Latest / Professional Ag Marketing Podcast / The Good, The Bad, and The Ugly in Hogs

Transcript

The Good, The Bad, and The Ugly in Hogs · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_01: Welcome to the Hog Market Talk Podcast.
• 0:06
  SPEAKER_01: Your weekly deep dive into hog market fundamentals, breaking news, and industry insights.
• 0:13
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:22
  SPEAKER_00: All right, today is August 5th.
• 0:23
  SPEAKER_00: I've got Lucas Wells with us here today.
• 0:25
  SPEAKER_00: We're going to do a hog podcast.
• 0:27
  SPEAKER_00: How's it going, Luke?
• 0:28
  SPEAKER_00: It's going, Mike.
• 0:29
  SPEAKER_00: How are you doing?
• 0:30
  SPEAKER_00: Fantastic.
• 0:31
  SPEAKER_02: Can you tell us a little bit about this crop tour we got going on?
• 0:34
  SPEAKER_00: Yeah, just a short bit here.
• 0:36
  SPEAKER_00: Uh it's been a really fun week.
• 0:37
  SPEAKER_00: We had Stone X Yields come out this week as well, so it's always fun to compare our numbers to their numbers uh live.
• 0:44
  SPEAKER_00: So I'm gonna have Cade pull up Stonex yields there.
• 0:48
  SPEAKER_00: They came out at uh over a 184 and just comparing some of their numbers to ours.
• 0:54
  SPEAKER_00: Um the Nebraska, South Dakota, North Dakota numbers, a little on the high side, I thought.
• 0:59
  SPEAKER_00: Um we could pull those down a little bit.
• 1:01
  SPEAKER_00: Iowa, obviously, a very big yield, um, uh well above record, uh, very doable.
• 1:08
  SPEAKER_00: Uh Minnesota, same same case scenario there as well.
• 1:12
  SPEAKER_00: Um, the more that I'm learning about this year's crop tour, I didn't have a ton of bias going into it.
• 1:19
  SPEAKER_00: I knew the Western Corn Belt's probably pretty tough.
• 1:22
  SPEAKER_00: I knew Illinois was gonna have some holes in it out east, which we did find.
• 1:25
  SPEAKER_00: Everyone else, like, okay.
• 1:28
  SPEAKER_00: When I start using, I'll have Cade go to our website.
• 1:31
  SPEAKER_00: Um we have we have a tool on there.
• 1:33
  SPEAKER_00: It's a U.S.
• 1:34
  SPEAKER_00: corn yield calculator.
• 1:35
  SPEAKER_00: You can type in every state's yield, and it'll give you a calculation for the U.S.
• 1:40
  SPEAKER_00: on what yield we'll come up with for the United States.
• 1:42
  SPEAKER_00: It is very difficult for me to get below a 182 yield.
• 1:47
  SPEAKER_00: Even if I destroy the numbers in the Dakotas and Nebraska, it's very difficult for me to print a number with a 181 on it.
• 1:56
  SPEAKER_00: So I'm gonna leave that out there for you guys.
• 1:58
  SPEAKER_00: Please play around with those numbers.
• 2:00
  SPEAKER_00: Please use it.
• 2:01
  SPEAKER_00: Plug in your own calculations because it um more than what I was anticipating, that it's very difficult to get below a 182 um with what we know so far in this crop year.
• 2:12
  SPEAKER_00: So very interesting.
• 2:14
  SPEAKER_00: Uh the uh US has a 183 trend line yield plugged in.
• 2:18
  SPEAKER_00: We'll have a WASDA report a week from today, where NASA's gonna take their first dab at it.
• 2:24
  SPEAKER_00: I would think if I had to take an early uh early guess year, you're not gonna be able to hold me to it, even though we're being recorded.
• 2:30
  SPEAKER_00: I I think they'll come out with a 185 or higher in that report, just based on the way they calculate the report.
• 2:36
  SPEAKER_00: So uh kind of market's been going down.
• 2:40
  SPEAKER_00: Maybe they're anticipating that a little bit.
