Latest / CattleUSA Daily / 99: Grain Prices Are Falling and Beef Demand Is Getting Tested with Dan Gerhold

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99: Grain Prices Are Falling and Beef Demand Is Getting Tested 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 at your market report with Dan
• 0:06
  Gehrholt, a daily. I was actually out of town
• 0:09
  traveling. So Thursday was the earliest day
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  that we were able to get in as a team and chit chat on what's
• 0:15
  going on in the market. So we actually recorded this
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  this morning. So very up to date for all of
• 0:21
  you guys listening today on what is going on in the markets, what
• 0:24
  we are seeing this week, the trends that we're seeing, things
• 0:27
  to watch out for as producers in just the world of agriculture
• 0:31
  this week. So without further ado, let's go
• 0:33
  ahead and get into this episode with Dan.
• 0:38
  Welcome to the Cattle USA Daily podcast, your go to source for
• 0:42
  the latest livestock markets, industry insights and the
• 0:45
  updates shaping agriculture today.
• 0:47
  I'm your host, Lauren Moylan, a passionate advocate for
• 0:50
  agriculture here to keep you informed and connected.
• 0:53
  Now let's dive into today's episode.
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  That is amazing. You weren't joking when you said
• 1:02
  that you were going to get more. I know I'm working on it.
• 1:07
  So funny. Oh my gosh, you're really just
• 1:12
  pulling your collection, just making the full closet.
• 1:15
  Oh yeah, yeah, yeah. You better be wearing that on
• 1:18
  the 4th of July. Well, yeah, that's what it's all
• 1:20
  about. I mean, America right here.
• 1:22
  It's coming up. Oh great, let's go.
• 1:26
  So that's a either a red Baldy or a Hereford.
• 1:29
  Is that an issue for you or are you like it needs to be an Angus
• 1:32
  on there? It is an issue.
• 1:34
  I mean the fact it's a Hereford and sorry to the few people that
• 1:39
  might hear this and not like my opinion, but I'm not a
• 1:42
  personally not a Hereford fan. But in the spirit of July 4th
• 1:46
  and cattle in general, we'll we'll take it one for the team.
• 1:50
  Taking one for the team, really sacrificing yourself here in
• 1:53
  order to just wrap for wrap for the brand.
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  That's right, cattle industry as a whole.
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  That's right. What's better than American
• 2:00
  beef? Not a whole lot, That's right.
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  That's for damn sure. A whole week of eating American
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  beef. So I can definitely tell you
• 2:09
  that nothing's better. So.
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  That's right, I agree. I agree.
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  Love it of life. Love.
• 2:16
  It down South it's. Good, it's good.
• 2:18
  We we are warm. We're warm.
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  I have actually been in Colorado all week, so it wasn't bad
• 2:25
  there. I like the week before we pulled
• 2:27
  in there like it was 100° and luckily we drove up to Colorado
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  and it was in the like 90s. So better than it was in Kansas.
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  I left Kansas, it was like 107. So won't complain there.
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  I got back last night at midnight.
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  So Kansas is definitely warmer, but we got rain.
• 2:44
  So I'm not gonna I'm not gonna complain.
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  I'm not gonna complain too much. I was in Denver with someone
• 2:50
  from Central AZ and she's like, we haven't gotten like any rain
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  in like 3 years. So yeah.
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  So I was like, OK, Yep. Nope, I'm not going to complain.
• 3:02
  Rain is wonderful. Kansas is great.
• 3:05
  Yep. How's Iowa?
• 3:08
  Sounds like some good wheat yields coming in.
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  So life is good in Kansas. Life is very good in Kansas.
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  How's Iowa? How's life for you?
• 3:16
  Same thing, caught a couple rains this week and no major
• 3:20
  wind to to speak of so corn's not flat looking good dark
• 3:24
  grain. I mean this is favorite time of
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  the year warms up. By the 4th of July.
