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We have a lot of pork in this market · Professional Ag Marketing Podcast

0:02
SPEAKER_01: Welcome to the Hog Market Talk Podcast.
0:06
SPEAKER_01: Your weekly deep dive into hog market fundamentals, breaking news, and industry insights.
0:13
SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
0:21
SPEAKER_00: Today is November 4th.
0:23
SPEAKER_00: I've got Luke Wells with us here today.
0:25
SPEAKER_00: How's it going, Luke?
0:26
SPEAKER_00: It's going, Mike.
0:27
SPEAKER_00: How are you doing today, sir?
0:28
SPEAKER_00: We are doing very good.
0:30
SPEAKER_00: Uh, we're gonna just take a quick recap over the entire market here.
0:33
SPEAKER_00: We're gonna talk about hogs.
0:35
SPEAKER_00: Uh, obviously, we're gonna want to spend as much time not talking about hogs as possible.
0:40
SPEAKER_02: We can leave that one to last, buddy.
0:41
SPEAKER_00: So we'll leave that one to last, but I do want to take uh a minute to just talk about the removal of election uncertainty.
0:48
SPEAKER_00: And uh a lot of folks have been asking this morning, you know, what in the world's going on with the stock market?
0:53
SPEAKER_00: Well, we had a blue wave come through.
0:56
SPEAKER_00: The Democrats won in spectacular fashion.
0:59
SPEAKER_00: And and with that being the case, you know, about 1030 last night, the stock market bottomed and we rallied from about 1030.
1:07
SPEAKER_00: And that happened after most of the voting kind of stopped and most of the results were pretty much in we could see the direction.
1:13
SPEAKER_00: I always talk about this.
1:14
SPEAKER_00: You usually trade a little lower in the stock market ahead of the midterms, and then you normally rip out of it.
1:20
SPEAKER_00: And that's even regardless of the results.
1:23
SPEAKER_00: It's just the removal of uncertainty, and I think that's a a wonderful way to look at a lot of markets.
1:29
SPEAKER_00: Sometimes the outcome doesn't even matter.
1:31
SPEAKER_00: It's just that we put that uncertainty behind us and we know where to go from here.
1:35
SPEAKER_00: And uh, for the time being, for the next two years after these midterms, it looks like we at least have a pretty clear direction as well.
1:42
SPEAKER_00: It's not very mixed.
1:43
SPEAKER_00: We don't have uh, you know, the blue tide one, they pretty much had Senate, House, a lot of governors now.
1:49
SPEAKER_00: So from that perspective, at least, the direction was pretty clear out of last night's results.
1:56
SPEAKER_00: And the markets appreciated that.
1:58
SPEAKER_00: The the equities have rallied really hard on that.
2:01
SPEAKER_00: Um, crude oil, for example, we're down eight dollars today.
2:05
SPEAKER_00: So the likelihood of us trying to at least slow down, impede, stop, however, you want to talk about the Iran conflict, they would maybe think, you know, a big part of the the Democrats' move in this midterm election was to say stuff's too expensive because of the Iran war, that's a problem.
2:21
SPEAKER_00: Not necessarily saying they're gonna end it by any means a conflict, but that was one of their main points.
2:26
SPEAKER_00: So crude oil trading a little lower today as well.
2:29
SPEAKER_00: The the corn market did trade very closely with equities last night as well.
2:33
SPEAKER_00: We bottomed about 1030.
2:35
SPEAKER_00: Uh, we'll see.
2:36
SPEAKER_00: Most of those managed money long positions have been ditched.
2:39
SPEAKER_00: We're at a very neutral position from the word on the street from the big fund managers.
2:44
SPEAKER_00: They probably don't want to go short.
2:45
SPEAKER_00: So for now, anyways, they're probably pretty comfortable with where they're sitting positionally in this corn market post-harvest as well.
2:52
SPEAKER_00: Uh, we got a uh Stone X results came out yesterday on very big crops for corn and soybeans.
2:58
SPEAKER_00: Uh, probably expected to an extent, but those were big numbers.
3:02
SPEAKER_00: Huge, huge.
3:03
SPEAKER_00: So uh that that's shaken up the corn and soybean world a little bit as well.
