Latest / Professional Ag Marketing Podcast / Cattle: Cash Crazy

Transcript

Cattle: Cash Crazy · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_01: Welcome to the Cattle Market Talk Podcast with Professional Egg Marketing.
• 0:04
  SPEAKER_01: Come here to get your fresh updates on what's happening week to week within the cattle market.
• 0:09
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:15
  SPEAKER_01: Today is June 6th.
• 0:18
  SPEAKER_01: I've got uh Jeff with us here on D-Day.
• 0:20
  SPEAKER_01: How's it going?
• 0:21
  SPEAKER_00: Doing pretty good, Mike.
• 0:22
  SPEAKER_01: Alright, well, we're gonna talk about cattle today.
• 0:24
  SPEAKER_01: We're gonna talk about cash first, and then we're gonna talk a little bit about the seasonals going on in this cattle market, Jeff.
• 0:31
  SPEAKER_01: So let's start off with cash.
• 0:33
  SPEAKER_01: It's been a crazy week in that market, hasn't it?
• 0:35
  SPEAKER_00: Yeah, followed uh by uh last, you know, this week followed by a pretty crazy week last week, too, both putting on a good four or five dollars higher on the cash market.
• 0:45
  SPEAKER_00: You know, this week kind of started with um what was it, Tuesday, I think, is when the South started trading just a little bit.
• 0:53
  SPEAKER_00: Pretty light volume down there yet, as we're looking at this on Friday about midday.
• 0:58
  SPEAKER_00: It doesn't, I'm not hearing about any more um volume in those southern bids, but they start off a good five bucks higher in that 228 area.
• 1:07
  SPEAKER_00: Um that had to get uh the market's attention yesterday, I guess that was, is when we saw the big rally there trying to get the basically the front month a little bit closer to where the uh southern cash is.
• 1:21
  SPEAKER_00: And um, you know, I'll just hit hit on that topic for a quick minute.
• 1:26
  SPEAKER_00: You know, we we talk a fair amount about you know Nebraska cash, Nebraska, Iowa, kind of the northern bid versus that uh Kansas, Texas, Oklahoma bid.
• 1:38
  SPEAKER_00: Um, and you know, the futures market because of the delivery um style or the delivery process, Mike, it it is gonna settle to the lowest denominator because you know that's what the market looks at as far as okay, if I have to take delivery, you know, the the short position gets to choose where they deliver and when they deliver, so they're gonna deliver against the lowest price, right?
• 2:05
  SPEAKER_00: Which is the south.
• 2:06
  SPEAKER_00: Yep, today's pretty much pretty normal, right?
• 2:08
  SPEAKER_00: That's normal, especially for this time of year.
• 2:10
  SPEAKER_00: You know, it's just a little bit easier to get um into some cattle in those southern states.
• 2:16
  SPEAKER_00: It's very difficult to have fat cattle ready in May and June up in the north, especially with today's setup, right?
• 2:24
  SPEAKER_00: As far as um you know, just the margin over feed being so high.
• 2:30
  SPEAKER_00: Everybody's got these set up, the cattle set up, especially in the north, to put some major pounds on them, right?
• 2:36
  SPEAKER_00: Which takes more days on feed.
• 2:38
  SPEAKER_00: So those spring-born calves, um, there's there's really none of those uh that I know of, at least that were targeted to be marketed in May or June.
• 2:49
  SPEAKER_00: You know, they're gonna start being more of a August, September, even October type of uh a marketing window.
• 2:56
  SPEAKER_00: So that's why we run so short right now from a seasonal perspective in the north.
• 3:02
  SPEAKER_00: That's also happening to some ext to some level in the south as they look at those uh you know, those feed lodge yards are doing the same thing.
• 3:11
  SPEAKER_00: They're putting extra days on them, otherwise they would have plenty of cattle available in June, you know, back in the old days when margin over feed was much closer.
• 3:19
  SPEAKER_00: Um but today too, they're looking at it.
• 3:21
  SPEAKER_00: Um every week you can keep these cattle on feed, and break even goes down, and and of course your profit per head goes up quite a bit.
• 3:30
  SPEAKER_00: And that's you know, we look back uh the past few years, Mike, as you well know, looking at where these cash highs have come in, and you know, they've been somewhere between the first of June and the very end of June, right?
• 3:44
  SPEAKER_00: So from a seasonal perspective, that's what's going on here.
• 3:48
  SPEAKER_00: That's why we're blowing the doors off the uh cash market.
• 3:53
  SPEAKER_00: Um, and you know, it feels like there's no end in sight today, but I think uh be very careful with that because it's certainly the time of year uh where you can be putting a cash high in.
• 4:05
  SPEAKER_01: Well, a big just a step back here, big at what, seven, ten bucks higher than last week in cash.
• 4:11
  SPEAKER_00: Your main reason for that this week would be Well, we're we are looking very short on numbers.
• 4:18
  SPEAKER_00: Um, you know, one of the things we've finally starting to see, and we talked a little bit about this in the past weeks, but we're finally seeing fed cattle um kill numbers drop, Mike.