• 3:31
  We're knocking on chest tie now. So yeah, hurry with this heat
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  that came on start to struggle our we were 9596 over the
• 3:43
  weekend and the wind was high and it was fine.
• 3:46
  The cattle didn't do too too bad with the wind.
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  But now that wind died down and it's stuffy, muggy, supposed to
• 3:54
  get some rain again. So they're, they're going to
• 3:56
  back off feed today pretty hard. Yep, I totally get that.
• 4:00
  Do you have a bunch on feed right now?
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  You know, I've, I've got some at home.
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  I didn't feel completely up a lot, a lot like what I'm hearing
• 4:08
  on the phones is guys are staying in it, but they're
• 4:11
  pulling the numbers back. What's, what's that old saying,
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  Lauren? You're going to run out of money
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  before you run out of cattle. And as a whole, I think the
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  industry is at that point when you're talking 25, twenty,
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  $600.00 for a yearling minimum. I mean, we're still seeing some
• 4:29
  $3000.10 weights out there. So it's crazy, a lot of money
• 4:34
  getting borrowed on these cattle still today.
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  So yeah. But no, we've got some on feed.
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  It's it's an OK thing to pull the numbers back to with this
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  heat. So if I could just train them to
• 4:44
  not stand in the cattle waters after I clean them, life would
• 4:47
  be really good given AI can agree.
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  Yeah. I don't blame them for doing it
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  either. So just clean them more often.
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  Yeah. Now life is good up here.
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  So yeah, now what? What's on your mind today?
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  The markets, what's what's going on with them?
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  I want to, I want to talk about the markets, what's what's
• 5:06
  happening. I have a lot of things on my
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  mind right now actually because I the reason I was in Colorado
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  was for a event in correlation with NCBA and the check off.
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  And so we were talking all things cows all week.
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  And so I've got a lot of things on my mind, but specifically
• 5:21
  right now the markets. So let's talk to the markets.
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  I mean planted simple cattle markets are kind of garbage,
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  trash if we're talking futures and options, they just don't
• 5:32
  move. Obviously the producers going to
• 5:33
  be frustrated if he's trying to put hedges in place on on newly
• 5:38
  purchased cattle because the ferns are not giving them the
• 5:41
  opportunity. And I mean, even looking at
• 5:43
  August, the, the positive basis is pretty wide overall.
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  Every now and then you see it where you have to remind the
• 5:51
  producer that futures market might not necessarily care about
• 5:54
  that. If it's trading like garbage and
• 5:56
  the path of least resistance is lower, you better be looking at
• 5:59
  doing something, you know, it's, it's trying to price in
• 6:02
  something that's kind of coming down the line.
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  Not, not what we have today. Cash is slipping a little bit to
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  you know, you're talking 2:30 in the north, probably 225 in the
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  South. I'm hoping we see this week.
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  But overall, it sounds like 223 is the bed 8.
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  It's that time of year, right? You know, we're coming into dog
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  days of summer. They're buying for a short and
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  kill next week with the 4th of July.
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  And there's just not a lot to be wildly bullish about in the
• 6:29
  cattle market for the time being.
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  Once we get past, you know, next week, see what the kill does.
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  You know, a good thing about this setback, Lauren, is the
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  Packers are making some money again.
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  It's been a little while. Finally got them in the black.
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  Yeah, we want to capitalize on on the consumer dollar and get
• 6:46
  as much as we can. But at the same time, if we
• 6:48
  don't keep them profitable occasionally, we're going to
• 6:52
  have some issues long term. So nice to see them back in the
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  black. The other side of it, not to go
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  back negative, but you know, people are watching box beef
• 7:01
  climb higher here and, and I can tell there's some frustration
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  because cash is slipping and boxes are higher.
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  At the end of the day, it always comes down to the kill number.
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  That's what matters most to the producer.