3:08
SPEAKER_00: Uh one of the other things, just we had a lower US dollar post-election last night, uh, and that makes commodities a little bit more attractive for exports out of the U.S.
3:18
SPEAKER_00: But uh that's kind of what I got just for a quick recap, what we've been trading before we dive into this dumpster fire of a hog market.
3:25
SPEAKER_02: Yeah, for sure.
3:26
SPEAKER_02: And I guess we'll get we'll get we'll just get to it.
3:27
SPEAKER_02: And I'm gonna just maybe take a couple steps back and up.
3:31
SPEAKER_02: None of these things I'm gonna talk about are new.
3:34
SPEAKER_02: They're things we've been talking about for almost all year.
3:37
SPEAKER_02: They just continue to exaggerate and stack on each other, right?
3:41
SPEAKER_02: So you mentioned the US-Iran conflict and specifically inflation, energy inflation, right?
3:48
SPEAKER_02: And when we decided to move forward with that, um, we we we we pinched the consumer, lower third for sure, if not more, on the whole planet.
3:58
SPEAKER_02: And that's where I'm gonna take this discussion is not just a domestic discussion, because what we've got going on in the pork complex, it's a global mess right now, okay?
4:06
SPEAKER_02: And so we pinched that consumer, and they remain pinched.
4:10
SPEAKER_02: Also, as you listen to every uh speech last night, every award speech, just two biggest things, uh fuel costs and grocery costs, right?
4:18
SPEAKER_00: I mean mortgages back above 7%.
4:21
SPEAKER_02: Yeah, and mortgage above seven percent, right?
4:23
SPEAKER_02: So you've got that, we've had that inflationary thing.
4:25
SPEAKER_02: We've seen that it really started to, you know, in the beginning of Q2 in May, right?
4:29
SPEAKER_02: Is really when we started hit that okay.
4:31
SPEAKER_02: But let's step back.
4:32
SPEAKER_02: So just like the beef complex, beef's been tight, beef has been expensive.
4:36
SPEAKER_02: The last few years, we've had by all practical purposes low-cost grains, right?
4:41
SPEAKER_02: And so the whole world, um, the US was the slowest to do it, mind you, if I will, but they tried to step into this beef void, right?
4:49
SPEAKER_02: We had cheap grains, so we made lots of pork, we made lots of poultry, lots of chicken meat, right?
4:55
SPEAKER_02: Now, what we found out in beef is that upper end of the economy, there beef's kind of like an iPhone.
5:00
SPEAKER_02: They just buy it, right?
5:02
SPEAKER_02: So beef stayed strong, right?
5:03
SPEAKER_02: But we've added, and it started in China, Brazil, um, and and just we we've got a lot of pork in this market globally that's weighing on us, has been weighing on us.
5:14
SPEAKER_02: That the the right now, every major pork producer, China, Brazil, US, uh, European world, are all deep underwater.
5:22
SPEAKER_02: The U.S.
5:22
SPEAKER_02: stayed positive the longest out of all those, right?
5:25
SPEAKER_02: But China is in liquidation mode.
5:27
SPEAKER_02: Um, they are liquidating, right?
5:30
SPEAKER_02: Brazil, I don't know if we're liquidating yet, but I think we've stopped expansion there, right?
5:35
SPEAKER_02: Just a lot of pork on the market.
5:37
SPEAKER_02: Then, and then you put the poultry uh uh back onto it.
5:41
SPEAKER_02: And we've we've talked about how, and the the poultry integrator, at least in the US, they've been profitable, they are profitable.
5:46
SPEAKER_02: That change worked, has worked well, but globally, the poultry tried to fill this void as well.
5:52
SPEAKER_02: So we ran some numbers.
5:54
SPEAKER_02: Global poultry production year to date is four percent higher.
5:57
SPEAKER_02: Okay, and so let me let me try to put some boxes and numbers around that.
6:01
SPEAKER_02: Out of the out of the major producing regions of the world, where it's our it's China, who's also swimming in pork, it's Brazil, which has also been expanding pork, and it's the US, right?
