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Hog Market Talk - Death By A Million Paper Cuts · Professional Ag Marketing Podcast

• 0:03
  SPEAKER_00: Welcome to the Hog Market Talk Podcast.
• 0:07
  SPEAKER_00: Your weekly deep dive into hog market fundamentals, breaking news, and industry insights.
• 0:13
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:22
  SPEAKER_02: Today is October 21st, and it feels like a lifetime since we've been here.
• 0:27
  SPEAKER_02: Nathan, how's it going today?
• 0:29
  SPEAKER_01: It's going well, Mike.
• 0:30
  SPEAKER_01: It's good to be back on the podcast with you.
• 0:33
  SPEAKER_01: It has been a little while since my last appearance, um, partially due to some slander I've been receiving over my opening on the last podcast.
• 0:44
  SPEAKER_01: I used a silly little term hello world, and I've just been getting torn apart for that, ladies and gentlemen.
• 0:50
  SPEAKER_02: You you best be continuing that trend, uh, Mr.
• 0:54
  SPEAKER_02: Jim Nance here.
• 0:55
  SPEAKER_02: But in the meantime, this is a hog podcast, we're going to talk a little bit about demand, macroeconomic perspective, talk about supply, cash prices.
• 1:04
  SPEAKER_02: Uh let's get after it here, Nathan.
• 1:07
  SPEAKER_02: So, what can you uh tee us up here for the demand side of the category?
• 1:12
  SPEAKER_01: Yeah, on the demand side of things here, Mike, uh unfortunately, no uh crazy relevations here uh on the demand piece of things.
• 1:21
  SPEAKER_01: Cutout continues to underperform.
• 1:24
  SPEAKER_01: Uh demand in general domestically and on the export market uh continues to be weak.
• 1:30
  SPEAKER_01: Looking at the composite cutout here, 78.53 uh as of yesterday, uh the 20th.
• 1:37
  SPEAKER_01: Um looking specifically here on the ham side of things, um, very disappointing on the hams over the past couple weeks.
• 1:45
  SPEAKER_01: We now are at the lowest points since levels seen in 2022, March of 2022, is the last time hams were this low.
• 1:55
  SPEAKER_01: Uh, hams being very export dependent, uh, large majority of our hams going to Mexico.
• 2:02
  SPEAKER_01: Um, and that has been pretty weak here uh over the past couple weeks.
• 2:07
  SPEAKER_02: Demand's not really helping us out here lately, is it?
• 2:10
  SPEAKER_02: I know that the supply side we'll get to in a second, but the majority of our problem with this hog market has been just the demand side, domestic or export really hasn't been helping us out here a whole lot lately.
• 2:23
  SPEAKER_02: And uh mainly you would wait it.
• 2:25
  SPEAKER_02: You know, we had tough times in the hams, then tough times in the bellies.
• 2:29
  SPEAKER_02: Anything else to really be said about demand right now?
• 2:32
  SPEAKER_01: I I'd really say the hams and the bellies are the two that stand out the most.
• 2:36
  SPEAKER_01: Um, of course, we had our our late summer, midsummer ham fall-off, and they rebounded quite nicely, uh, but they're back down to new lows, uh multi-year lows.
• 2:47
  SPEAKER_01: Uh, and the bellies, they've done a similar thing, except they never really rebounded.
• 2:51
  SPEAKER_01: They they dropped off pretty hard and they've stayed pretty flat since then around that$90 mark, uh, which bellies uh being a victim of domestic demand being weaker.
• 3:02
  SPEAKER_02: If you look from a macroeconomic perspective, uh are the consumers struggling today?
• 3:08
  SPEAKER_02: Is that why pork demand hasn't been there?
• 3:11
  SPEAKER_02: Uh, what do you think this economy looks like right now?
• 3:15
  SPEAKER_01: I would certainly say that that's a large factor uh being at play right now, looking at some macroeconomic data here, uh U.S.
• 3:23
  SPEAKER_01: real wage growth versus CPI inflation.
• 3:26
  SPEAKER_01: Uh wage growth has not been keeping up with inflation, uh, as you can see in this lovely graph here.
• 3:33
  SPEAKER_01: Uh blue line being real wage growth and CPI, uh the orange line there.
• 3:40
  SPEAKER_02: Very interesting.
• 3:41
  SPEAKER_02: Uh, what else can you say about just the overall consumer savings versus income lowest on record in the two percentile range?