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  If we slow these chains down to the point where consumers still
• 7:16
  want the beef, but the supply is limited because of that slower
• 7:20
  chain speed, you're going to see boxes climb.
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  If you speed the chain back up, which is what every cattle
• 7:26
  producer wants, then typically if boxes go higher with the
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  faster chain, now all of a sudden that's a sign of strong
• 7:34
  demand. But that's not the the market
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  we're in. So what I'd like to do is, is
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  get past the 4th of July here. If we can get these workers back
• 7:42
  in the plants and and have profitable Packers, I'd like to
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  see that kill number ramp back up.
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  Long story short, if you're watching the spread between
• 7:51
  choice and select right now, you know it's doing funky things.
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  Well, it was extremely narrow there for a while, telling us
• 7:59
  the consumer might be shifting a bit towards cheaper protein.
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  Hogs are also agreeing with that on the ramp higher that they've
• 8:06
  taken. But at the end of the day, you
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  look at yesterday's afternoon numbers now we see select
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  falling off choice client or mostly steady.
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  That's actually partly because of the season we're in.
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  You know, we're starting to kill last year's calf crops.
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  So your yields drop, your your grading drops.
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  We're seeing the weights come down a little bit.
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  You know, that's plain and simple.
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  You're killing last year's calf crop.
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  So we just got to get into it off we get past July 4th.
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  Typically the deeper into July you get, you might start seeing
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  some more yearlings getting slaughtered.
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  Some of those calves got made yearlings.
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  And at the same time you're also going to see those calves have a
• 8:41
  little bit more time on feed. So even those are going to going
• 8:44
  to improve. It's just the dog days of summer
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  are have that name for a reason, and that's where we're at.
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  Yeah, it definitely is. And I think we're feeling it
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  just across all sectors, right? Like it's hot outside.
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  It feels like the dog days of summer and everything is
• 9:00
  following in that at least, you know, 1 positive this week.
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  We haven't had any crazy, crazy rumor mills absolutely demolish
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  the market for like 12 hours and then bring it back.
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  So I mean small wins. Thanks for.
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  Pointing that out, I didn't even notice.
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  I I was just, yeah, going about the day-to-day and didn't even
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  know. It has been like 7 days since
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  the rumor struck, so good catch there.
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  Yeah, let's keep it that. Way the fact that we're
• 9:30
  celebrating about not having any rumors hit the market should be
• 9:34
  a red flag. But you know, we're going to
• 9:36
  take the small wins where we can get them, and this is a win that
• 9:39
  we can take and we're going to basket it.
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  Is there an industry anywhere in this country that is more prone
• 9:46
  to Black Swan slash rumors slash bad news destroying
• 9:51
  profitability? Is it?
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  Is there any other industry like this?
• 9:55
  There, there literally can't be like I I genuinely like no,
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  there's not unless you're thinking like the tech industry
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  and it gets rumored that like a major hack happened or something
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  like that's the only thing I can think of.
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  But like at the magnitude that we do.
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  And also I think the thing with the cattle industry is in other
• 10:18
  industries because the cattle industry is smaller to our own
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  demise. Some podunk little publishing
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  house from the middle of nowhere that I'm not going to mention
• 10:29
  can say one thing and it hit the news and everyone believe it for
• 10:34
  that period of time until it gets retracted and corrected.
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  Whereas other industries, I feel like people go in with a little
• 10:43
  bit more hesitation. Like if a smaller publishing
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  house publishes A rumor or something, they're not going to
• 10:48
  immediately believe it. They're going to be like, we're
• 10:51
  going to wait until like the Wall Street Journal confirms
• 10:54
  this or something like that and then start reacting.
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  So. I agree.
• 10:57
  Yeah, it's a, it's a very quick to react type industry.
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  Yes. You know, cash normally moves
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  slower than futures, but obviously, you know, these
• 11:07
  traders, they can move positions pretty quick to get in and out
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  of, you know, shorts, longs, whichever way, however they're
• 11:12
  positioned. And, and unfortunately, normally
• 11:16
  those rumors are negative towards the industry.