6:13
SPEAKER_02: And so to maybe put that in something our listeners can get their mind around, that's like equivalent with that 4% global poultry meat.
6:19
SPEAKER_02: It's like equivalent to a million sales worth of production.
6:22
SPEAKER_02: It's Canada.
6:23
SPEAKER_02: It's Canada.
6:24
SPEAKER_02: It's like we added Canada to the uh protein balance sheet, right?
6:28
SPEAKER_02: So you got all this massive amount of meat, you've got global supplies, you've got China not importing, you got EU and Brazil going after a lot of our export markets.
6:38
SPEAKER_02: You've got a soft, very soft domestic consumer.
6:41
SPEAKER_02: Um, and man, it is really it's pushed us down to levels that we've not seen.
6:46
SPEAKER_02: You go back to when mandatory price reporting changed on the cutout back in 2013-2014, look at the data set.
6:53
SPEAKER_02: I don't have the graph up here.
6:54
SPEAKER_02: We have the lowest price of pork cutout today that we've had since 2014, lower than COVID, lower than Prop 12.
7:01
SPEAKER_02: I mean, we are just we're we're really hurting.
7:04
SPEAKER_02: Um, also, like on top of everything I just said, um, if you take late summer to now, just seasonally adjusted, we usually increased production, harvest pork production 8%, okay?
7:16
SPEAKER_02: That's just a normal seasonal fall appreciation.
7:19
SPEAKER_02: We were in a little bit of a hole then.
7:21
SPEAKER_02: That hole's gone.
7:22
SPEAKER_02: We're 13% higher.
7:23
SPEAKER_02: So we put we put 5% more pork on the market as well.
7:28
SPEAKER_02: And you can really see that in the cash market, Mike.
7:31
SPEAKER_02: Cash market is extremely limited in participation in the 40s, 40s are getting paid today, and that's that's like that's 40 with no premium type.
7:40
SPEAKER_02: I mean, money, right?
7:41
SPEAKER_02: So and and then packers they're they're the thing is is they're I mean, Saturdays aren't just easy to add because you got labor, you gotta make sure they show up on Mondays, right?
7:50
SPEAKER_02: But we're we're running less Saturdays than we could for sure, right?
7:54
SPEAKER_02: But Packers don't have that meat necessarily contracted and sold out, and so meat is hard to move, right?
8:01
SPEAKER_02: So, you know, they're reluctant, even though they can buy a pig for 40, even buy them.
8:05
SPEAKER_02: That signal, I had I honestly uh, and we're coming into Thanksgiving these next couple weeks, right?
8:11
SPEAKER_02: Everybody's gonna be tight anyway.
8:12
SPEAKER_00: I heard of a deal like uh High V, I think they're running it.
8:16
SPEAKER_00: Buy your turkey, get a ham for free.
8:20
SPEAKER_02: Yeah, we should get three hams for free, right?
8:22
SPEAKER_02: Yeah, we we we need uh we we need to clear more meat, right?
8:25
SPEAKER_02: Um and then that actually that's a great deal, right?
8:28
SPEAKER_02: But I mean, there's still the retail pull through has been tough.
8:31
SPEAKER_02: There's still bacon on sale for eight bucks.
8:33
SPEAKER_02: Yeah, that's not on sale, right?
8:34
SPEAKER_02: So we just we've got a very tough situation.
8:37
SPEAKER_02: Uh given and and it I'm not sure it's done.
8:40
SPEAKER_02: I I just I don't we're still we haven't found that price that will clear at the bottom, at least in the cash market for sure.
8:47
SPEAKER_02: Meat on the other side, if there is a bright spot, I don't want to be all negative.
8:51
SPEAKER_02: Um, is is low prices do matter.
8:53
SPEAKER_02: Export has picked up.
8:55
SPEAKER_02: We had the biggest 640, 1200 and some loads.
8:57
SPEAKER_02: You've kind of the one primal that's actually balanced.
9:00
SPEAKER_02: So hams have came up a little bit.
9:02
SPEAKER_02: We've picked up some business there.
9:04
SPEAKER_02: Although the cash market is absolutely falling like a rock, like it dropped 10 bucks alone on Monday, right?
