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Cattle Inventories · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_01: Today is February 3rd.
• 0:25
  SPEAKER_01: I've got Jeff with us.
• 0:26
  SPEAKER_01: How's it going, Jeff?
• 0:28
  SPEAKER_00: It's going pretty good, Mike.
• 0:29
  SPEAKER_00: Looking for the little warmer weather going into tomorrow next week, hopefully, huh?
• 0:34
  SPEAKER_01: Well, I guess so, but don't get too excited.
• 0:36
  SPEAKER_01: The ground dog saw his shadow, or whatever you want to call it, and uh he just said more winter's coming, Jeff.
• 0:41
  SPEAKER_00: I kind of believe him.
• 0:42
  SPEAKER_01: Yeah, so at this rate here, with as much fog as we've had, something common that's been getting talked about uh with a lot of my customers, are we gonna get all this rain in early April or is it gonna be the white stuff?
• 0:53
  SPEAKER_00: Right.
• 0:54
  SPEAKER_00: Well, in either way, it's gonna, you know, this what we have on the ground today is gonna take some time to get rid of.
• 0:59
  SPEAKER_00: I don't want to be the one uh crying wolf first, I guess, but it is kind of interesting as we plug through the February forecast here.
• 1:07
  SPEAKER_00: We're probably not gonna get rid of a lot of snow, and like you said, there might be some more coming in April, but I for one won't be turning it away after last year.
• 1:15
  SPEAKER_00: We've kind of missed most of the rains.
• 1:17
  SPEAKER_01: We'll play the vacations down south in the meantime, everyone.
• 1:20
  SPEAKER_01: But on today's podcast, we are gonna talk a little bit about the cattle inventory report.
• 1:25
  SPEAKER_01: But to start off with here, uh let's just do a quick recap on these grains, Jeff.
• 1:30
  SPEAKER_01: Sounds good.
• 1:31
  SPEAKER_01: So uh here this week, not a lot of changes in the grain markets.
• 1:35
  SPEAKER_01: Uh really the one thing that got me more excited uh this week was the corn exports report.
• 1:41
  SPEAKER_01: We had a really good week on exports for corn and uh significantly China uh to be specific here.
• 1:47
  SPEAKER_01: 12 million bushels on the export sales report from them, most since May or so.
• 1:53
  SPEAKER_01: Yeah, a really good week on the exports.
• 1:55
  SPEAKER_01: We're seeing demand pick up a little bit on the corn side between that and ethanol posted a decent number this week.
• 2:02
  SPEAKER_01: It's still not fantastic, like we're not blowing it out of the water, but we're picking up uh, you know, at least to where we need to be to start hitting some of their expectations.
• 2:10
  SPEAKER_01: And the one thing I gotta say about the corn market here is exports are still like 45% behind on the current marketing year.
• 2:18
  SPEAKER_00: So we need to really start get going here on the that's probably why we didn't see it uh in the futures markets too much.
• 2:24
  SPEAKER_00: You know, that was on Thursday morning report, and we didn't see much life from that at all, which I'm not sure if I agree with.
• 2:32
  SPEAKER_00: It's it is kind of big news.
• 2:34
  SPEAKER_00: And on the other side of the coin there, they I know this morning we had a bean sale to unknown, assuming that's probably China.
• 2:41
  SPEAKER_00: Does that be about the only sale this week on the bean side?
• 2:45
  SPEAKER_01: Well, when I look at it, I I can't tell you exactly if that was the only one or not, but soybean sales are pretty much right at or better than expected to hit the USDA's target.
• 2:54
  SPEAKER_01: So expectations on the soybean demand is actually pretty decent right now going forward.
• 3:00
  SPEAKER_01: And uh some decent things.
• 3:02
  SPEAKER_01: You have the crush expansion going on on soybeans.
• 3:05
  SPEAKER_01: They're really not the problem on demand right now, are they, Jeff?
• 3:08
  SPEAKER_00: Yeah, as I think about the grain complex in general, uh especially in today was the what kind of brought it back to the forefront, you know, meal market is the crazy one.
• 3:19
  SPEAKER_00: It is definitely and I just keep staring at that market, and I I think you know, fun money piling in there.
• 3:26
  SPEAKER_00: This is a great example when you have all this extra cash into a market that's not used to it.
• 3:32
  SPEAKER_00: I'm not sure that it has to make sense, and maybe that's just me making excuses because I can't make sense out of it, Mike.
• 3:38
  SPEAKER_00: But um, I think one thing you look at is you had crude oil down today, um, and we'll jump into the macros here, but you had crude oil down, which took the soy oil down.
• 3:49
  SPEAKER_00: I think they flip right around by a meal um every time you basically get the oils running lower, energies running lower, and just keep a complete inversion in the rate now.