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  So, you know, we don't want to see it wreck our good markets
• 11:21
  right now, but it's, it's hard to overall, when I look at the
• 11:25
  consumer as a whole, you know, we've seen, we're starting to
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  see a shift towards pork and chicken because it is a touch
• 11:31
  cheaper than beef. Can't argue.
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  We knew eventually we would see that.
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  But overall, I think the consumers are eating more
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  protein as a whole than they were two, 3, five years ago.
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  So I don't, I also don't expect boxes to fall out of bed.
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  I don't think consumers are going to completely shy away for
• 11:48
  it's just that time of year. We've got to, we've got to
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  manage the rest to get through the next two months.
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  You know, once we get past Labor Day, especially, then we can
• 11:58
  start looking towards, you know, Christmas.
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  Are we going to have, you know, demand for those Christmas rib
• 12:04
  eyes, that prime rib? What's that going to be like?
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  What's supply going to be like? I'm still optimistic we're going
• 12:11
  to have a shorter supply this fall.
• 12:13
  But inevitably, if they don't speed up that chain speed, that
• 12:17
  could hurt us longer term. So like I said it, it's it's
• 12:22
  good to see the Packers make some money.
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  It's that time of year. So let's let them enjoy it.
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  They're not getting rich by any means, but you know, it's and
• 12:31
  it's not efficient to run these plants in a slower kill, but
• 12:35
  nonetheless, they are finally profitable.
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  I'm of the opinion that when they see black ink, eventually
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  that leads to them rampant chain speed up because they want to
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  make as much as fast as they can.
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  But we got to get past 4th of July.
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  It's just timing here. Yeah.
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  And that's something we talked a lot about this last week too,
• 12:53
  was Packers and chain speeds and everything that goes along with
• 12:56
  that. And it's you as like an average
• 12:59
  consumer or producer, you're like, well, why are they slowing
• 13:02
  down chain speed? Like if they can kill every 7
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  seconds, like why are they killing every 11 seconds right
• 13:07
  now or something like that? And that is purely because they
• 13:10
  still need to make full shifts. Like they still have to make
• 13:13
  full shifts, still have to stretch things out a little bit.
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  And it's playing that balance right now between consumer
• 13:21
  demand and producer supply right now is a headache and a half.
• 13:27
  And I don't envy economist or buyer like anyone that has to
• 13:32
  deal with any of that right now because it's a disaster.
• 13:35
  Our feedlots are at seeing lowest numbers that we've seen
• 13:38
  in a long time. We're feeding cattle for longer.
• 13:41
  It's weird out there. That's that's what I got to say.
• 13:43
  It's weird. It is, yeah.
• 13:46
  Yeah. It's, you know, not, not to
• 13:49
  shift gears a little bit, but it's also that time of the year
• 13:51
  where you're going to see the retailer start adjust their
• 13:53
  prices. You know, historically speaking,
• 13:56
  April, May, June. They don't really care about
• 13:58
  their margin on on beef because they just want to get people in
• 14:01
  the door. They put the beef case in the
• 14:03
  back of the store so that everybody has to walk by all the
• 14:06
  other junk food because they know they're going to go to that
• 14:09
  beef counter, they're going to buy beef no matter what.
• 14:11
  So they don't care really how much they make on it.
• 14:14
  But once they start seeing that product slow down in the dog
• 14:17
  days of summer, it's very, very common for them to start
• 14:20
  marching their prices higher to improve those margins.
• 14:25
  Once again, bad timing. If we are dipping into the
• 14:27
  consumers pocketbook more and more now with these higher
• 14:30
  prices, if they start raising their margins than their prices
• 14:33
  say, I'm a little bit concerned where, where's the top end on
• 14:37
  this thing? I mean, $7.00 burger, can we
• 14:40
  handle 8 or $9 burger? Can we handle $3540 steaks?
