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Hams & Bellies Shock: Sudden Product Dump and Reaction · 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.
• 0:22
  SPEAKER_00: Today is July 30th, bright and early before the 8:30 open here for commodities.
• 0:27
  SPEAKER_00: I've got Luke Wells with us.
• 0:28
  SPEAKER_00: How's it going today?
• 0:29
  SPEAKER_02: You know, Mike, uh we'll see how today's going.
• 0:32
  SPEAKER_02: I tell you, this week's kind of been a whirlwind.
• 0:34
  SPEAKER_02: Lots of stuff to talk about, lots of movements in these markets, eh?
• 0:37
  SPEAKER_00: You know, we were talking about what we were going to cover ahead of the podcast, and it was just The basket's big.
• 0:44
  SPEAKER_00: The basket's big.
• 0:45
  SPEAKER_00: And maybe not so much just revolving around only hogs, but by the time you combine everything that's happened across all the egg commodities, just by last Friday, you know, we were just going through the list.
• 0:56
  SPEAKER_00: So last Friday at about four o'clock, it was announced that on August 24th, we were going to open the border between the U.S.
• 1:04
  SPEAKER_00: and Mexico, at least Douglas, Arizona, and start allowing some feeder cattle, vat cattle back into the United States.
• 1:12
  SPEAKER_00: So that development came out over the weekend.
• 1:14
  SPEAKER_00: And then as the weekend moved on, we had a plethora of bearish items in the grain market.
• 1:20
  SPEAKER_00: I've been arguing there's four things controlling the grain market, and all of them turned bearish over the weekend.
• 1:25
  SPEAKER_00: You had China, China, who has been buying some things, but then Trump at the end of last week decided to come out with some tariffs.
• 1:32
  SPEAKER_00: So they probably didn't like that increase.
• 1:35
  SPEAKER_00: Then you had two wars that entered a ceasefire with each other.
• 1:39
  SPEAKER_00: Uh the Russia-Ukraine war ceasefire.
• 1:42
  SPEAKER_00: You had uh the US and Iran ceasefire, so bearish on both those fronts as well, commodity-wise.
• 1:48
  SPEAKER_00: And then weather.
• 1:49
  SPEAKER_00: Weather's been the big driver, especially for the uh the row crop side of things.
• 1:54
  SPEAKER_00: The forecast has turned quite bearish if you look out the next week to two, even the next month, it seems like this could be uh a phenomenally different look on the on the grain market.
• 2:06
  SPEAKER_00: So really all four of those things controlling the grain market turned bearish over the weekend and and really rough day, really rough start here, really to the week.
• 2:15
  SPEAKER_00: We've lost at least 60 cents on November soybeans since the start of the week.
• 2:18
  SPEAKER_00: So kind of seasonally, it looks like we're running out of weather premium.
• 2:22
  SPEAKER_00: And just end of the month, so it there's probably a little bit of positioning at the end of July here, just with we've gone up a lot in certain items like hogs or grain markets, and they've added a lot of fun uh fund longs on managed money here, real recently.
• 2:40
  SPEAKER_00: Probably a little bit of profit taking at the end of the month.
• 2:42
  SPEAKER_00: And then last but not least, before we kind of get into the hog segment, would be just yesterday, I I think we it's no new story that we've got a new Fed chairman.
• 2:54
  SPEAKER_00: And uh he he had a press conference yesterday, worst did, and what we saw was incredible.
• 3:00
  SPEAKER_00: Some people haven't seen this in their lifetimes that really know what they're talking about on this situation, right?
• 3:06
  SPEAKER_00: But you've seen the US dollar and 30-year yields really separate from each other.
• 3:11
  SPEAKER_00: He may not have made a rate hike yesterday, he held steady.
• 3:15
  SPEAKER_00: We didn't raise rates, it was a a 30% chance.
• 3:18
  SPEAKER_00: One in three people thought that we would raise rak rates in this uh in this meeting yesterday, and we we held steady.
