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Cattle On Feed · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:24
  SPEAKER_00: Today is January 20th.
• 0:25
  SPEAKER_00: I've got Jeff with us here today.
• 0:27
  SPEAKER_00: How's it going, Jeff?
• 0:28
  SPEAKER_01: It's going pretty good.
• 0:30
  SPEAKER_01: It's not snowing for once today.
• 0:32
  SPEAKER_00: Well, we got our fair share this week already, I guess.
• 0:36
  SPEAKER_00: We're going to talk a little bit today about uh some outside market influences on these commodities.
• 0:42
  SPEAKER_00: Uh talk a little bit about the grain market quick, and then overall we're going to wrap up talking about the Catalon Feed Report that we got to experience today after the close, Jeff.
• 0:51
  SPEAKER_01: Let's start with the outside markets, Mike.
• 0:54
  SPEAKER_01: They were a little disappointing, maybe not a train wreck for the week, but dive into that force.
• 1:00
  SPEAKER_01: I think that impacts the rest of these commodities that we're going to visit about too, especially on the cattle side and some with the hogs.
• 1:08
  SPEAKER_00: Definitely.
• 1:09
  SPEAKER_00: Well, I mean, uh midweek here it was looking pretty grim for a lot of these commodities in general, whether it was uh corn or cattle or hogs, pretty much everything had a three-day stretch of trading lower, Jeff.
• 1:21
  SPEAKER_00: And you know, the corn market ended on a poor note today.
• 1:24
  SPEAKER_00: The worries about an economic downturn and Argentina crop improvements forecasted over the weekend.
• 1:31
  SPEAKER_00: Uh, those were a few of the main focuses on the grain markets, but um they did have some impact on the on the grain markets anyways this week.
• 1:39
  SPEAKER_00: So let's talk about the economic situation and some of these outside markets.
• 1:44
  SPEAKER_00: You know, U.S.
• 1:45
  SPEAKER_00: stocks really ended the day about midweek there on some lows after some economic data really rekindled fears about uh, you know, growth and corporate earnings and uh just really worries about global economic downturn here, Jeff.
• 2:01
  SPEAKER_00: And when I look at some of the things that got traded um here this week in the in the stock market, especially, you know, you you saw headlines come off of some of these major companies in the tech world about laying off potentially 10 to 25,000 jobs.
• 2:17
  SPEAKER_00: I I saw like Microsoft through Amazon and uh uh a few of the tech sectors, it was like 28,000 jobs total uh as we're looking at that.
• 2:26
  SPEAKER_00: So other than that, I mean really the the labor force is uh decent still besides mainly the tech sector.
• 2:34
  SPEAKER_00: That they're kind of in their own world here, but uh some of that even had to do just with AI uh adaptation.
• 2:40
  SPEAKER_00: So when I saw some of the uh some of the outside market influences, you know, that really helped uh the dollar rebound here a little bit.
• 2:49
  SPEAKER_00: Uh put some uh put some pressure on the commodities in the short term and uh kind of a risk-off week across the board, Jeff.
• 2:58
  SPEAKER_01: Well, we've seen certainly seen that in a lot of these uh egg culture commodities, you know.
• 3:02
  SPEAKER_01: I mean some of them performed decent um in in the past, you know, maybe ten days or so, seven or five trading days.
• 3:11
  SPEAKER_01: Um but yeah, I think uh just keeps a pretty solid lid on them.
• 3:17
  SPEAKER_01: I mean, I'm thinking about the cattle market right now, somewhat, you know, yesterday or last week, excuse me, we really had fairly decent amount of positive fundamental news floating our way.
• 3:30
  SPEAKER_01: Um and it really you know, we we went and tested the old highs there, but really didn't charge any higher than that.
• 3:36
  SPEAKER_01: And I I think I'd kind of throw the corn market in that same bucket, really positive uh fundamentals a week ago on the WASDI report in my mind, but keeps a pretty solid lid on it, don't it?
• 3:48
  SPEAKER_00: It does.
• 3:49
  SPEAKER_00: It does.
• 3:49
  SPEAKER_00: And uh other news on the week, um, when I start to watch some things like interest rates and uh some of the other outside market influences, just to wrap up before we get into cattle here.
• 4:00
  SPEAKER_00: Uh, you know, the Fed uh it sounded like some of their officials came out and they said that it's gonna take a while to get back to 2% inflation, and that's the goal, right?
• 4:08
  SPEAKER_00: For them is that they want to raise interest rates enough to slow inflation back to 2% and do that perfect so we we don't keep going past that, right?
• 4:18
  SPEAKER_00: That's a hard job.
• 4:20
  SPEAKER_01: Yeah, one ditch or the other, that's always the issue.
• 4:22
  SPEAKER_00: That's a hard job.
• 4:23
  SPEAKER_00: So it sounds like here in this next rate hike, uh there's about a 94% probability they're looking at a 25 basis points for a hike, and there's only a 6% probability that it'll be a 50 50 basis point hike.