• 14:46
  I, I don't know. I, yeah, it's all concerning.
• 14:50
  But like I say, it's the dog days of summer.
• 14:52
  So I'm not in the in the camp that it's over for good, but you
• 14:58
  know, it it, it could see a lull here.
• 15:00
  Yeah, for sure. Any other highs, lows, any other
• 15:04
  things that we need to chat about today?
• 15:06
  Speaking to technicals, if I look at, you know, just the live
• 15:10
  cattle trading on the chart, it's how do we, how do we manage
• 15:13
  this risk using the board even though it's not giving us a
• 15:16
  great opportunity? Well, there's, there's some
• 15:18
  short positions getting put on people we work with right now
• 15:21
  just from the standpoint August has a island top in place.
• 15:25
  I don't like seeing that type of formation.
• 15:28
  Combine that with the market. You know, I, I think we peaked
• 15:31
  out at 2:20 O five in the August contract.
• 15:35
  Now we're trading down to two O 890.
• 15:37
  So we're $10 lower open interest has dropped in that period, but
• 15:43
  in the last five days we've seen it mostly flat.
• 15:46
  It's a little bit of a, a mixed bag of emotions.
• 15:49
  What what, what are traders doing?
• 15:51
  You know, the funds are not they're, they're very used to
• 15:54
  the dog days of summer. So are they getting out?
• 15:57
  Are small specs buying in because of this wide positive
• 16:00
  basis? So we've got to make some really
• 16:02
  tough decisions here right now. Technically speaking, if I took
• 16:05
  the fundamentals out of the cattle market and just traded
• 16:07
  these charts, I'd probably be on the sell side for a couple
• 16:10
  dollars here. From then, it's all about the
• 16:13
  calendar, what the consumer does, what the Packers do.
• 16:16
  With that kill number, you got to bring it back to the
• 16:18
  fundamentals. But for a couple bucks here, it
• 16:20
  doesn't look great. Feeder cattle, it's it's kind of
• 16:23
  odd, but they're a little bit different.
• 16:24
  They have also sold out way off their highs.
• 16:27
  You know, 3/14/20 in the August are low on Monday, Monday,
• 16:31
  Tuesday was right down at 300. Even if we close above this 40
• 16:35
  day moving average, I think we have an opportunity to rally
• 16:38
  this thing back. Maybe 5-6 bucks.
• 16:40
  It seems like cash feeders in the barns soften touch, but not
• 16:43
  overall, not in a big way. So it's hard for me to picture
• 16:47
  that index completely falling apart.
• 16:49
  As a general rule of thumb, I like to believe that you don't
• 16:53
  see feeder cattle really soft and hard until the feed yard
• 16:56
  start losing money. So right now, fat cattle getting
• 17:00
  sold or making five to eight, 900 bucks a head, you know, some
• 17:04
  of these calves were bought really, really cheap early,
• 17:06
  early last fall. And, and now that those are
• 17:09
  getting killed at, you know, 230 plus, there's some big profits
• 17:12
  there. Guys are not afraid to go to the
• 17:15
  barn and spend what they're spending if, you know, unless
• 17:18
  they were overly hedged. But as a whole, I think feeder
• 17:21
  cattle might see a bounce here for a little bit.
• 17:23
  I think I would use that bounce to get Laurence of protection,
• 17:27
  especially that September, October time frame.
• 17:30
  If you've been in this industry for any length of time, that
• 17:32
  September, October time frame, typically you see cash feeder
• 17:35
  soften. Yeah, Farmers in the field, you
• 17:38
  have supplies going up as your links come off grass and then
• 17:41
  some guys are winning cabs early.
• 17:43
  So it's just high supply, you know a touch lower demand.