• 4:30
  SPEAKER_00: Otherwise, all of the reduction in the pounds that we've been putting out there really come from the cow side of it.
• 4:36
  SPEAKER_00: Well, the last six weeks now on just fed steers and heifers going to slaughter, the past six weeks we've been down six percent.
• 4:45
  SPEAKER_00: So that is a huge drop in kills, and there's no argument this is incredibly impressive.
• 4:52
  SPEAKER_00: If you've got the kills slowed up six percent, and you're still chasing the cash market higher at five or six bucks a week, Mike.
• 5:02
  SPEAKER_00: That is uh that is really impressive.
• 5:04
  SPEAKER_01: That's a good sign.
• 5:05
  SPEAKER_01: And that drop we've seen specifically over Memorial Day, which was a massive drop, even versus normal, right?
• 5:12
  SPEAKER_01: Um, how do you compare that or break that down with what was cows, what haven't been cows lately, what's beef?
• 5:19
  SPEAKER_01: Like, give me that scenario on how you see it right now of just what we're killing.
• 5:23
  SPEAKER_00: Yeah, so cows um they've they still are coming in a little bit lower than last year, but you know, what gets tough there is the last two years we've been reducing that cow hit um kill.
• 5:34
  SPEAKER_00: So I really expect that to level off here, and it is.
• 5:39
  SPEAKER_00: You know, we're coming in a couple percent less than a year ago on the on the cow slaughter.
• 5:44
  SPEAKER_00: Um big changes over in the uh fed cattle, like we talked about, of course.
• 5:49
  SPEAKER_00: But you know, we still have more weight on these animals.
• 5:53
  SPEAKER_00: That'll be the next thing that we start paying attention to, right?
• 5:56
  SPEAKER_00: Uh, there's some major motivation to pull cattle forward.
• 6:01
  SPEAKER_00: Huge basis, absolutely huge, huge basis, hugely inverted um market as far as the futures go, you know, with August down there at 216, October at 213, and some change as I'm looking at the screen here while we're doing the podcast at least.
• 6:18
  SPEAKER_00: Um, so it'll be interesting if are we starting to pull some of these cattle forward?
• 6:23
  SPEAKER_00: I think we are to some extent, but probably in a pretty small way, is my guess, Mike.
• 6:28
  SPEAKER_00: I don't think we're gonna see a major drop in weights.
• 6:32
  SPEAKER_00: Um if we do, that's that's kind of another just really impressive data point, right?
• 6:37
  SPEAKER_00: Like if we're killing this uh these few numbers and weights are dropping, then uh you know, then we're just flat out of cattle, I guess.
• 6:47
  SPEAKER_00: And I I don't think that's the situation, but you know, a couple more weeks is gonna tell us a lot.
• 6:52
  SPEAKER_01: So uh also to this extent, you're looking at and talking about basis a lot with the futures, specifically June at 223 or August at 216, and being well under cash today, even to the south at 232, what we traded at the high this week, it looks like.
• 7:08
  SPEAKER_01: Now, a normal spread between like your front August, let's say, and December is normally a three or four dollar carry, or three or four dollar um a higher December than August.
• 7:21
  SPEAKER_01: However, it's actually August is already trading at$3 higher.
• 7:27
  SPEAKER_00: And so what's going on there, of course, is you know, we we we look at a lot of different things.
• 7:32
  SPEAKER_00: We look at you know money flow and index and managed money's positions and things like that, and you know, try to break down this market a little bit.
• 7:41
  SPEAKER_00: And really it this market's pretty simple.
• 7:44
  SPEAKER_00: Um, the cash market is absolutely dragging the futures up, right?
• 7:50
  SPEAKER_00: I mean and the reason for that is nobody's super excited about building a long speculative position at uh 216 August fat cattle.
• 8:00
  SPEAKER_00: Makes sense.
• 8:01
  SPEAKER_01: Yeah, nobody even wants to buy the real cattle because of the the risk of it.
• 8:05
  SPEAKER_00: Right.
• 8:06
  SPEAKER_00: So so the futures it's completely cash led.
• 8:10
  SPEAKER_00: Um we're priced in a huge discount.
• 8:13
  SPEAKER_00: I've even seen some reports out there, Mike, that suggest uh when you go back to like December and beyond that they're pricing in a plant closure um that far out.
• 8:24
  SPEAKER_00: And I don't know what to think about that for sure.
• 8:26
  SPEAKER_00: I it it seems like that almost has to happen in here someplace when you look at what you know Packer margins have been doing.
• 8:34
  SPEAKER_00: Um so I I I'm not sure.
• 8:36
  SPEAKER_01: And with Packer Margins, is it correct that I would say it's not that they've lost the most money ever right now killing cattle, but they're losing, you know, you pick the number$100 ahead or something, but we've been doing it for the last how many years that they've been losing it, right?
• 8:51
  SPEAKER_00: Well, and it's it's definitely got worse here lately.
• 8:54
  SPEAKER_00: Like uh we're starting to bid, you know,$380 for the cattle and getting$360 and some change for the choice meat, right?
• 9:01
  SPEAKER_00: Math ain't math, and that's it.