• 4:38
  SPEAKER_00: So uh for now, anyways, we might got another one of these coming in February, but it's slowing down on these rate hikes, and uh, they're just excited from the week's news to see that you know their raise in inflation or in interest rates has slowed inflation, and I think we've really seen that over the past uh few reports here.
• 4:56
  SPEAKER_01: So makes sense.
• 4:58
  SPEAKER_00: What do you think about this Catalon feed report, Jeff?
• 5:01
  SPEAKER_01: Yeah, so Catalon Feed came out this afternoon.
• 5:04
  SPEAKER_01: I think it's really interesting.
• 5:06
  SPEAKER_01: Now the report itself come in really close to uh you know where the trade expectations had them at.
• 5:13
  SPEAKER_01: Um, but I just think it's it continues to show the trend that we started, I think, three months ago um on these cattle on feed reports, Mike.
• 5:23
  SPEAKER_01: And that is, of course, the the age-old discussion, uh feels old age-old that's been going on for a couple of years now of you know, are we putting a few less cattle on feed?
• 5:34
  SPEAKER_01: Is the total inventories dropping?
• 5:37
  SPEAKER_01: And this report says yes with uh quite a sizeable amount, too.
• 5:43
  SPEAKER_00: Yeah, I guess that was some small numbers.
• 5:46
  SPEAKER_01: Right, and that's that's what's kind of interesting about it.
• 5:48
  SPEAKER_01: Uh you know, placements down eight percent.
• 5:50
  SPEAKER_01: Um be a little bit less um of adjustment than what the estimate was trade estimate was going into it, but still significant.
• 5:59
  SPEAKER_01: That takes the total on feed down um a good two and a half percent.
• 6:04
  SPEAKER_01: Um, and that's been a pretty solid trend, you know, from 100 to 101% here, you know, back into the into the last summer.
• 6:14
  SPEAKER_01: So I think that all is all going according to plan.
• 6:19
  SPEAKER_01: Um, you know, as we dove a little deeper, a few other interesting pieces of information in this catalog on feed is you know, as uh we we put together the catalog on feed placements and we kind of grow them out and do a placed four um graph.
• 6:37
  SPEAKER_01: And we hadn't put a lot of confidence in that graph or in that information because you know it's just really tough to narrow it down to that specific.
• 6:48
  SPEAKER_01: Um, but it does it shows January um being pretty much on top of last year, and then starting to decrease the uh placed for marketings, you know, February, March, and now we've got uh most of the information for April in place.
• 7:06
  SPEAKER_01: So you're running about two and a half percent less um when you get to February, and it's showing January being pretty much on top of last year.
• 7:14
  SPEAKER_01: That's kind of what we're experiencing, too.
• 7:17
  SPEAKER_01: Um, you know, one of the big disappointments in the cattle market this week, for me at least, especially, is uh the cash market, and that thing just really turned out sour this week.
• 7:28
  SPEAKER_01: We had a little softer market last week, and then coming in this week we definitely traded uh you know two to three dollars lower.
• 7:37
  SPEAKER_01: I'm gonna call it pretty much across the board, whether that be in the south or or in the north here.
• 7:42
  SPEAKER_01: But I think that is really just simply we've got producers trying to get rid of some cattle, we got weather moving in, um, especially in Nebraska, uh, that really you know discourages folks from keeping these heavier cattle on feed, and I think they're turned and turned them into some pretty willing sellers this week.
• 8:02
  SPEAKER_01: So that's going to be an interesting development going forward.
• 8:05
  SPEAKER_01: Um, the other bigger picture information that we're kind of gleaning out of the cattle on feed report is the number of heifers that are still going into feed lots.
• 8:16
  SPEAKER_01: So, you know, that's one of the things that we've really turned our attention to in this cattle market from a big picture standpoint is you know, are we starting to increase the rate at which we're retaining heifers to turn them into mama cows?
• 8:33
  SPEAKER_01: And we fully expected, Mike, that we would be increasing that retention in and starting to possibly increase the cow herd as soon as next year.
• 8:43
  SPEAKER_01: And would it just doesn't look like it's happening.
• 8:46
  SPEAKER_01: We've got um you know a few less heifers on feed today, one percent, but we've got a little over four percent less deer.
• 8:54
  SPEAKER_01: So you can kind of see the trajectory there.
• 8:57
  SPEAKER_01: We're just we're we're keeping um heifers in the feedlot, we're not tournament replacement heifers.
• 9:02
  SPEAKER_01: We've also been watching some of the bread heifer sales here um here this winter, and you know, they're they're bringing decent money, but nothing like uh uh we would expect to see you know if we're fully going into kind of expansion mode type of a thing.
• 9:19
  SPEAKER_01: So I would say everything's kind of going according to plan.
• 9:22
  SPEAKER_01: Um gonna see lower cattle numbers as we go through the spring here than what we saw last year, than what we saw this past fall.
• 9:30
  SPEAKER_01: Um so far not seeing too many signals to suggest we're gonna start bringing this cow herd back anytime soon.
• 9:39
  SPEAKER_00: You know, one of the things I like to focus on is managed money funds, so money flow.