• 17:46
  So if we get that push to three O 5, maybe 3-10 in the set box,
• 17:51
  I would use that, put some coverage on, get your buck
• 17:54
  covered for that time frame when when the cash feeders typically
• 17:57
  soften. Just touching on other markets,
• 18:00
  how's box, how are kills how like how's the kill cow market?
• 18:04
  How's just anything else that we need to touch on in any other
• 18:07
  markets? Cows and bulls for the win, I
• 18:09
  guess it's hard to think this thing's going to zero and cows
• 18:12
  and bulls are selling on their eyes.
• 18:14
  So overall, like I said, we've seen a consumer shift to burger.
• 18:18
  There's not enough cows going to slaughter.
• 18:20
  It's normal this time of year to see those in the slaughter
• 18:23
  numbers down. At the same time, the dairy
• 18:25
  industry, they don't, they don't want to kill a bunch of cows
• 18:27
  right now because they don't have the efforts to back them
• 18:29
  up. So until we see more cows come
• 18:33
  to the market, I think that markets going to be just fine
• 18:36
  that might stay resilient here through July, August, as long as
• 18:39
  consumers still need that hamburger getting away from
• 18:42
  cattle, talking grains. I, I think everybody's in
• 18:45
  depression mode and, and we're starting to see that
• 18:48
  capitulation from the long positions thrown in the towel.
• 18:51
  It's not uncommon for us to get very close to putting a bottom
• 18:54
  in a market when when we get that capitulation.
• 18:57
  So I, I don't know if we made the bottom.
• 19:01
  It's nice to see some green on the screen today in the grain
• 19:04
  markets. But overall it's, it's been a
• 19:08
  bloody nightmare. There's a lot of producers that
• 19:10
  are 7580 cents underwater compared to their breakevens on,
• 19:14
  on the corn crop. You know where beans are trading
• 19:17
  at their $0.50 under. We, I mean shoot those guys got
• 19:20
  to be a buck under underwater. So a lot of pain going on there
• 19:25
  at the same time, you know, if if you haven't bought any of
• 19:29
  your weed needs, it's a great time to get started, buy low,
• 19:32
  sell high. You know, it's, I think a lot of
• 19:34
  the, the industry knows this, this crop insurance settlement
• 19:39
  date is coming this fall. You know, if, if we had a
• 19:41
  counter seasonal sell off the spring never got a chance to
• 19:45
  hedge up these producers at profitable levels.
• 19:48
  Now you're, you're looking at, you know, is there going to be a
• 19:51
  massive amount of crop insurance claims just based on price
• 19:53
  alone? Well, it's not uncommon to see
• 19:56
  that that corn market rally into that day.
• 19:58
  So I'm not going to be surprised if we punch corn back to 4 1/2
• 20:02
  bucks at some point. I'm going to be pretty
• 20:05
  aggressive if the crop looks good, you know, selling in that
• 20:08
  4:45 at 455 range. It's just a matter of right now
• 20:14
  the path of least resistance is lower in the grain market.
• 20:17
  So it's hard to. Hard to get wild and crazy but I
• 20:20
  think we should look at really getting some feed needs booked
• 20:23
  here at 4 bucks. Yeah, definitely.
• 20:26
  Well, Dan, thank you as always for your time today for breaking
• 20:29
  everything in the markets down for us and chit chatting about
• 20:32
  what's going on in the world and for bringing the best fashion
• 20:35
  sense to the podcast of of any guests.
• 20:38
  So much appreciated. I bring every aspect there.
• 20:42
  Yes, that's for sure. Well, to all of you listeners
• 20:44
  out there, make sure you check out the show notes and check out
• 20:47
  our Cattle USA insurance link where you can see all of those
• 20:50
  LRP rates and get in contact with the team to get yourself
• 20:54
  covered, get yourself protected as we go into the dog days of
• 20:57
  summer and everything that that holds.
• 21:00
  And as always, thank you so much for listening to another
• 21:02
  episode. We'll see you all next time on
• 21:04
  another podcast. Have a good one y'all.