  SPEAKER_01: And I mean, now we don't need a real rain till when?
• 5:30
  SPEAKER_00: Yeah, you tell me because people do we need a rain to finish this crop in the some people have too much rain, but in general, I mean we need more systematic, you know, rain through the wave through.
• 5:40
  SPEAKER_00: But for sure.
• 5:41
  SPEAKER_00: Yes, for sure.
• 5:42
  SPEAKER_00: How about on the hog side then, Luke?
• 5:44
  SPEAKER_01: Let's still you want to get off the corn, don't you?
• 5:46
  SPEAKER_01: Yeah, yeah, yeah.
• 5:48
  SPEAKER_01: So interesting hog trade.
• 5:49
  SPEAKER_01: Uh, you know, we we you know continue spot fundamentals, Mike.
• 5:53
  SPEAKER_01: They're they're they're really in a very good spot.
• 5:55
  SPEAKER_01: Um, we were a little weaker on cutout this afternoon, you know, down 91 cents.
• 5:59
  SPEAKER_00: That's trended lower the last couple days.
• 6:01
  SPEAKER_01: A little lower, but it's 117.24.
• 6:03
  SPEAKER_01: So our high in June, I don't have the chart in front.
• 6:05
  SPEAKER_01: It was 123 something, right?
• 6:06
  SPEAKER_01: So we haven't hit our early summer high, but we've traded into the upper 1 teens.
• 6:10
  SPEAKER_01: We've and we've had nice ham demand, nice belly demand, the two primals we were looking at.
• 6:14
  SPEAKER_01: Cutouts in a good spot.
• 6:16
  SPEAKER_01: The cash hog market, actually, we made a new year-to-date high on the top, 118.50.
• 6:20
  SPEAKER_01: Now that's a little elusive.
• 6:22
  SPEAKER_01: You you can see that by the spread.
• 6:24
  SPEAKER_01: The top was 118.50, the Western Corn Belt weighted average was 114.76.
• 6:29
  SPEAKER_01: There's a spread there.
• 6:30
  SPEAKER_01: There, there's some outside the belt, there's some special reasons, but still 114.
• 6:34
  SPEAKER_01: Oh, it's a 115 weighted average.
• 6:36
  SPEAKER_00: It did seem to hold the August higher relative to the other.
• 6:39
  SPEAKER_01: August is dialing in just about right.
• 6:41
  SPEAKER_01: Index is climbing.
• 6:42
  SPEAKER_01: We should have a little pause.
• 6:43
  SPEAKER_01: August is kind of kind of right where it kind of needs to be.
• 6:45
  SPEAKER_01: Tracking basis makes sense.
• 6:47
  SPEAKER_01: But the the the spreads into AUK and D S right there, they're kind of a little wider than normal discount from spot fundamentals.
• 6:54
  SPEAKER_01: And what's the reason for that?
• 6:56
  SPEAKER_01: I I think it's largely still wrapped around some concern in in trade risk, right?
• 7:01
  SPEAKER_01: Um, and so we've kind of went through these last couple weeks, and pretty much every country we care about.
• 7:06
  SPEAKER_01: We talked about this, I think, last week, memory serves me, but you had Japan, South Korea, Mexico last sat was that last Saturday, two Saturdays ago.
• 7:14
  SPEAKER_01: I lose track, but it was two Saturdays ago because we went down, DSOG sold off pretty aggressively, even in light of strong fundamentals.
• 7:21
  SPEAKER_01: We went down just a little under 78, which is a hundred-day moving average, caught some support, and we've bounced back today and traded back a little bit higher, if you will, right?
• 7:31
  SPEAKER_01: Um, but there's still some trepidation in the market there.
• 7:33
  SPEAKER_01: The the tomato thing came up where we put some tariffs on tomatoes.
• 7:37
  SPEAKER_01: In the words of the president of Mexico, uh US, her words, needs tomatoes from us, like we need U.S.
• 7:45
  SPEAKER_01: pork.
• 7:45
  SPEAKER_01: Never a clearer sign on something.
• 7:47
  SPEAKER_00: It was sad she mentioned pork directly, right?
• 7:51
  SPEAKER_01: It's pretty direct high, right?
• 7:52
  SPEAKER_01: So I think that's got the market a little jittery, and that's why we've, you know, August has strengthened and we've gotten, you know, August traded right back up, right on par at 108.
• 8:01
  SPEAKER_01: But you know, on 90, 90 October and 8257, well off contract highs, a little trepidation there.
• 8:07
  SPEAKER_01: So where's that take us to?
• 8:08
  SPEAKER_01: Just in the big picture.
• 8:10
  SPEAKER_01: Yes, we're getting our kind of our our our our late July, early August rally.
• 8:14
  SPEAKER_01: Fundamentals aren't too scary.
• 8:16
  SPEAKER_01: We got some trade risk out there, and that's just the world we live in today.
• 8:20
  SPEAKER_01: Forward margins, they're they're not at peak that we saw uh, you know, a little bit earlier in the summer, you know.