9:10
SPEAKER_02: Products hung around the low 70s.
9:13
SPEAKER_02: Yeah, I don't know that products stabilized.
9:15
SPEAKER_02: I still think we've got some heavyweight and heavy production ahead of us, but the cash market, it's it's it's in a little bit of trouble here.
9:22
SPEAKER_02: So um we've definitely seen these markets sell off.
9:25
SPEAKER_02: You know, how do we, you know, I talked about the global.
9:28
SPEAKER_02: I do believe there, I mean, there's always a bridge, right?
9:31
SPEAKER_02: I uh China is liquidating, sales will continue.
9:34
SPEAKER_02: I I I I like I said, I'm not sure Brazil will liquidate, but they've stopped expanding, that's helpful.
9:40
SPEAKER_02: European Union is still in a downturn.
9:42
SPEAKER_02: I I do think there's some U.S.
9:44
SPEAKER_02: Sows that will decide to hang it up.
9:46
SPEAKER_02: Some older, depreciated barns, sales out of position, people don't have the next generation.
9:51
SPEAKER_02: We're in a pretty tough spot here, right?
9:53
SPEAKER_02: So it's really about getting through, you know, kind of a play out of the grain book.
9:57
SPEAKER_02: Look forward, sell the carry.
9:59
SPEAKER_02: That's one thing that's happened in this big market depression, is spreads have really widened.
10:03
SPEAKER_02: Even the nearby spreads, D S Feb, D S April's, the D summers are like 30, 32 bucks.
10:08
SPEAKER_02: Um, there's some premiums out there.
10:10
SPEAKER_02: And then you kind of mentioned we talked about corn, but corn and meal are behaving.
10:14
SPEAKER_02: Corn's obviously broke significantly.
10:16
SPEAKER_02: Meal, meal still has some longs to shed, right?
10:19
SPEAKER_02: But it's really broke.
10:20
SPEAKER_02: We got a lot of contracts around 325 futures.
10:23
SPEAKER_02: So we've got some competitive cost of productions.
10:25
SPEAKER_02: You look out into next fall, September, October, there's there's there's some margin in late summer, and there's some target margins out there.
10:32
SPEAKER_02: So stay focused, sell things that make sense.
10:35
SPEAKER_02: Um, but we you know, we're in a hunker down mode.
10:37
SPEAKER_02: This 27 is we're we got some pain out of us right now.
10:40
SPEAKER_00: But what's it gonna take to get away from this hunker down mode or completely turn things around?
10:45
SPEAKER_00: And how long is that how long is that gonna take?
10:48
SPEAKER_02: Don't you don't ask me the easy questions, buddy?
10:50
SPEAKER_02: All right, yeah.
10:51
SPEAKER_02: Uh, I'm fearful it's gonna take some time.
10:53
SPEAKER_02: Um I I think you know, think about it just practically.
10:56
SPEAKER_02: If we start to liquidate, and again, this discussion, really think about it from a global level.
11:03
SPEAKER_02: It's not just a domestic thing, but you start right now, pigs you're farrowing, like pigs, pigs you're weaning.
11:08
SPEAKER_02: I'm sorry, like they're maybe you know, you got three weeks of pigs in the fair and crate, so now you're into a June, June, fifth, July market, right?
11:15
SPEAKER_02: So even when you start liquidating, it takes time to work that out.
11:19
SPEAKER_02: Liquidation is always a slower process, not a higher process.
11:22
SPEAKER_02: Um, you know, and I I you know you look at weights, I didn't mention that.
11:26
SPEAKER_02: Producer weights are like record high.
11:29
SPEAKER_02: I mean, we're we're behind.
11:30
SPEAKER_02: Um, I I think we've got we've got a few tough months here ahead of us yet, Mike, right?
11:35
SPEAKER_02: Um now we do have funds again every week, uh make massive shorts.
11:40
SPEAKER_02: We haven't seen that this week in the hog market.
11:42
SPEAKER_02: December holds a huge open interest position.
11:45
SPEAKER_02: Yes, you know, uh, we're getting closer to that contract.
11:48
SPEAKER_02: Markets manage money short.
