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Inflation Data and Cattle · 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 April 14th.
• 0:25
  SPEAKER_00: I've got Jeff with us here today.
• 0:27
  SPEAKER_00: How's it going today, Jeff?
• 0:28
  SPEAKER_01: It's going well, Michael.
• 0:30
  SPEAKER_01: Hopefully I can compete with your last uh guest you had on a week ago.
• 0:35
  SPEAKER_01: He basically said it wasn't gonna rain and we weren't gonna grow a decent crop and to the moon and beyond, right?
• 0:41
  SPEAKER_00: How's it get more exciting than that?
• 0:43
  SPEAKER_01: Exactly.
• 0:44
  SPEAKER_00: Well, we've got another fun one today.
• 0:46
  SPEAKER_00: Uh we've had a major economic uh a couple events occur over this week here.
• 0:51
  SPEAKER_00: Some major reports talking about the consumer price index, the producer price index.
• 0:56
  SPEAKER_00: So we're gonna talk a little bit about inflation this week, and then we're gonna tie that to the cattle market.
• 1:02
  SPEAKER_00: How's that sound, Jeff?
• 1:04
  SPEAKER_01: I think the inflationary discussion for sure is gonna be a good one.
• 1:07
  SPEAKER_01: I that's uh something that's kind of top of my mind here lately.
• 1:11
  SPEAKER_01: So I'd say jump into it.
• 1:13
  SPEAKER_00: Awesome.
• 1:14
  SPEAKER_00: Well, uh inflation now, eight point five percent, compared to that'd be the highest we've had since nineteen eighty-one release released in the uh CPI report this week.
• 1:25
  SPEAKER_00: So consumers are having to make some really tough choices uh currently here as we've got uh inflation definitely occurring uh in today's world across the globe.
• 1:35
  SPEAKER_01: So every every time we jump in and we say the highest inflation since 1981, Mike, I get really really skittish.
• 1:44
  SPEAKER_01: Yeah.
• 1:44
  SPEAKER_01: Am I I think I'm overblowing this deal or no, I mean uh that's just year over year, right?
• 1:50
  SPEAKER_00: Is what we're talking about when we talk about increases in inflation.
• 1:54
  SPEAKER_00: So compared to last year it'd be the highest that we've had since 1981, but I mean prior to the last couple years we really didn't have much more than what the Fed's goal is, which is like two percent, right?
• 2:05
  SPEAKER_01: Okay, that's fair.
• 2:06
  SPEAKER_01: So a little bit's the year-ago comparison.
• 2:08
  SPEAKER_00: Yeah.
• 2:09
  SPEAKER_00: Now the job market today and the economy, they're both on solid footing.
• 2:13
  SPEAKER_00: So we're fine for now, right?
• 2:14
  SPEAKER_00: We've got a lot of money to go through.
• 2:16
  SPEAKER_00: The M2 money supply has a big chunk that's ready to get spent today.
• 2:21
  SPEAKER_00: So that's good, but that's also why we've got inflation worries today.
• 2:25
  SPEAKER_00: Um the wage growth set uh the wage growth, sadly, isn't really keeping up with uh the prices of everyday items, and consumers are just starting to get pinched now from kind of all sides as the Federal Reserve is gonna start rising interest rates now.
• 2:40
  SPEAKER_00: So the uh when we start breaking down some of the most recent surveys about what uh what the consumers are thinking with the current inflation rate and how that's impacting them, you know, a lot of Americans are starting to cut back on some of their leisure and discretionary spending because of inflationary type worries, mainly eating out, impulse purchases, and driving.
• 3:04
  SPEAKER_00: But mainly the two hardest hit categories when it when people are talking about budget impacts, it's mainly gas and groceries, which that impacts each and every one of us in agriculture, right?
• 3:15
  SPEAKER_00: As those two were directly tied to.
• 3:18
  SPEAKER_00: So about 75% of gas prices uh about um the percent of Americans seeing effects of inflation, uh gas prices, it's about 75%.
• 3:29
  SPEAKER_00: And for groceries, it's about 73%, they think that are actually feeling those today.
• 3:33
  SPEAKER_01: Three quarters of the folks out there buying are saying one of their biggest concerns or on the biggest concerns, but they're con they're seeing an increase in gas and increase in food.