• 8:26
  SPEAKER_01: But we're still as we kind of boil up and look at the rolling 12 today, you know, we're at 2966, so right up around 30, 37, I think was the high.
• 8:35
  SPEAKER_01: And so as we just kind of look forward to this, you know, let's let's let's let's not lose track of things from a big picture perspective.
• 8:43
  SPEAKER_01: We're we're taking our August off as we should, so we're losing coverage.
• 8:48
  SPEAKER_01: Um, as we look forward in this kind of margin institutionally, we don't feel like we should be we we shouldn't be losing coverage in this.
• 8:55
  SPEAKER_01: So I don't know, just a big emphasis to our clients.
• 8:57
  SPEAKER_01: It's let's look for the right spot.
• 8:59
  SPEAKER_01: A lot of our clients are starting to look into next summer.
• 9:02
  SPEAKER_01: You've got great margins above target out there next summer.
• 9:04
  SPEAKER_01: Um, we have competitive cost of productions.
• 9:07
  SPEAKER_01: Um still need to just kind of keep this trade thing in bay, if you will, right?
• 9:12
  SPEAKER_01: But a lot of good things going on, just a little bit disappointing in kind of the you know, the the awk forward spreads.
• 9:19
  SPEAKER_01: I think they have a little bit of concern, yep, maybe rightly so around these tariffs.
• 9:23
  SPEAKER_01: But keep a close eye on all that.
• 9:25
  SPEAKER_01: All in all, I'd say if there's something that makes me a little nervous this week, is outside the Mexico thing and every other country, that's our those are all bad guys.
• 9:36
  SPEAKER_01: Those are those are scary big things.
• 9:37
  SPEAKER_01: So I don't want to trivialize that.
• 9:38
  SPEAKER_01: But spot fundamentals, cash and cutout have been pretty good, and we haven't really seen those months respond.
• 9:45
  SPEAKER_01: So when you start to get good news on something and you get kind of just stagnant futures performance, that's a little disconcerting, if you will, right?
• 9:53
  SPEAKER_01: So I guess that's my message this week is you know, our clients they've done a phenomenal job taking advantage of this excellent margin opportunity.
• 10:02
  SPEAKER_01: It's all worked well.
• 10:03
  SPEAKER_01: Stay flexible in your positions.
• 10:04
  SPEAKER_01: You know, there's obviously spots for hard crush with short futures, long futures, right?
• 10:09
  SPEAKER_01: Options, LRPs, LGMs, whatever you want to look at.
• 10:12
  SPEAKER_01: But you know, don't take your eye off the ball.
• 10:14
  SPEAKER_01: We're still getting towards the end of our seasonal strength.
• 10:17
  SPEAKER_01: There's still some really good opportunities out there.
• 10:19
  SPEAKER_01: Trade risk is a is is a constant, right?
• 10:22
  SPEAKER_01: And so, you know, we're just we find ourselves, you know, last week kind of when we sold off down, we didn't add a lot of sales.
• 10:28
  SPEAKER_01: We we hit the pause button.
• 10:30
  SPEAKER_01: You know, this week, I mean June.
• 10:31
  SPEAKER_01: June's right back up to where it was before it dropped off to 95.
• 10:34
  SPEAKER_01: It's back up, you know, closer to that 98 range.
• 10:37
  SPEAKER_01: Just, you know, that works.
• 10:38
  SPEAKER_01: Put a little window there, take some risk off.
• 10:40
  SPEAKER_01: Just just just stay aggressive and and and keep working things forward.
• 10:44
  SPEAKER_01: And you know, again, we got a nice long runway.
• 10:46
  SPEAKER_01: The board's showing us in profitability.
• 10:48
  SPEAKER_01: Let's continue to to capitalize that.
• 10:50
  SPEAKER_01: And you know, where I mentioned that the row crop producer, you know, they're in a mode where they need to preserve their balance sheet, some of the great returns they've had the next couple of years.
• 10:58
  SPEAKER_01: We're in the hog industry, we we needed to rebuild a bit.
• 11:02
  SPEAKER_01: That high corn isn't good for our business, right?
• 11:04
  SPEAKER_01: Yep.
• 11:04
  SPEAKER_01: And so, you know, we're in a we're in a growth stage, but let's, you know, keep keep just stay focused on margins, do the you know what we would say is the right risk decisions, and you know, continue to get this, these, these great margin opportunities laid out for our business as as long and forward in the curve as we can, Mike.
• 11:20
  SPEAKER_00: All right.
• 11:20
  SPEAKER_00: Well, thank you for your time today, Lou.
• 11:22
  SPEAKER_01: Have a great day, sir.
• 11:23
  SPEAKER_00: You too.
• 11:23
  SPEAKER_00: And thank you to all our listeners.
• 11:25
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 11:29
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing.
• 11:32
  SPEAKER_00: That's released every Friday.
• 11:34
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 11:40
  SPEAKER_00: See you next time.