• 2:42
  SPEAKER_00: On the grain side, though, I mean you've had all four playing apart here lately on the big four, uh, weather, two wars, and China.
• 2:49
  SPEAKER_00: China buying's been active, been good.
• 2:51
  SPEAKER_00: The uh basis is reflecting that in the Western Corn Belt on new crop soybeans, for example.
• 2:56
  SPEAKER_00: Both wars have been meh.
• 2:59
  SPEAKER_00: We had some ceasefires, then they kind of came back, but crude oil's still kind of going down, diesel's going down.
• 3:06
  SPEAKER_00: Um, you're seeing a little action with uh with sulfur uh and some of the logistics uh around uh fertilizer trade.
• 3:13
  SPEAKER_00: If you have questions on that, give me a call.
• 3:15
  SPEAKER_00: It's some interesting stuff there due to the Strait of Hormuz.
• 3:18
  SPEAKER_00: Uh sulfur's up like 300% from what it was.
• 3:21
  SPEAKER_00: So that's a big one.
• 3:23
  SPEAKER_00: And then obviously weather, just being the big one.
• 3:25
  SPEAKER_00: It's a little bit wet, a little bit uh a little bit cooler temps into the month of August here to start off with.
• 3:32
  SPEAKER_00: So that's kind of how inputs are sitting, Luke.
• 3:34
  SPEAKER_00: You want to give us a little bit of a uh a breakdown on what you're following in the hog market?
• 3:39
  SPEAKER_02: Yeah, yeah, for sure.
• 3:40
  SPEAKER_02: And I I I don't know.
• 3:41
  SPEAKER_02: I'm kind of framing the hog market up, the the the good, the bad, and the ugly.
• 3:46
  SPEAKER_02: Um you know, as we kind of roll through some things.
• 3:48
  SPEAKER_02: And you know, the the good if if we if we show a slaughter chart, okay, we've this this uh mythical unicorn, this alleged whole production hole, supply hole that we've you know, we've been looking for all year.
• 4:02
  SPEAKER_02: The market's been looking for all year.
• 4:04
  SPEAKER_02: Um it I we would have to argue it's it is showing up.
• 4:08
  SPEAKER_02: So I think Cade's got the slaughter chart pulled up here, and we got three weeks below a year ago production, Mike, and and and significantly so.
• 4:16
  SPEAKER_02: Uh, you know, there has been a lot of maintenance, there's been a lot of breakdowns on production facilities, right?
• 4:23
  SPEAKER_02: But they've they always have the discretion or the option to add back in a Saturday.
• 4:27
  SPEAKER_02: We don't need Saturdays now, and and they haven't because hog supply is tight, right?
• 4:30
  SPEAKER_02: So that part is good.
• 4:32
  SPEAKER_02: I would evidence this we're in a bit of a hole uh by weights.
• 4:36
  SPEAKER_02: And I don't know if I had a weight chart pulled up, Kate.
• 4:39
  SPEAKER_02: That's fine.
• 4:39
  SPEAKER_02: I can describe it.
• 4:41
  SPEAKER_02: Um, but weights are dropping.
• 4:43
  SPEAKER_02: So they're kind of the reduction we've had the last couple weeks, it's it's kind of like emulated a holiday, like a Memorial Day or Fourth of July.
• 4:51
  SPEAKER_02: And you will see weights jump when we we don't harvest, we miss a day's harvest, right?
• 4:55
  SPEAKER_02: And weights we've missed enough.
• 4:57
  SPEAKER_02: Weights should have popped if we were ah, it's up.
• 4:59
  SPEAKER_02: Uh and and we got a little pop going on here that came in, but not a major pop.
• 5:03
  SPEAKER_02: Weights are kind of coming down, so that's the good.
• 5:06
  SPEAKER_02: I think we're kind of in a little bit of a reduced supply side, but the the bad is, you know, this is this is a demand market, all right.
• 5:14
  SPEAKER_02: And this has been like the last uh seven-day period, it's been the week of the hams, okay?