11:50
SPEAKER_02: So we've been buying D actually holding the de up a little bit, I would argue, yeah, but selling the deferred.
11:54
SPEAKER_02: You really saw that in the last two days.
11:56
SPEAKER_02: But you know, look for opportunities, look for rallies.
11:59
SPEAKER_02: We did have a nice day Monday, took it all then and back here Tuesday, Wednesday, right?
12:03
SPEAKER_02: But you know, Mike, I I really do this.
12:05
SPEAKER_02: This is about preserve and and and and and get to the other side.
12:09
SPEAKER_02: It uh we'll we'll get some things figured out.
12:12
SPEAKER_02: Uh uh market always clears enough product to make it right at some point in time.
12:17
SPEAKER_02: But uh the pork industry, uh, and it's you know, the cattle industry too, right?
12:22
SPEAKER_02: I mean different prices, but cattle's cattle prices.
12:25
SPEAKER_02: I mean, cash is struggling, choice is coming down.
12:28
SPEAKER_02: We're just you know, everything's in just everything's in a little bit of a tougher spot right here now.
12:31
SPEAKER_00: Even something like the hog market is is being heavily impacted by the war in Iran.
12:37
SPEAKER_00: I I still think this could potentially be the beginning of fixing our problem, which would be let's make our American consumers healthy again.
12:46
SPEAKER_00: Not from a actual health perspective, but from an equity, you know, consumer sentiment perspective.
12:52
SPEAKER_00: So this could be the start of that.
12:54
SPEAKER_00: Crude oil is down eight bucks today.
12:56
SPEAKER_00: If we continue this trend, get gas prices back to normal, cut interest rates a little bit, don't have to worry about raising them.
13:01
SPEAKER_00: Stock market keeps going up, you know, all of a sudden we're maybe all sitting in a decent enough spot, which has been one of the main problems for the pork industry.
13:10
SPEAKER_00: We're also at that time of the year, it's beginning of November, yeah, right?
13:14
SPEAKER_00: This is historically a tough time in the hog market.
13:16
SPEAKER_00: So we'll get out of the seasonal funk.
13:18
SPEAKER_00: Hopefully, uh eventually we will, anyways, uh just from a calendar perspective, get to some of these higher premium months.
13:24
SPEAKER_00: But also, you know, we give this thing enough time.
13:27
SPEAKER_00: Maybe the American consumer can feel a little bit better here in a couple months than they do today.
13:31
SPEAKER_02: Yeah, absolutely.
13:32
SPEAKER_02: And just to acknowledge this, you know, for all our clients, all our friends, we we are in we're in war right here.
13:37
SPEAKER_02: We're in a tough time, right?
13:38
SPEAKER_02: And it's yes, there's a lot of stress mounting, and there's there's there's absolutely some rough waters ahead here.
13:44
SPEAKER_02: So, you know, everybody keep your head up, work hard, work the plan, drive efficiencies, and and we'll we'll get through this thing here.
13:51
SPEAKER_02: But the the industry, it continues it, it'll look a little bit different on the other side.
13:55
SPEAKER_02: I your you know, your how you have your sow base, your health status, um, you know, long game risk strategies.
14:03
SPEAKER_02: Um, you know, this this will be another shakeup of our industry.
14:07
SPEAKER_02: It'll it'll look when we get through this.
14:09
SPEAKER_02: Um, when that happens, the industry's gonna look a little bit different again than it did every time we go to these downturns.
14:15
SPEAKER_00: That it will.
14:16
SPEAKER_00: I still like that it's still important, and I think we have the availability and opportunity to one, manage positions, manage our risk, and reposition further out, too, like you said, with some of those higher premium months.
14:27
SPEAKER_00: So thank you for your time today, Luke.
14:29
SPEAKER_00: Everyone else, please click the link uh below.
14:32
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14:37
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14:38
SPEAKER_00: Uh, not a lot of you are subscribed.
14:40
SPEAKER_00: That would really help us out.
14:41
SPEAKER_00: Thank you for your time today, Luke.
14:43
SPEAKER_00: See you, Mike.
14:44
SPEAKER_00: Thanks.
14:44
SPEAKER_00: We'll see ya.