Latest / Professional Ag Marketing Podcast / Who is fueling this cattle rally?

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Who is fueling this cattle rally? · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_01: He was my info.
• 0:02
  SPEAKER_00: Welcome to the Cattle Talk Podcast.
• 0:06
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insights shaping the industry.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:27
  SPEAKER_02: Going good, Mike.
• 0:28
  SPEAKER_02: Decent day in cattle.
• 0:29
  SPEAKER_02: Good week in cattle.
• 0:30
  SPEAKER_01: Really good week in cattle.
• 0:32
  SPEAKER_01: I want to chat about that here a little bit.
• 0:34
  SPEAKER_01: Futures have been rolling.
• 0:35
  SPEAKER_01: I'll have Cade pull up a chart of December cattle futures here.
• 0:38
  SPEAKER_01: You could see we've just made a heck of a rally here recently, kind of going from that low back on the second of this month at 211.
• 0:45
  SPEAKER_01: We've ran all the way up to 222 now and change.
• 0:50
  SPEAKER_01: What do you take from this?
• 0:51
  SPEAKER_01: A few of the key notes I've had technically on this cattle market just on the way up would be 50%'s going to roll around 226 to 227 there on this rally.
• 1:01
  SPEAKER_01: If you look, we're also going to have something along the lines of a high back the beginning of August at 229 and a half there.
• 1:08
  SPEAKER_01: So some marks to keep an eye on.
• 1:10
  SPEAKER_01: But just talk to me about why we're seeing this uh this strength to begin with, Jeff.
• 1:16
  SPEAKER_02: Well, I think uh, you know, you starting off with a little bit of technical conversation here, I think is appropriate because we this chart does look pretty attractive, right?
• 1:24
  SPEAKER_02: Um we had some nice consolidation, probably a bit of a bottom, a double bottom there at the low point.
• 1:31
  SPEAKER_02: And then uh most recently uh some of the months yesterday and the rest of them today kind of broke out of this downward trend.
• 1:39
  SPEAKER_02: If you take a line across the tops of the uh where the market's at, there um where we've kind of we've done some really good uh structural support and and uh momentum pushing into the charts here.
• 1:52
  SPEAKER_02: I think I think we'll continue to see that uh take place as we move into next week.
• 1:57
  SPEAKER_02: You know, I think uh we'll jump into the fundamentals and talk about them quite a bit here in a minute.
• 2:02
  SPEAKER_02: I I do think this one, you know, sometimes you're always just a little confused or concerned about, okay, you know, are fundamentals pushing the futures or the futures pushing the fundamentals, right?
• 2:13
  SPEAKER_02: As you talk about cash trade.
• 2:14
  SPEAKER_02: But I think there's some good reasons why in this situation the cash is is a real market here today.
• 2:21
  SPEAKER_02: Um Packers just don't quite have the leverage that they um maybe had or or were trying to press into the industry um and uh kind of lost their their grip a little bit in you know the past couple weeks uh and and let the cash kind of trade higher and and that's what was pushing on the futures.
• 2:43
  SPEAKER_02: But you know, back to that chart, there's just a couple more comments I want to make about it, Mike.
• 2:49
  SPEAKER_02: Um one of the things that we're thinking about and talking about is you know, if you do believe that the highs are in, and this is from a big picture standpoint, right?
• 2:59
  SPEAKER_02: If you're in in the camp that the highs are in from this cycle, and we're gonna work our way um through time and through lower prices, then I think you have to be really cautious about um each rally that we see, it's kind of a sell-on rallies type of a market.
• 3:17
  SPEAKER_02: So each rally we see needs to be um looked at really hard as far as sell points go.
• 3:23
  SPEAKER_02: And if history has anything to say about this, we will have lower highs each time.
• 3:30
  SPEAKER_02: Right?
• 3:31
  SPEAKER_02: So, like when when you mentioned that 229 number high point back in uh August here, um, especially going into the season that we're going into, um being you know, getting into a few more numbers, getting into a time frame where um Packers have some leverage and meat prices usually don't rally.
• 3:50
  SPEAKER_02: Um I'm gonna get really concerned about uh you know this high that we're gonna experience here soon.
• 3:58
  SPEAKER_02: Um probably going to be lower than the old one.
• 4:01
  SPEAKER_02: And so that's that's something to be really staring at is like, okay, if we need some business that we need to get done, um let's target a level kind of right underneath that old high someplace, 227, 228.
• 4:14
  SPEAKER_02: Um, and and look at the spot there to maybe get some of the hedges on that we need to look at.
• 4:29
  SPEAKER_01: Um about seven dollars or so, give or take on on uh on some of those.
• 4:34
  SPEAKER_01: So feeders, it seems like we're a little bit closer compared to the live cattle on uh to get back to those levels.
• 4:40
  SPEAKER_01: Uh a few other things I just wanted to mention.
• 4:43
  SPEAKER_01: You talked about cash.
• 4:44
  SPEAKER_01: Is cash really the main reason why we've rallied this market this week?
• 4:48
  SPEAKER_01: We're coming out a little stronger, it looks like, towards the end of the week.
• 4:51
  SPEAKER_02: It's definitely a big portion of it.
• 4:53
  SPEAKER_02: Um, what I would say um is the most surprising fundamental, I think, to the marketplace and to mo and to most people is probably the meat prices.
• 5:05
  SPEAKER_02: Um, you know, we have a chart of that up here also that Kate'll bring up.
• 5:09
  SPEAKER_02: But you know, the fact that I think everybody would have expected, and ourselves included for sure, Mike, that we would have continued the seasonal decline.