• 5:19
  SPEAKER_02: And and so, you know, if you take a look at the ham chart, you know, there's kind of you know, this statement that like sometimes commodities they kind of take stair steps up and elevators down.
• 5:29
  SPEAKER_02: Uh the ham, it's just been like a straight-down shoot on hams.
• 5:32
  SPEAKER_02: So much is so that like there's something else going on there.
• 5:36
  SPEAKER_00: There's a seasonal to it, but that's extreme.
• 5:38
  SPEAKER_02: And we're worked a little bit ahead of the seasonal.
• 5:40
  SPEAKER_02: Yeah.
• 5:41
  SPEAKER_02: Um, and then we had a little bit of time left on the seasonal.
• 5:44
  SPEAKER_02: We're in a little bit of reduced supply.
• 5:45
  SPEAKER_02: Like Cam should not have done this.
• 5:47
  SPEAKER_02: There's a very logical reason why they did.
• 5:49
  SPEAKER_02: Um, we uh uh middle of last week or on the 27th, we had a lot of uh TNs temporary vis work permits uh uh expire, and so we lost some labor at the packing industry.
• 6:01
  SPEAKER_02: And like the day that happened, we started deboning less hams.
• 6:04
  SPEAKER_02: Okay.
• 6:04
  SPEAKER_02: Mexico knew it that that was kind of coming on, so they're levering us a little bit.
• 6:08
  SPEAKER_02: And uh when you don't debone a ham, it's worth less, and you've really got only one good buyer, uh, because and that's Mexico.
• 6:17
  SPEAKER_02: So having that ham to go down, that means that's a function.
• 6:20
  SPEAKER_02: I mean, there are some demand challenges I'll bring out, but this is we're not processing the hams, and Mexico's levering us a little bit.
• 6:28
  SPEAKER_02: We will, I you know, I don't think this is a two or three month problem, my perspective.
• 6:33
  SPEAKER_02: It could be a two or three-week problem because we got to get people re-upped on uh work permits.
• 6:37
  SPEAKER_02: You bring in new labor, there's some technical skills to cross, you got to train them, right?
• 6:42
  SPEAKER_02: So it's gonna take a little bit of just you know a time to work back in.
• 6:46
  SPEAKER_02: But uh that's really driven that down.
• 6:48
  SPEAKER_02: It's driven it down, especially when the market saw less pigs, should have seen a product respond, and then we had this ham kind of anomaly come at us, hit us really hard, brought up a lot of demand concerns, and we do have some demand concerns.
• 7:01
  SPEAKER_02: Uh, if you look at the belly primal, uh it actually it's it's doing pretty well.
• 7:06
  SPEAKER_02: Maybe bellies can offset us a little bit in hams, possibly.
• 7:09
  SPEAKER_02: But then you look at the loin, the loin's really struggling.
• 7:12
  SPEAKER_02: And we're, you know, this ham thing, it's an underprocessed.
• 7:15
  SPEAKER_02: Well, we've we've seen this before, we've seen it in COVID.
• 7:18
  SPEAKER_02: Usually when hams bone, it's a labor issue or hams drop, right?
• 7:21
  SPEAKER_02: So we got that going on.
• 7:23
  SPEAKER_02: But at a broader level, and we've talked about this all year in this protein environment, like chicken's gonna come after us.
• 7:30
  SPEAKER_02: And they have so there's an inflation chart that I think you can bring up.
• 7:34
  SPEAKER_02: And we know we've got a consumer, especially a middle class consumer, K-shaped economy, everyone call it.
• 7:39
  SPEAKER_02: There's still some inflationary pressures going on there, largely by energy, largely by gasoline.
• 7:44
  SPEAKER_02: So we still have a consumer that's got a little bit tighter situation.
• 7:48
  SPEAKER_02: And then you look at, you know, look at pork, it's been relatively flat, but look at chicken.
• 7:52
  SPEAKER_02: That's what I want to bring on.