• 3:26
  SPEAKER_00: But uh regardless, the market actually did uh watching live uh quotes after it came out, the bond markets did.
• 3:33
  SPEAKER_00: So it was very interesting to watch yesterday's trade.
• 3:36
  SPEAKER_00: Stock market did not like the uncertainty.
• 3:38
  SPEAKER_00: Um very interesting things going on in the outside markets as well.
• 3:43
  SPEAKER_00: So if we just looked over the last few days, what I wanted to start this podcast with was immense volatility across a lot of equities, commodities, uh currencies, etc.
• 3:54
  SPEAKER_02: Absolutely, Epson.
• 3:55
  SPEAKER_02: I I think we've seen a lot of that volatility.
• 3:57
  SPEAKER_02: I think we've uh uh and we'll continue to.
• 4:00
  SPEAKER_02: I mean, just case in point, the USRN conflict, which was on better terms Sunday night on the open.
• 4:06
  SPEAKER_02: I mean, with drone attacks, counterattacks, where I mean it's it's midweek here, it's and also crude responding, right?
• 4:12
  SPEAKER_02: So uh a lot of geopolitical things, those aren't gonna slow down.
• 4:15
  SPEAKER_02: I mean, I think let's bring it back to the hogs.
• 4:17
  SPEAKER_02: And and we're actually we're having a pretty disappointing week in the hogs.
• 4:21
  SPEAKER_02: It was a rough day yesterday.
• 4:22
  SPEAKER_02: Yesterday was yesterday was really rough.
• 4:24
  SPEAKER_02: So, you know, look look at look at the hog complex.
• 4:26
  SPEAKER_02: We we you know, we have got a summer rally.
• 4:29
  SPEAKER_02: Um, you know, index is up around that 98 and change.
• 4:32
  SPEAKER_02: I mean, so we're moving higher.
• 4:34
  SPEAKER_02: And and the board, specifically the August board, had been holding some pretty significant premium um as uh as we continue to move higher, uh, more larger than normal premium, like a negative three dollar basis should have been a positive dollar basis, right?
• 4:49
  SPEAKER_02: So anyway, like when August was trading at 103, another easy way to say that is that means cutout needed to go to 109 or 110 to make that ride at expiration.
• 4:58
  SPEAKER_02: Okay, and and you know what's been disappointing about this week is is one the premium the premium in the August, and it was it was it was a it was a big premium, right?
• 5:08
  SPEAKER_02: Right, and that's that's getting corrected, getting corrected quickly, right?
• 5:12
  SPEAKER_02: But we we as we kind of roll back, we've we've had some pretty like uh last week's kill was significantly under a year ago, harvest.
• 5:19
  SPEAKER_02: Um, but it was it was somewhat it was maybe numbers tighten, maybe, but it was largely slaughter disruptions.
• 5:26
  SPEAKER_02: We had some plant breakdowns, right?
• 5:27
  SPEAKER_02: And we started this week off with some of the same plants not running on Monday.
• 5:31
  SPEAKER_02: My point with that is is where we sh we product should have reacted to that.
• 5:36
  SPEAKER_00: Regardless of the reason for the shutdown, product should have reacted.
• 5:40
  SPEAKER_02: So we were looking, and the market was looking for product to have a really good week, right?
• 5:45
  SPEAKER_02: And my my point with that is and it yesterday was yeah, yesterday's drop.
• 5:49
  SPEAKER_00: We'll see if we can bounce back, but hams and bellies both had a that is a nasty chart on the ham chart when you look at that seasonally they they had a bad day, they had a bad day.
• 5:57
  SPEAKER_02: Now, I I will say uh two things.
• 5:59
  SPEAKER_02: One we we are edging from a seasonality perspective, we do tend to go down here close to this time, it's a little early, just we tend to get a little correction seasonally in hams and bellies.
• 6:09
  SPEAKER_02: This felt early, right?
• 6:11
  SPEAKER_02: Um, but with that said, with with these reduced slaughters, the market was looking for actually some appreciation in that.