• 5:19
  SPEAKER_02: You know, that we were just experiencing a rally going into Labor Day business once that was over with.
• 5:25
  SPEAKER_02: Um, we'd drop back down probably closer to more closer to like that 360 area.
• 5:31
  SPEAKER_02: Especially what we're hearing about um consumer price index, Mike.
• 5:36
  SPEAKER_02: You can hit on that here in a minute, too.
• 5:38
  SPEAKER_02: Um, but you know, inflation's still happening, consumers seem like they're losing a little bit of discretional income.
• 5:46
  SPEAKER_02: Um, the fact that this meat values have been able to stick at this 380 choice area, I'm super impressed with.
• 5:55
  SPEAKER_02: Um, and that I believe is probably the reason why the Packer uh lost a little bit of leverage here.
• 6:01
  SPEAKER_02: Because you know, they came in here, meat prices wasn't dropping.
• 6:05
  SPEAKER_02: Maybe there's a little more demand there than what we would have expected here in the past couple weeks.
• 6:10
  SPEAKER_02: Um, so they're coming after the cattle a little bit more aggressively.
• 6:13
  SPEAKER_01: You know, when you talk about uh the meat price there, we've had kind of a big end of the week here.
• 6:18
  SPEAKER_01: CPI came out pretty hot this uh this morning on the CPI data, so inflation was hot.
• 6:24
  SPEAKER_01: Next week we have an FOMC meeting.
• 6:26
  SPEAKER_01: Warsh is going to uh give a stab at that one again.
• 6:29
  SPEAKER_01: We'll see if he raises interest rates or not.
• 6:32
  SPEAKER_01: Go uh this morning it was about a 90% chance he was gonna raise interest rates next week, so we'll see what response he has to that.
• 6:38
  SPEAKER_01: And uh diesel's at a record high.
• 6:41
  SPEAKER_01: Folks are pinched, they're saving a record low amount of their income right now, so the consumer's strapped.
• 6:48
  SPEAKER_01: So to push to new levels on choice meat is gonna be difficult, it would appear.
• 6:53
  SPEAKER_02: Oh, 100%.
• 6:54
  SPEAKER_02: I don't I don't think there'd be any hope that choice meat will go higher.
• 6:58
  SPEAKER_02: It's just the fact that we aren't going down.
• 7:01
  SPEAKER_02: Um, and the what's really impressive, Mike, is it's the the high dollar cuts seem to be um holding more of the weight here and the and a bigger portion of the reason why um the choice meat isn't dropping.
• 7:16
  SPEAKER_02: So it's just kind of one of those things that is super surprising and kind of has us all scratching our head just a little bit.
• 7:23
  SPEAKER_01: And I feel like uh you know, from the meat industry, they're taking advantage of this a little bit.
• 7:28
  SPEAKER_01: I saw this morning on Bloomberg one of the flash headlines was that ground beef prices still rose in August.
• 7:35
  SPEAKER_01: And uh, you know, Trump's really been working on ground beef specifically.
• 7:39
  SPEAKER_01: Right.
• 7:39
  SPEAKER_01: But meanwhile, steak prices, those dropped 1.9% in the report.
• 7:45
  SPEAKER_01: So I was I thought that was interesting to see that.
• 7:48
  SPEAKER_01: And you know, that's on a non-seasonally adjusted basis and everything.
• 7:52
  SPEAKER_01: But uh yeah, stubbornly high food food prices for the proteins have been a really big key driver in food inflation and has been a huge target of this administration here.
• 8:02
  SPEAKER_02: For sure.
• 8:03
  SPEAKER_02: For sure.
• 8:03
  SPEAKER_01: What other thoughts do you got for us to wrap up the cattle podcast today?
• 8:07
  SPEAKER_02: Well, let's hit on the Packer margin.
• 8:08
  SPEAKER_02: Um, Cade's gonna pull up a graph of that here as well.
• 8:12
  SPEAKER_02: Um, I think we've on this chart uh we put this together yesterday, so the the most recent dot on here is going to be like 150 or 60 dollar positive margins.
• 8:23
  SPEAKER_02: That was using a 220 cash.
• 8:25
  SPEAKER_02: Now that today's cash kind of surpassed our expectation a bit, Mike.
• 8:30
  SPEAKER_02: Um, I think we're gonna trade.
• 8:32
  SPEAKER_02: What was it?
• 8:33
  SPEAKER_02: We're mostly one or two twenty-two to two twenty-three in the north, um, two twenty-four-ish, maybe a little 225 in the south.
• 8:41
  SPEAKER_02: So um that's gonna be a good three to four dollars higher than what it was last week.
• 8:46
  SPEAKER_02: Um so that'll that'll pinch these Packer margins some.
• 8:49
  SPEAKER_02: But it continues, right?
• 8:50
  SPEAKER_02: Like, and this is what we were talking about.
• 8:52
  SPEAKER_02: We've only got four weeks here that uh the information that we put together with the higher margins, but um very unusual in the past couple years, of course.
• 9:03
  SPEAKER_02: And um, you know, that's really driven by the fact that we got 380 choice meat instead of 360 choice meat.
• 9:10
  SPEAKER_01: All right.
• 9:11
  SPEAKER_01: Well, thank you for your time today.
• 9:12
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• 9:22
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• 9:29
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• 9:31
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• 9:32
  SPEAKER_01: Thank you for your time today, Jeff.
• 9:34
  SPEAKER_01: We'll see you next time.