• 7:53
  SPEAKER_02: Chicken price, I think it's like 34% uh lower year over year, and supply is up about three, right?
• 8:00
  SPEAKER_02: So we have more chicken coming at the consumer at less price, and I think you see that manifested in the loin.
• 8:06
  SPEAKER_02: And and even though we've got this ham de boning issue, just you talked, I mean, nothing on uh pork demands outstanding, right?
• 8:13
  SPEAKER_02: So um we got that kind of coming at us, and it's it's hit us, so it's it's it's it's it's it's cascaded in some demand concerns, and we've had a pretty steep sell-off, obviously in the forward curve.
• 8:23
  SPEAKER_02: Um, also, you know, taking a step in and out, just the global picture.
• 8:29
  SPEAKER_02: Um we uh some of you know, China, they're oversupplied in pork, they're in liquidation mode, right?
• 8:35
  SPEAKER_02: They're producers underwater, they're not importing as much meat.
• 8:39
  SPEAKER_02: You know, the countries that are major import spirits, like a Brazil, like European Union, like a Spain, for example, they've also responded they have more production, okay?
• 8:48
  SPEAKER_02: And so like their producers are underwater, their economics are negative, and they can't sell as much to China because they're not as big an impact in the global market.
• 8:57
  SPEAKER_02: So you've got those countries, they're also, and you know, Canada's in the list too, right?
• 9:01
  SPEAKER_02: But they're coming after our customers.
• 9:02
  SPEAKER_02: So, you know, I think in the near term, you know, this ham thing has really hurt us, right?
• 9:07
  SPEAKER_02: But I think as you just move the perspective out into 2027 and further, uh, you know, we're just we got a little more competitive pressures, we got a little more global pork coming at us.
• 9:18
  SPEAKER_02: We still have a consumer that's got some questions.
• 9:20
  SPEAKER_02: We're still getting outmaneuvered by chicken, you know, and all that.
• 9:23
  SPEAKER_02: So, my case in point, I think our U.S.
• 9:26
  SPEAKER_02: herd's relatively stable, right?
• 9:28
  SPEAKER_02: In inventory, we had a really bad year in health in the U.S.
• 9:32
  SPEAKER_02: We offset some of that in domestic production, i.e., making them bigger.
• 9:36
  SPEAKER_02: Corn was cheap.
• 9:37
  SPEAKER_02: We took our carcass weights up.
• 9:39
  SPEAKER_02: Canada, their production's good.
• 9:40
  SPEAKER_02: They've had supply.
• 9:42
  SPEAKER_02: Canadian hogs have been coming down.
• 9:44
  SPEAKER_02: Globally, we've got a little bit more pork.
• 9:46
  SPEAKER_02: And you know, so only thing I bring that up is just as we kind of set our plans, and we've been, we've been actively hedging in 27, we've been actively hedging in in summer of 27.
• 9:56
  SPEAKER_02: It's just the expectations we were just a little tougher operating environment, I'd say year over year, and we need to reset just a little bit.
• 10:03
  SPEAKER_02: Maybe if a person was looking for a little above targets, maybe you can move more at targets, you move some floors, just kind of watch that here.
• 10:11
  SPEAKER_02: Um, do you think we can gain some value back in this October, December?
• 10:15
  SPEAKER_02: Do you think we got a little extreme maybe discounts from today's futures values up front, especially through February, right?
• 10:21
  SPEAKER_00: So especially if we keep comparing this year to 24, because Q4 was actually pretty good in 24.
• 10:27
  SPEAKER_02: It was really good in 24, right?
• 10:29
  SPEAKER_02: So I mean, I'm looking for a little stabilization.
• 10:31
  SPEAKER_02: I don't think just you know, port demand went from like, you know, like okay to like super bad.
• 10:37
  SPEAKER_02: I think we regain some things, add some value back to our hams.
• 10:41
  SPEAKER_02: Still exports.
• 10:42
  SPEAKER_02: I mean, we still have a spot there, right?
• 10:43
  SPEAKER_02: So I'm not all doom and gloom.