• 3:59
  SPEAKER_01: Pretty much record long in the soybean meal complex here.
• 4:02
  SPEAKER_01: 136,000 contracts as of last week.
• 4:05
  SPEAKER_01: We'll see um here what they post this week.
• 4:08
  SPEAKER_01: But uh that pretty much covers us on most of the grain stuff.
• 4:12
  SPEAKER_01: I kind of wanted to talk about the impact of uh we saw the feds raise rates again here, another quarter point.
• 4:18
  SPEAKER_01: Uh but to cap off the week here, the jobs report, that kind of came out, and uh we didn't really see some expectations that we wanted going into it.
• 4:28
  SPEAKER_01: So, like uh to really sum things up here, Jeff, the stock market wants unemployment rates to go up.
• 4:34
  SPEAKER_01: Uh the jobs report today is not suggesting such things.
• 4:38
  SPEAKER_01: In response, we saw the US dollar move higher because we're gonna see interest rates continue to go up, for example, to combat inflation.
• 4:49
  SPEAKER_00: Yeah, the reaction to the information is is important in this discussion.
• 4:54
  SPEAKER_00: I don't want people to miss that.
• 4:55
  SPEAKER_00: It's if uh if things look too good, um they're gonna keep jacking up the interest rates.
• 5:02
  SPEAKER_01: Exactly.
• 5:02
  SPEAKER_01: It's uh kind of opposite, you know, we uh opposite of what you think it would be right now, which makes it a little bit harder to track it.
• 5:10
  SPEAKER_01: So stock market didn't get beat up too bad today.
• 5:13
  SPEAKER_01: Uh crude oil got beat up a little bit.
• 5:14
  SPEAKER_01: They're worried about a glut in supply too here in the United States.
• 5:18
  SPEAKER_01: So that was another thing they talked about being uh impacting on the energy markets, but uh the metal markets, for example, they took it really hard today.
• 5:27
  SPEAKER_01: Uh gold and silver were down pretty hard uh with the US dollar being up and after that report.
• 5:32
  SPEAKER_01: So a few of those macro things really hitting the forefront, but uh when we look at some other things in uh in our economy, uh M2 money supplies, money saved, has actually started to uh trend worse on that chart in a significant way compared to what we've seen historically out of that.
• 5:50
  SPEAKER_01: So uh that is not a chart that you typically see go down at all, if uh if not just sideways.
• 5:56
  SPEAKER_01: And we're starting to see that kind of round off the top here, it almost looks like.
• 6:00
  SPEAKER_01: So the stimulus money's running out, you can really tell.
• 6:03
  SPEAKER_01: And uh when I kind of segue that into our main discussion today, uh, Jeff, which would be uh, you know, cutout and kind of on the cattle side of things and demand, uh, when you start forecasting you know what twenty-three is gonna look like, we don't have a very good start on the cutout side of things on uh beef demand, do we?
• 6:21
  SPEAKER_00: No, and that's uh it is a concern and a growing concern, I guess, as we as we think about the inflation and uh you know how is the is that impacting the consumer today, and then of course fast forward that uh how will that can impact the consumer throughout the rest of 2023?
• 6:43
  SPEAKER_01: Um so up until this point we've ate a lot of beef still per person in the United States the last like till 19 or 18 even.
• 6:53
  SPEAKER_01: But the prices have just gone up, up, up, up, up on on retail, right?
• 6:58
  SPEAKER_00: Yeah, it's uh you know, we've we've done a very good job of moving product.
• 7:03
  SPEAKER_00: I'd say it's true on the pork side too, is um, especially you know, in the last two years, as you look at you know, pork at least we had a little bit lower uh total supply in 21 versus 20 and then 22 versus 21.
• 7:18
  SPEAKER_00: Um but the prices uh obviously went to some pretty accelerated levels.
• 7:24
  SPEAKER_00: Beef, on the other hand, you know, we didn't put any less product on the market yet.
• 7:28
  SPEAKER_00: Yes.
• 7:29
  SPEAKER_00: Um we're all anticipating that to happen soon, but we haven't, and then just really, really good disappearance um domestically here at some pretty high levels.
• 7:41
  SPEAKER_00: And so you look at that and then you consider some of this macro stuff you're talking about, and you know the big question is how concerned do you be going forward here?
• 7:51
  SPEAKER_00: And I have to think you sit back and look at the beef thing and say, Well, it can't stay this good.
• 7:57
  SPEAKER_00: We gotta see some give here.
• 7:59
  SPEAKER_00: We we're pretty confident that consumer prices are going up at a faster rate than the labor um increases.
• 8:07
  SPEAKER_00: And so then you look at the jobs report today and you think, well, okay, that might be true, but we are adding more jobs too.