• 3:44
  SPEAKER_01: Yep.
• 3:45
  SPEAKER_01: That's what you're trying that's what that data's trying to suggest.
• 3:47
  SPEAKER_00: They're saying that impacts three-quarters of enough people to uh actually make them worried about it or think about it by the time they go out and spend money at the next uh event uh for fun or leisure activities, etc.
• 4:02
  SPEAKER_00: So people are starting to spend their money a little bit differently because of uh because of what we're seeing with inflation now.
• 4:09
  SPEAKER_00: It's not right away when you start to see those impacts, right?
• 4:12
  SPEAKER_00: It's usually when wage growth can't keep up with inflation after a certain amount of time and some of that big heaped-up pile of money starts to go away.
• 4:21
  SPEAKER_01: Yep.
• 4:22
  SPEAKER_01: Honeymoon phase is drawing to a close for at least a chunk of the folks out there.
• 4:27
  SPEAKER_00: Exactly.
• 4:28
  SPEAKER_00: So the PPI and the CPI reports are both reinforcing pressure on the Federal Reserve to raise their rates more aggressively.
• 4:35
  SPEAKER_00: So we're really getting pinched into a corner, right?
• 4:37
  SPEAKER_00: Because that's not going to help either.
• 4:38
  SPEAKER_00: So the central bankers have really opened a door to a half percentage point increase here in May.
• 4:44
  SPEAKER_00: So that was some of the biggest changes we saw from this week's um this week's reports that came out.
• 4:50
  SPEAKER_01: And one one interesting observation from a meeting earlier today, Mike, is um, you know, the the Fed is probably one of their motivations to increase some interest rates here, no doubt to get on to try to get on top of inflation, but they also need some tools if we start to enter into a bit of more of a recessionary phase in the future, they need to have some adjustment available in the interest rate.
• 5:16
  SPEAKER_01: So you almost got to jack it up now ish, so you can start to lower it again if you have to.
• 5:23
  SPEAKER_01: I bet you that's part of what they're thinking.
• 5:25
  SPEAKER_00: Exactly.
• 5:26
  SPEAKER_00: So that starts to worry some of these people when they start talking about stagflation, you know, where inflation's going up, but all of a sudden now uh growth is going down.
• 5:35
  SPEAKER_00: Um stagflation expectations are the highest since 2008, pretty much August of 08.
• 5:41
  SPEAKER_00: So uh a lot of uh a lot of really big picture things that could be uh 1970s style stagflation talks, things like that.
• 5:51
  SPEAKER_00: But um the way this is really gonna connect us to the commodity markets here and our everyday businesses is that traders still remain concerned about poor consumer confidence readings and soaring inflation and how that impacts beef consumption.
• 6:06
  SPEAKER_00: Now, we gotta say that the supply fundamentals look positive further out for the next few months, you know, after that.
• 6:13
  SPEAKER_00: Uh up front here I'll have you talk about the current uh supply fundamentals, but after a while those do start to put some underlying support under this uh beef market and these live cattle prices.
• 6:24
  SPEAKER_00: But up front here, there are some concerns about consumer confidence ratings.
• 6:28
  SPEAKER_00: And I think that's one of the reasons here, uh, maybe you've got some input on it as well, that we haven't seen cattle completely take off like some of these other commodities have, like crude oil or corn.
• 6:39
  SPEAKER_00: You know, their supply fundamentals have been helped out a little bit more too, but we've seen it with the Chicago Board of Trade reports, uh, the commitment of traders, uh, where the fund and money flow is going right now, um it's probably a little bit undervalued when we start talking about the feeder cattle market and uh um where the where the funds are sitting right now in these markets.
• 6:59
  SPEAKER_00: So what do you think?
• 7:00
  SPEAKER_01: I would say obviously we're we're we're watching that unfold and and taking place.
• 7:05
  SPEAKER_01: And you know I when this first trend started to take place, you know, six months ago or so, where we've seen a lot more dollars entering into the grain side of the equation than what we were seeing um to the livestock um equation, and and especially on the cattle side, it I really question that because I've I've always thought of cattle as being a very nice inflationary hedge and one of the one of the first commodities that the funds start to jump into when they get concerned about inflation.