• 9:03
  SPEAKER_00: There's and that's been happening here about five weeks now.
• 9:07
  SPEAKER_00: Um so yeah, it it got pretty it's gotten pretty rough.
• 9:10
  SPEAKER_00: I I don't know that that's been completely unexpected from their uh perspective.
• 9:16
  SPEAKER_00: I'm sure they've seen some of this coming.
• 9:18
  SPEAKER_01: So it's hard to know how long are they gonna say we'll just keep doing this before they cave in or say that's enough, right?
• 9:24
  SPEAKER_00: Right.
• 9:25
  SPEAKER_00: That's exactly that's exactly right.
• 9:27
  SPEAKER_00: I'm sure they're having those discussions uh as time goes by here for sure.
• 9:31
  SPEAKER_01: For sure.
• 9:32
  SPEAKER_01: Uh go to the next topic here, just from a seasonal perspective.
• 9:35
  SPEAKER_01: We're going into a time of the year where uh I would say you eat steaks in the beginning of summer and you eat hot dogs at the end of summer.
• 9:43
  SPEAKER_01: Walk me through the seasonals here for both demand and just futures.
• 9:47
  SPEAKER_00: Well, you can pretty much draw the line right on July 4th, right, Mike, as far as the demand goes.
• 9:52
  SPEAKER_00: I'm a big believer in that too, as as summer drags on, and and and in my opinion, um, and maybe I'll be be wrong about this, it's demand's been really good, um, much better than I thought it would be.
• 10:04
  SPEAKER_00: But um at the higher prices, I think that seasonal has the opportunity to be even um a little bit uh more direct, if you will.
• 10:15
  SPEAKER_00: You know, if we come in here to summer and we're buying beef in May and June, it really doesn't matter what it costs, uh, but as the season wears on and and temperatures go up, I I think people start looking for uh um less of a prime type of a product, like you're suggesting.
• 10:34
  SPEAKER_00: And so July 4th is usually the date where all that kind of comes together and uh in this year.
• 10:41
  SPEAKER_00: Um we'll see what the kills are doing.
• 10:43
  SPEAKER_00: Maybe we can get kills cut enough to to have beef go up from this 360 area.
• 10:49
  SPEAKER_00: I think that's gonna be a tough assignment, but you know, if we are gonna start putting three, four percent less meat out there, that certainly will will be the trade-off, right?
• 10:59
  SPEAKER_00: So it is possible.
• 11:00
  SPEAKER_00: That's it's gonna be interesting as we plug through the back half of June and into July from a seasonality perspective, Mike.
• 11:08
  SPEAKER_01: And I'm really gonna be watching the demand for choice meat, for example, or prime.
• 11:14
  SPEAKER_01: I'm really gonna watch that this year, just being a lot of people are on edge about the economy.
• 11:19
  SPEAKER_01: You know, repos on vehicles are as high as they were in 19 or uh during the financial crisis in 08 and 09.
• 11:25
  SPEAKER_01: Um, you know, unemployment rates started to kind of peak up again, just slowly start to pick up.
• 11:31
  SPEAKER_01: It's still really low.
• 11:32
  SPEAKER_01: But uh I'll be watching things like that this year, specifically over holidays.
• 11:36
  SPEAKER_01: So like Memorial Day weekend was a perfect example of it, and everything seemed fine yet.
• 11:41
  SPEAKER_01: You know, people traveled, uh, gas demand was good, and then uh, you know, from a meat perspective, it sure seemed like we sure had a pretty nice buying ahead of it and even restocking after it on both pork and and beef.
• 11:55
  SPEAKER_01: So uh through some of these holidays, I think are going to be huge tell-alls on how the demand story is doing, Jeff.
• 12:02
  SPEAKER_00: 100% agree with that.
• 12:03
  SPEAKER_00: Yep.
• 12:03
  SPEAKER_00: That's those are important indicators.
• 12:05
  SPEAKER_01: Yeah.
• 12:06
  SPEAKER_01: Any final thoughts on our uh cattle podcast today?
• 12:08
  SPEAKER_00: Well, we've you know we've reached out to a lot of folks on this already.
• 12:12
  SPEAKER_00: Um, but if if somebody has any questions, we we have been finding some value in uh some of the LGM insurance products out there.
• 12:21
  SPEAKER_00: I know there's uh it's not always clear uh on the cattle, especially on the fat cattle world, you know, where the real value is on some of them subsidized products, but you know, we've we're starting to the the volatility has kind of increased the value on the LGM side of things.
• 12:37
  SPEAKER_00: So there's some really interesting things we can do as far as you know rolling up some floors that we got in in place or just adding some you know kind of institutional coverage here on some of this fall cattle.
• 12:48
  SPEAKER_00: It's it's starting to look pretty attractive.
• 12:50
  SPEAKER_00: Um it's a really cheap way to have a floor in place.
• 12:53
  SPEAKER_00: So any questions or thoughts on any of that, go ahead and reach out of one of us at ProWag here and be happy to visit about it.
• 13:00
  SPEAKER_01: All right.
• 13:01
  SPEAKER_01: Well, thank you for your time today.