• 6:17
  SPEAKER_02: And the tone has been on meat and cash cash dogs like 10250s, same as last week, above index.
• 6:24
  SPEAKER_02: Um, you know, cash toned, it's fine.
• 6:27
  SPEAKER_02: Um, you also had product, like it was training in you know 104, 105.
• 6:32
  SPEAKER_02: We had a pretty rough day, it's closer to 101 now, right?
• 6:35
  SPEAKER_02: With yesterday's big, big drop, right?
• 6:37
  SPEAKER_02: But like as we talked to meat traders, um, like people weren't talking problems up until yesterday.
• 6:44
  SPEAKER_02: Um, there, but you know, they like for August to be right, we needed to get cut out to go instead of 104-105, it needed to push to 109-110.
• 6:52
  SPEAKER_02: Like, and this was the week it needed to have it needed to go, it needed to go this week, and that and that's what's kind of intriguing about yesterday because I mean it started going through the market yesterday that hams and bellies are in trouble, and and the market traded it and the 602 proved it out, right?
• 7:06
  SPEAKER_00: Someone dumped a bunch of hams yesterday.
• 7:08
  SPEAKER_02: Someone dumped a bunch of hands yesterday, so we'll we'll see how that all shakes out.
• 7:12
  SPEAKER_02: But you know, we we've the the kind of the tone again.
• 7:15
  SPEAKER_02: The tone isn't okay, we're you know, we're we're in trouble, but like things are fine, things are fun.
• 7:20
  SPEAKER_02: Like this this next push, right, to make the August right, also to keep follow through.
• 7:24
  SPEAKER_02: I mean, the Aachen D's uh if you look at those charts, the 100-day moving averages, you know, around 88 and around 80, which we're now below that with yesterday's 250 drop, right?
• 7:35
  SPEAKER_02: But those have been some spots we just haven't been able to push through.
• 7:38
  SPEAKER_02: We needed that next leg and cutout to kind of push through.
• 7:41
  SPEAKER_02: And yeah, this week we it's it's it's I it's it's got a little tough town.
• 7:46
  SPEAKER_02: So I'm really excited for the open today.
• 7:48
  SPEAKER_02: I'm really excited for the meat trade today, see if we can kind of bounce back.
• 7:51
  SPEAKER_02: I mean, you know, that's that's the big question.
• 7:53
  SPEAKER_02: Seasonally, we do get a little softness, it seems early on the seasonal.
• 7:56
  SPEAKER_02: Did the seasonal start early?
• 7:58
  SPEAKER_02: Did we just have some product dumping?
• 8:00
  SPEAKER_02: Um, you know, a lot of questions to be answered.
• 8:03
  SPEAKER_02: Uh, and you know, the today's trade, next week's trade is gonna be gonna be really interesting.
• 8:07
  SPEAKER_02: Bigger picture, you know, pork stays, you know, its value equation relative to other proteins is still very high.
• 8:14
  SPEAKER_02: I still think we have some nice undertones to this market um and whatnot.
• 8:18
  SPEAKER_02: But we, you know, I think I started with this and I think I'll end with this.
• 8:22
  SPEAKER_02: You know, our our our summer summer rally came a little late.
• 8:26
  SPEAKER_02: It's probably not gonna kind of stick around as long.
• 8:29
  SPEAKER_02: Um, you know, this rally we've had, uh, if we get a bounce back, it's you know a good opportunity to shore up some uh kind of bookend, which I'd say, you know, Q4, Q1 type positions.
• 8:39
  SPEAKER_02: Look at that.
• 8:40
  SPEAKER_02: You know, and then further out in the curve, just bigger picture.
• 8:43
  SPEAKER_02: Um, you know, we've had lots of health challenges this year.
• 8:46
  SPEAKER_02: Um, you know, we've we've offset those health challenges, one by making our existing production bigger, heavier, heavier carcasses.
• 8:54
  SPEAKER_02: We've also imported more pigs from Canada.
• 8:57
  SPEAKER_02: That's been part of the increase that's worked in the market, right?