• 7:36
  SPEAKER_01: But well I think what we can see now is you know they were spot on.
• 7:42
  SPEAKER_01: They if if things were gonna get as crazy as what they have gotten here in the past 30, 40 days, meaning, you know, corn starting to creep on eight dollars and inflation being over eight percent from a you know from a more macro standpoint, it it's it almost like you those dollars needed to skip over top of the cattle market because now there's a there's a lot of concerns from a couple different levels um in the in the cattle market, and and I'm just gonna hit on those real quickly here, Mike, but you know, on the front side, kind of in the here and now and what's real, is high corn uh causes a uh increased number of market um cattle that are headed for the market.
• 8:28
  SPEAKER_01: So it it increased the motivation to get cattle to town.
• 8:32
  SPEAKER_01: And I don't and that's whether it's uh 1,500 pound critter back there on the first of January to a 500 or 600 pound calf.
• 8:43
  SPEAKER_01: Um everybody wants to place these things sooner once they're on feed, um, they're trying to grow them relatively fast, and especially when they start to get to these larger weights and closer to finish, the sellers are very motivated as corn creeps into this eight dollar level.
• 9:02
  SPEAKER_01: Um longer term, you know what we're talking about here today so far is more about okay, at what point does the consumers get concerned enough about their dollar and where it's going, they need to start cutting some things out of it.
• 9:17
  SPEAKER_01: And you're saying, you know, 70% of us are already at that point, which is not surprising considering how much everything has gone up in cost.
• 9:26
  SPEAKER_01: So, you know, I always we always say the beef prices are gonna be the tip of the sword there.
• 9:31
  SPEAKER_01: Um so for our hog producers and other protein producers, we're just saying, hey, watch the beef.
• 9:37
  SPEAKER_01: Um I can't say we're seeing any of it, you know, in the actual choice cutout, for an example.
• 9:44
  SPEAKER_01: Um I think that you know it's an arguable point.
• 9:47
  SPEAKER_01: I I get that.
• 9:48
  SPEAKER_01: But as far as futures prices go, I think it I think it's certainly evident.
• 9:54
  SPEAKER_00: So we've talked about the impact of supply and how correlated that is to price over the you know the past few podcasts we've done with you.
• 10:03
  SPEAKER_00: This is the first time we've probably had more of a demand uh type topics uh when talking about the cattle market.
• 10:10
  SPEAKER_00: But um as we get back to supply, you know, this is a second time since 1987 that production is probably declining into the second quarter.
• 10:19
  SPEAKER_00: How do you feel like supply is sitting here in the near term and going forward?
• 10:23
  SPEAKER_00: Um, it just makes me a little cautious because June cattle are trading at such a huge discount to the market right now.
• 10:29
  SPEAKER_00: Normally that's at a huge premium.
• 10:31
  SPEAKER_00: Usually five-year average premium is like eight dollars plus for this time of the year.
• 10:37
  SPEAKER_00: Uh live cattle prices this week are well into the 140s, I believe, Jeff, and uh we've got June sitting at 136.
• 10:44
  SPEAKER_00: What's your opinion on some of that stuff right now?
• 10:47
  SPEAKER_01: Yeah, I you know, you you might be surprised, but I don't I don't have a lot of arguments as the way the market's trading this cattle situation.
• 10:56
  SPEAKER_01: So to dive into a few specifics and hopefully not to get too boring, but you know, we we have more cattle on feed right now than what we did a year ago, um, and really what we did for the past decade or more.
• 11:09
  SPEAKER_01: So and and that's with two years of decreasing cow supply, all right, and and calf crops.
• 11:15
  SPEAKER_01: So you can that gives you some picture as to how we've pulled the inventory forward so far.
• 11:21
  SPEAKER_01: So, you know what and as we look at these kind of input prices and and feed cost, I think that's going to continue.
• 11:29
  SPEAKER_01: And that's why the June market um is uh you know is trading as high as it is comparatively to the to the cash.
• 11:37
  SPEAKER_01: Um it just we don't we're not seeing you know a huge spike in cash by any stretch um right now.