• 9:45
  SPEAKER_00: So this week here we're sitting about 85,000 contracts of managed money long positions on cattle, which would be a significant amount.
• 9:53
  SPEAKER_00: It really hasn't been above this level.
• 9:56
  SPEAKER_00: You know, it's got to this peak a handful of times going back to 2019.
• 10:02
  SPEAKER_00: But really for a while now, yeah, i this is a breaking point where we really if we get above this point, we add a significant amount of longs, uh another m probably double, about 80,000 contracts on top of this.
• 10:17
  SPEAKER_00: But historically over the past three years or so, we failed to get above this level.
• 10:22
  SPEAKER_00: So it'll be interesting to see if we can continue to add managed money funds here or if they start to liquidate a little bit because of some of those recessionary fears like we talked about.
• 10:31
  SPEAKER_01: Yep.
• 10:32
  SPEAKER_01: I think that's gonna be tough.
• 10:33
  SPEAKER_01: I I just don't see them piling in here right now.
• 10:37
  SPEAKER_01: We're gonna need some better fundamental news.
• 10:40
  SPEAKER_01: And I uh, you know, we're and I think that's just gonna be tough to come by here for a few weeks at least and maybe a month or better.
• 10:46
  SPEAKER_01: I mean, first of all, we're probably gonna have to take uh product values a little bit lower per their seasonal.
• 10:53
  SPEAKER_01: We've seen that big spike already that we usually see in January.
• 10:56
  SPEAKER_01: I see that probably trending a little bit lower, and then we're just it's gonna be a little bit of a struggle to get cash really kind of off the couch here and get moving again.
• 11:06
  SPEAKER_01: So I'd be really shocked if they keep plowing in here, even though I think that the supply story that they've kind of been hanging around for um maybe is developing.
• 11:16
  SPEAKER_01: I just I think the outsiders are gonna keep a lid on it, like you're mentioning.
• 11:20
  SPEAKER_00: Couple of things standing in the way.
• 11:21
  SPEAKER_00: Any final thoughts for our listeners this week, Jeff?
• 11:24
  SPEAKER_01: Well, I think from a cattle feeder standpoint, there's a few different things.
• 11:27
  SPEAKER_01: I mean, if you're a cow calf person, um, don't ignore the opportunities.
• 11:31
  SPEAKER_01: Uh, we did see April of 24 trade a buck seventy this week.
• 11:37
  SPEAKER_01: Um, so that's a whole year out, of course.
• 11:39
  SPEAKER_00: But I sure don't want to buy that.
• 11:42
  SPEAKER_00: Let's put it that way.
• 11:44
  SPEAKER_01: Some of us don't have any choice though, Mike.
• 11:46
  SPEAKER_01: We're gonna place calves that are gonna have a dollar seventy break, even I'm afraid.
• 11:51
  SPEAKER_01: But um, yeah, that's uh that's a that's not quite a con that's not quite a I don't know what you call that commodity lifetime high.
• 11:59
  SPEAKER_01: Yeah.
• 12:00
  SPEAKER_01: You know, we've seen uh we've seen that just a couple bucks better than that in 2014, but it's awful close.
• 12:06
  SPEAKER_01: And that's also true uh on the feeder cattle standpoint.
• 12:09
  SPEAKER_01: We're posting uh values over two bucks out there for next fall.
• 12:13
  SPEAKER_01: So as we're putting these calves on the ground, um be thinking about that a little bit.
• 12:18
  SPEAKER_01: We're still more in the camp of uh some non-intrusive type of coverage, so we're heavily looking at the options and and the insurance products just to kind of get a baseline established out there.
• 12:31
  SPEAKER_01: It's been our strategy, uh, maybe some sold calls to help uh you know pay for some of that premium over time.
• 12:40
  SPEAKER_01: But that's kind of the story really on the cow calf feeder cattle market, as well as the folks that you know are finishing cattle out or backgrounding cattle.
• 12:50
  SPEAKER_01: Um break-evens are getting high, cost of doing business is are getting very high.
• 12:56
  SPEAKER_01: I think we gotta we owe it to ourselves to kind of cover the you know, at least cover the most of the downside risk and be willing to pay a little bit of premium to get that job done.
• 13:08
  SPEAKER_01: Um and it's still it's a little bleak right now as far as the front end goes, but you know, the the supply situation is turning.
• 13:16
  SPEAKER_01: Cow herd is really getting nothing but smaller.
• 13:19
  SPEAKER_01: Um there's there's gonna be some price opportunities out there.
• 13:22
  SPEAKER_01: They just seem to be awful slow and coming, Mike.
• 13:25
  SPEAKER_00: Hopefully the timing works out okay for these guys.
• 13:28
  SPEAKER_00: All right, we'll talk to you next time, Jeff.
• 13:30
  SPEAKER_00: Thanks.
• 13:31
  SPEAKER_00: Thank you, Mike.
• 13:32
  SPEAKER_00: And thank you to all our listeners.
• 13:34
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 13:37
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:43
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 13:49
  SPEAKER_00: See you next time.