• 8:59
  SPEAKER_02: But you know, looking into next summer, um, you know, and further out, there's still some margins that can be protected.
• 9:05
  SPEAKER_02: And if we don't have the health issues, we could easily have one or two percent more pigs.
• 9:10
  SPEAKER_02: I don't think that comes from extra supply.
• 9:11
  SPEAKER_02: I don't think I don't think the industry is growing yet, but that health delta, do we get that back under control?
• 9:16
  SPEAKER_02: So, anyway, case in point with that is is you know, continue to manage risk, stay focused on the forward curve.
• 9:22
  SPEAKER_02: Um, the clock's ticking on us a little bit here.
• 9:24
  SPEAKER_02: Uh, we are approaching some seasonals, and uh yeah, we'll be uh next week's podcast.
• 9:29
  SPEAKER_02: I think it'd be interesting to talk if we kind of bounce back from this, or this is kind of the seasonal turn lower, but some some questions definitely on my mind and in the market sign.
• 9:39
  SPEAKER_02: I I will say we've also though, you know, we we we've got some discounts um you know into AUC and D's Ock at 85, D's at 77.
• 9:47
  SPEAKER_02: Um, even though the product might reset some, HAMS might fall some, that's normal.
• 9:52
  SPEAKER_02: But you know, if we if if we take just normal declines, Ach and D's already have some of those discounts priced in, right?
• 9:58
  SPEAKER_02: So you might see August was it was too high, in our opinion.
• 10:02
  SPEAKER_02: It just it it had a lot of premium in it.
• 10:04
  SPEAKER_02: That's resetting.
• 10:05
  SPEAKER_02: Doesn't mean that Ach and D's have to reset kind of lower too, because we still have we do have a nice demand structure under our pork.
• 10:11
  SPEAKER_02: So there's uh maybe try to end on a little bit of a positive note here, but watch the margins, manage risk.
• 10:17
  SPEAKER_02: Um, and then like we talked about, uh, a lot of volatility around on the inputs too, right?
• 10:23
  SPEAKER_02: Just uh lots of things to keep our our eyes focused on and and protect our businesses.
• 10:28
  SPEAKER_00: That is very true.
• 10:29
  SPEAKER_00: I am uh from a margin perspective, I'm curious if you could try to get the the row crop side here to continue its sell-off a little bit earlier before uh you know, if we do happen to find some support in the hog market here over the next day or so, yesterday should be respected as a warning.
• 10:47
  SPEAKER_00: But if you get the grains and oil seeds to fall off of here a little bit, there might be some opportunities and just margin as well.
• 10:54
  SPEAKER_02: Yeah, yeah, we can definitely pick up some margin on the input side.
• 10:57
  SPEAKER_02: And and yeah, and we're this this like you said, weather is a big deal.
• 11:01
  SPEAKER_02: And this crop, it it it needed, it was the point.
• 11:04
  SPEAKER_02: It needs some moisture, and hopefully we're uh we'll kind of I I I think the make overnight as we're starting to get some rain, but maybe a little it we we need some showers to come through this afternoon, would really be the the big summation, right?
• 11:16
  SPEAKER_02: Those things have to make, right?
• 11:17
  SPEAKER_00: In the Western Corn Bell, we are running out of time, that's for sure.
• 11:20
  SPEAKER_02: Yeah, so it looks like we're gonna get it, but I'll tell you after this podcast, it won't make our uh our our our viewers, but you're gonna do a rain dance, man.
• 11:27
  SPEAKER_02: I'm gonna hold you to it.
• 11:28
  SPEAKER_00: Yes, very much so.
• 11:30
  SPEAKER_00: All right.
• 11:30
  SPEAKER_00: Well, thank you for your time today, Luke.
• 11:32
  SPEAKER_00: Everyone else, please click the link on the description below.
• 11:35
  SPEAKER_00: Please subscribe to the channel uh for any other daily market uh commentary who got our crop tour starting this next week on Sunday.
• 11:43
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• 11:46
  SPEAKER_00: Thank you.