• 3:53
  SPEAKER_02: Uh would just I would argue as you know, crude oil yesterday, we popped back up to 110 bucks on the on the WTI November chart.
• 4:03
  SPEAKER_02: Uh, we've got some things going on across the world, whether it be Saudi Arabia's infrastructure or uh whether it just be this entire uh bottleneck that we've got currently.
• 4:12
  SPEAKER_02: Nonetheless, high gas and diesel prices seem to be influencing the group of people that would be buying and spending money on pork, Nathan.
• 4:22
  SPEAKER_01: That is exactly correct.
• 4:24
  SPEAKER_01: And uh looking at the CPI data, we had a September CPI report 3.7% higher year over year on price levels, and the largest piece of that being energy, uh gas 9.4% higher in September.
• 4:39
  SPEAKER_01: You've got diesel prices near record highs.
• 4:42
  SPEAKER_01: We've set back 30 cents or so from the highs we saw in September, but still very expensive.
• 4:48
  SPEAKER_01: Uh looking at core CPI, uh, while still 2.6% higher year over year, uh, once you take the energy piece out of it, it lightens up a lot.
• 4:58
  SPEAKER_01: And on that energy conversation, uh, everybody knows you need diesel, you need gasoline to get any good into any store across the entire United States.
• 5:08
  SPEAKER_01: Uh so when you have such a sustained uh energy uh expensive energy prices here, it really bleeds into all of our consumer goods.
• 5:18
  SPEAKER_01: We've actually just recently seen some pork prices come down at the retail level.
• 5:22
  SPEAKER_01: So that could give us a slight reprieve here on demand.
• 5:26
  SPEAKER_01: Maybe you see demand pick up uh a little bit on that news, uh, but overall, just a tougher environment for this consumer with these energy prices.
• 5:36
  SPEAKER_02: Let's talk about more the supply side now.
• 5:38
  SPEAKER_02: We've been focused on demand over a lot of the podcasts in the last few weeks.
• 5:43
  SPEAKER_02: We've talked heavily about the demand side of things, but let's focus on the supply.
• 5:47
  SPEAKER_02: What can you tell me about numbers this time of the year?
• 5:50
  SPEAKER_02: It seems like we're hitting that seasonal time frame where we're seeing supply increase, Nathan.
• 5:56
  SPEAKER_01: That is absolutely correct, Mike.
• 5:58
  SPEAKER_01: Uh, just kind of to set the stage here on the supply conversation, talking about harvest here right away.
• 6:04
  SPEAKER_01: Um, late summer, we were actually getting some support here from supply and harvest levels.
• 6:12
  SPEAKER_01: Um, we were running about two to three percent lighter on harvest compared to year-ago levels.
• 6:17
  SPEAKER_01: Uh, you can see that in the gap of the blue line compared to the others.
• 6:21
  SPEAKER_01: Uh, but we've had this seasonal increase uh coming into the fall here uh and projections for next week and the week following, right around 2.6 million head harvested.
• 6:33
  SPEAKER_01: We seem to be back in line with year-ago levels.
• 6:36
  SPEAKER_01: We're not getting a reprieve on the supply side of things anymore.
• 6:40
  SPEAKER_01: Uh and then kind of moving into weights on this.
• 6:43
  SPEAKER_01: Uh, some people would argue, well, we're over harvesting available supply.
• 6:48
  SPEAKER_01: Looking at the weights, they do not tell that story.
• 6:51
  SPEAKER_01: If that was the case, weights would be moving sideways, even potentially lower.
• 6:56
  SPEAKER_01: But they're steadily increasing per the seasonal.
• 6:59
  SPEAKER_01: Uh, nothing unexpected there if we are harvesting the proper amount of pigs, which it would appear that we are.
• 7:07
  SPEAKER_01: A little bit of headwinds here over the next couple weeks as far as numbers go, it would appear.
• 7:11
  SPEAKER_02: And this has been disappointing.
• 7:13
  SPEAKER_02: I know that supply, like you said, kind of helping us out in Q3, not so much here anymore.
• 7:19
  SPEAKER_02: Uh, as we look forward, seasonals not in our favor uh as well.
• 7:25
  SPEAKER_02: So we'll see.
• 7:26
  SPEAKER_02: Uh, let's talk about the cash side of the business here.
• 7:30
  SPEAKER_02: What have you seen in the cash markets lately?