• 10:45
  SPEAKER_02: I'm just saying it's unfortunate, the good, the bad, and the ugly.
• 10:47
  SPEAKER_02: Good.
• 10:48
  SPEAKER_02: It looks like we're in a little supply hole.
• 10:49
  SPEAKER_02: The the ugly is that a demand is the bigger driver.
• 10:52
  SPEAKER_02: We had a big hiccup on hams.
• 10:54
  SPEAKER_02: It dinged us, it hurt us.
• 10:55
  SPEAKER_02: And then looking forward, just it's a little tougher environment.
• 10:58
  SPEAKER_02: I'm not saying it's a disaster.
• 11:00
  SPEAKER_02: I mean, our margins are still positive, you know, in the 12 and 15 month strips, right?
• 11:04
  SPEAKER_02: But just, you know, sell rallies, use this volatility when the futures get up, gives you some targets, uh, you know, defend, defend your revenue.
• 11:12
  SPEAKER_02: I know you spoke on corn a little bit, and we'll see where yield comes in.
• 11:15
  SPEAKER_02: You know, that 460 on the D's, you know, the 315, 320s on the meal, like those, you know, if if we get a little bit of pressure, we get down to 450s, 440s, just you know, it's the time of year where we're looking at basis positions on corn and meal.
• 11:29
  SPEAKER_00: Almost there.
• 11:30
  SPEAKER_00: Like it at 450, it becomes a lot easier.
• 11:33
  SPEAKER_00: At 300 on meal, it becomes a lot easier.
• 11:35
  SPEAKER_02: It seems like for sure.
• 11:36
  SPEAKER_02: 310 on meal, it becomes a lot easier.
• 11:38
  SPEAKER_02: So just, you know, just I just kind of just we we amped up just a little tougher environment.
• 11:44
  SPEAKER_02: Again, we can we can do well in it, but managing your risk.
• 11:47
  SPEAKER_02: I I know it's get always been important.
• 11:49
  SPEAKER_02: It's gonna be even more important in 27 and 28 as we kind of filter through this.
• 11:53
  SPEAKER_02: So um yeah, interesting times.
• 11:55
  SPEAKER_02: We've had a really rough seven days in the in the in the lean hog uh complex, right?
• 12:00
  SPEAKER_02: Um, I think we can gain a little bit back from that.
• 12:02
  SPEAKER_02: Uh, I think we still have some things going at us, but again, just that this is the the outlook.
• 12:07
  SPEAKER_02: And you know, we've had a nice run.
• 12:09
  SPEAKER_02: Um, and typically, you know, the world is going to respond with producing more.
• 12:13
  SPEAKER_02: We haven't necessarily increased our production domestically, so that's kind of taking this global view.
• 12:18
  SPEAKER_02: But globally, pork supplies are too high, they've they've grown, right?
• 12:21
  SPEAKER_02: And it's we export 25% of our product, it's a very important piece of our revenue.
• 12:26
  SPEAKER_02: So kind of cater all that together and you know, just stay laser focused, right?
• 12:31
  SPEAKER_00: Very much so.
• 12:32
  SPEAKER_00: All right.
• 12:32
  SPEAKER_00: Well, thank you for the breakdown.
• 12:33
  SPEAKER_00: I like the good, bad, and ugly.
• 12:35
  SPEAKER_00: Uh, awesome breakdown.
• 12:36
  SPEAKER_00: Please, everyone watching, please click the describe button.
• 12:40
  SPEAKER_00: Uh uh, please click the uh description below.
• 12:44
  SPEAKER_00: Click the subscribe button.
• 12:45
  SPEAKER_00: Please watch out for some of the crop tour data coming out.
• 12:48
  SPEAKER_00: It's gonna be imperative that you try to play around with the tools.
• 12:51
  SPEAKER_00: Send us some of the things that you got going on on your operation, your samples, things like that as well.
• 12:57
  SPEAKER_00: Mind your P's and Q's, and uh we will see you next week.
• 13:00
  SPEAKER_02: Thanks, Mike.