• 8:15
  SPEAKER_00: Yeah.
• 8:15
  SPEAKER_00: Um, so it's it's a it's a tough one.
• 8:18
  SPEAKER_00: I wanted to stay well in tune with for sure.
• 8:20
  SPEAKER_00: But that'd be my conclusion on the product side from um beef demand is I just can't imagine 23 will have a dot that's higher on the chart than 2022 did as far as disappearance and price goes.
• 8:35
  SPEAKER_01: Well, let's talk about the report that we had here this week, Jeff.
• 8:38
  SPEAKER_00: Sure.
• 8:39
  SPEAKER_00: So Tuesday is the cattle inventory report, and that's one that we uh usually spend quite a bit of time on.
• 8:45
  SPEAKER_00: We we really sift through that information.
• 8:48
  SPEAKER_00: For us, it kind of gives you a big picture direction as far as beef supplies go.
• 8:53
  SPEAKER_01: And you get two of those a year, right?
• 8:55
  SPEAKER_00: That's correct.
• 8:55
  SPEAKER_00: Yep, you get one on the first of January, one on the first of July.
• 8:58
  SPEAKER_00: Um so this one, the the impressive part of this inventory report was in the heifer retention piece of it.
• 9:06
  SPEAKER_00: And I know maybe folks that don't follow that market um you know routinely would say, well, who really cares about that?
• 9:13
  SPEAKER_00: But it really is an impressive mathematical equation because it's the whole you keep one heifer to make one mama cow and you make one more calf a year and a half later, right, to go to market.
• 9:26
  SPEAKER_00: So the you know, we've talked about this before.
• 9:29
  SPEAKER_00: The you really don't start to see a sharp reduction in supplies, market ready supplies, until you start increasing that heifer retention.
• 9:40
  SPEAKER_00: And we expected this year to be flat, or I should say last year, this year's report, to be flat on heifer retention.
• 9:47
  SPEAKER_00: That would have projected us to have you know at least a two or three percent reduction in cattle supplies in 2023.
• 9:55
  SPEAKER_00: Okay.
• 9:56
  SPEAKER_00: Um, it's showing that we actually kept a good 400,000 fewer heifers to go into the breeding herd in 23, or to excuse me, in 22 than what you saw the year before.
• 10:08
  SPEAKER_00: So what that does is it projects a very slight increase in market ready supplies for 2023.
• 10:18
  SPEAKER_00: So we are not um going to see you know, according to this information, this big reduction in supplies um for 2023.
• 10:28
  SPEAKER_00: And that combined with you know the demand discussion and saying, well, we probably gotta dial that down some at least, does have us quite concerned um about some of the values that we're seeing on the beef market right now.
• 10:42
  SPEAKER_00: We're seeing some s very impressive futures markets.
• 10:45
  SPEAKER_00: You know, we're 25 bucks higher on cattle futures for next fall than what we saw on the cash market this past year.
• 10:54
  SPEAKER_00: Um I don't know how big a deal it is.
• 10:57
  SPEAKER_00: I I think it's definitely a big deal for cattle feeders and cow calf folks.
• 11:02
  SPEAKER_00: I don't know if it's a big enough situation to impact the hog um cutout values or not.
• 11:11
  SPEAKER_00: I think that's gonna be more of the you know the macroeconomics and inflation versus labor.
• 11:17
  SPEAKER_00: Um that's probably gonna be the deciding factor on the on the product side.
• 11:22
  SPEAKER_00: But it's something to I don't think this beef market's gonna be quite as positive influencer on the hog um as the futures markets are making it out right now.
• 11:32
  SPEAKER_00: As that I think that's a fair comparison to make.
• 11:35
  SPEAKER_01: There are some premiums out there in those back months, aren't there?
• 11:38
  SPEAKER_01: Like April 24, I know that's a ways out, but 171.27 out there right now for fat cattle, that is higher than the highest we've ever been in the nearby, isn't it?
• 11:49
  SPEAKER_00: Yep, the futures are doing their job.
• 11:51
  SPEAKER_00: They're anticipating a lot of the good news that um, you know, and from a supply standpoint that many of us have been talking about for a while.
• 11:58
  SPEAKER_01: Well, that takes the excitement all out of it, Jeff.
• 12:01
  SPEAKER_00: That's kind of their job, and yes, it makes it less fun.
• 12:04
  SPEAKER_01: Well, we'll see what the next year brings here, but thanks for the update today, and uh we'll catch you next week, guys.
• 12:09
  SPEAKER_00: Thank you, Mike.
• 12:10
  SPEAKER_01: And thank you to all our listeners.
• 12:12
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 12:16
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 12:21
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 12:27
  SPEAKER_01: See you next time.