• 7:33
  SPEAKER_01: Cash markets uh reflecting the same thing as kind of harvest numbers we've been seeing here.
• 7:38
  SPEAKER_01: Um, you do have the the leverage shift has kind of happened here in the cash market.
• 7:43
  SPEAKER_01: Uh, it's not so much of a negotiation more.
• 7:46
  SPEAKER_01: Uh the sellers here uh they're kind of just price takers.
• 7:50
  SPEAKER_01: Uh, you kind of have to take what whatever the packer throws at you these days.
• 7:54
  SPEAKER_01: Uh, just not a whole lot of cash needs out there, it would appear.
• 7:58
  SPEAKER_02: Uh, that tells a story of the supply side and on the back side of it too, the demand isn't there to really help justify them getting aggressive as well.
• 8:07
  SPEAKER_02: Uh, let's talk about competing protein here, because this has been a problem.
• 8:11
  SPEAKER_02: Not so much on the beef side of things, but poultry.
• 8:15
  SPEAKER_01: Yeah, starting with beef here, um, I would almost separate beef out as a completely separate argument here.
• 8:22
  SPEAKER_01: Uh, a lot of people have made the argument that, hey, we can get some some demand bleed over from beef as they're so expensive.
• 8:29
  SPEAKER_01: I would counter that with beef has kind of differentiated themselves uh as they're not really a commodity anymore.
• 8:36
  SPEAKER_01: They're kind of a premium good.
• 8:38
  SPEAKER_01: Uh the consumers who purchase beef tend to continue to purchase beef uh no matter the price, which is what we've seen in the past couple of years with skyrocketing beef prices, uh, and demand stays relatively strong.
• 8:51
  SPEAKER_01: Now, on the chicken side of things, I think we do have an opportunity uh arising on that front.
• 8:57
  SPEAKER_01: Uh so year over year as a whole, we're running about 1% higher on chicken production versus last year.
• 9:05
  SPEAKER_01: Earlier on in the year in March, we were about 3%.
• 9:09
  SPEAKER_01: Um, and now 3.4% lower.
• 9:13
  SPEAKER_01: Uh so what this is gonna do potentially is raise some chicken prices and make it a little bit easier for that consumer to switch from chicken to pork potentially uh at the retail level.
• 9:25
  SPEAKER_01: So this could provide us some support.
• 9:28
  SPEAKER_02: Let's wrap this podcast up just with a conclusion.
• 9:31
  SPEAKER_02: I want you to sum everything up from what we've learned here recently about this hog market.
• 9:36
  SPEAKER_02: We're getting a lot of questions about, you know, how long is this gonna go on?
• 9:40
  SPEAKER_02: How bad is the bad gonna get?
• 9:42
  SPEAKER_02: Uh, what are your thoughts?
• 9:44
  SPEAKER_01: Yeah, if I had to sum it up in one phrase here, I would say it's death by a thousand paper cuts here in this hog market.
• 9:52
  SPEAKER_01: There's no one silver bullet that is causing all of these problems.
• 9:56
  SPEAKER_01: It's all the things we talked about today, playing a factor at once.
• 10:00
  SPEAKER_01: Uh now, kind of the bright side of that is that these smaller problems that are adding up to one big problem, when you've got 10 smaller problems, it's easier to fix those one at a time than fixing one black swan event, uh, for example.
• 10:16
  SPEAKER_02: Uh, great point.
• 10:17
  SPEAKER_02: In the meantime, the managed money futures traders have no real reason to get rid of a record short position in this hog market for the time being.
• 10:27
  SPEAKER_02: So it's just a slow grind lower until they get a good reason to cover those shorts, Nathan.
• 10:32
  SPEAKER_02: And when they do, it should come fast and furious.
• 10:35
  SPEAKER_02: It's just how low are we gonna go in the meantime, Nathan?
• 10:38
  SPEAKER_02: It seems like we're gonna have to get a new uh a new fundamental topic or shift for them to try to cover those shorts.
• 10:48
  SPEAKER_01: That's exactly correct.
• 10:49
  SPEAKER_01: We're gonna need a catalyst of some sort here.
• 10:52
  SPEAKER_02: Exactly.
• 10:52
  SPEAKER_02: All right, it for everyone else out there.
• 10:54
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• 10:57
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• 11:01
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• 11:03
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• 11:10
  SPEAKER_02: We'll catch you next week.