• 11:45
  SPEAKER_01: And I don't foresee us to see any um really huge gains in the cash market until we get probably you know past that June time frame.
• 11:56
  SPEAKER_01: We we're looking at weights quite a bit right now and we're making some progress.
• 12:00
  SPEAKER_01: You can tell that the industry's trying to get more current, trying to get rid of that feed bill at the end of the market uh at the end of the feeding phase.
• 12:09
  SPEAKER_01: Um but they st we're starting out so high and we're fighting uh excellent weather.
• 12:14
  SPEAKER_01: All through winter these cattle just grew and grew and grew.
• 12:17
  SPEAKER_01: I just think it's gonna take we're gonna have to get this year's weights, I think, closer to the five year average, which my guess is gonna take something past June.
• 12:27
  SPEAKER_01: Now, the argument I think our our listeners would would throw at me is what about this week?
• 12:33
  SPEAKER_01: We had excellent cash prices this week.
• 12:36
  SPEAKER_01: Um I think I would probably call them at least two bucks better than last week.
• 12:41
  SPEAKER_01: And some of those cattle going on some fairly quick uh quick shipment dates.
• 12:46
  SPEAKER_01: There's also some packers that have plenty of time on them.
• 12:49
  SPEAKER_01: But I would just say I I think that's a difference between old crop and new crop.
• 12:53
  SPEAKER_01: You're sitting right at in the middle of April here.
• 12:56
  SPEAKER_01: Um there's gonna be a little bit of back and forth as we try to transition um from these big Fed year lanes to the longer fed calves.
• 13:04
  SPEAKER_01: Um and as those calves get more readily available and you know have a better quality grade to them, I I think we're gonna see this cash market even out.
• 13:15
  SPEAKER_01: So I I guess what I'm saying is blip on the radar as far as the short-term cash here this week, Mike.
• 13:21
  SPEAKER_00: Very nice.
• 13:21
  SPEAKER_00: Well, to wrap up some of these commodity market moves here at the end of the week, uh live cattle heading into the end of the day, uh, red here across the board, uh, lean hog market, a little slightly red there as well.
• 13:34
  SPEAKER_00: The grain markets here through the week have been a little bit more boring towards the end of the week as uh not as many news uh topics have been s centered around the uh corn market and the soybean market, but pretty much unchanged going into the end of the week for the corn and the soybean markets.
• 13:51
  SPEAKER_00: But uh, you know, we talked about inflation earlier, and uh this week we see the US dollar reacting to some of those reports, maybe as we see that back up over a par or a hundred for the first time since last March on that US dollar.
• 14:06
  SPEAKER_00: So maybe there is some risk off uh across these commodities going into a nice three-day weekend here.
• 14:12
  SPEAKER_00: Uh any finishing talking points for our listeners this week, Jeff?
• 14:16
  SPEAKER_01: Well, I think you know, as is you you like to compare the corn market to the to the cattle market uh in this inflationary discussion, right?
• 14:25
  SPEAKER_01: And and you just ran through some of the you know what's going on here today, and and clearly, you know, we're we're pushing within what 50 cents or so of the high on the corn market.
• 14:36
  SPEAKER_01: I'm talking all-time highs now, um, or you know, eight, nine percent is is the quick napkin math I did here um listening to those quotes.
• 14:46
  SPEAKER_01: But um in the cattle world, you know, even even the deferred contracts, which are obviously trading um a shorter supply situation out there in the next winter, you know, we're still in the low 20% range.
• 15:00
  SPEAKER_01: So we're a good 20% off the all-time highs that we've seen cash cattle trade in.
• 15:06
  SPEAKER_01: So I think that's a perfect example how much more attention these grain markets have gotten, um, and probably for good reason than what the cattle market have.
• 15:15
  SPEAKER_00: Probably a little lit on that cattle market compared to the grains, anyways, especially with what we're seeing in uh Russia and Ukraine.
• 15:22
  SPEAKER_00: Doesn't seem to be giving up uh too much room there.
• 15:25
  SPEAKER_00: But thank you for uh all of our listeners this week and thanks for coming on the show, Jeff, and uh we'll appreciate it when you come on next time.
• 15:32
  SPEAKER_01: Thank you, Mike.