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Lean Hog Selloff · 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 August 19th, and I've got Pat back with us here this week.
• 0:27
  SPEAKER_01: How's it going, Pat?
• 0:28
  SPEAKER_00: Good afternoon, Mike.
• 0:30
  SPEAKER_00: Welcome back to the podcast room.
• 0:31
  SPEAKER_00: How's Dakota Fest?
• 0:33
  SPEAKER_01: It was really good this year.
• 0:34
  SPEAKER_01: It was not hot and windy like last year and dusty, so it was nice, kind of rained a little bit before the show started there on Monday.
• 0:41
  SPEAKER_01: So uh it was perfect conditions, great weather, and started to see some people come back, but I some of the vendors still aren't making their way back yet.
• 0:49
  SPEAKER_01: We've seen um seen that pull back a little bit over the past few years.
• 0:53
  SPEAKER_00: Pretty good participation uh turnout though.
• 0:56
  SPEAKER_00: We had uh pretty good traffic, I think.
• 0:59
  SPEAKER_01: Even on Thursday, which is usually a pretty slow day.
• 1:01
  SPEAKER_00: Yeah, and uh the crops look pr pretty good going that direction as well, I thought.
• 1:05
  SPEAKER_01: Yeah, they were better than I thought they'd be.
• 1:07
  SPEAKER_01: I know there's some spots you don't gotta get too far away from the interstate to find some spotty stuff, but you can definitely make that trip out there some years and see some a lot of brown by this time of the year.
• 1:18
  SPEAKER_00: Yeah, no question about it.
• 1:19
  SPEAKER_00: And uh and to your point, uh there's uh a lot of times where it's uh uh pretty hot out there too, so it was uh a pleasant week for sure.
• 1:27
  SPEAKER_01: Yeah, but speaking this time of the year, Pat, uh as we kind of just dive into these markets, we saw the uh soybean market continue to have some risk off this week.
• 1:37
  SPEAKER_01: We saw the November actually take off 50 cents this week again and uh on the soybeans.
• 1:43
  SPEAKER_01: We've seen uh a little bit off the corn, about 19 cents off the corn market.
• 1:48
  SPEAKER_01: So these grains have started to pull back a little bit again.
• 1:51
  SPEAKER_01: Just uh more of a seasonal observation there as we've started to get some rains for the soybeans here as a decent crop is really developing.
• 1:59
  SPEAKER_01: The USDA thinks we have a really big crop out there, largest ever actually.
• 2:04
  SPEAKER_01: Um what do you think about uh the grain markets here this week and uh some of the activities we've seen?
• 2:10
  SPEAKER_00: Yeah, you know, I I mean it it does make sense, I suppose, that uh, you know, with the with beneficial moisture for this week in particular, uh likely does benefit uh soybean production uh more than corn.
• 2:24
  SPEAKER_00: Um and I so I agree with uh the sentiment of the USDA and your observation as it relates to uh uh raising yields uh last Friday on soybeans.
• 2:33
  SPEAKER_00: On the corn side of things, the last time that I've had a chance to talk about this, uh I've been sort of an advocate for the potential for this crop this year is better than a year ago, and it might be something closer to you know 180 versus 175.
• 2:49
  SPEAKER_00: But uh, you know, the results of the tour that you did uh a couple weeks ago uh was substantiated or held up by what the USDA told us last Friday, and a lot of other private analyst estimates.
• 3:01
  SPEAKER_00: And so, you know, it's becoming um, I guess increasingly uh clear that this crop is pretty similar to a year ago in terms of national yield.
• 3:12
  SPEAKER_00: There'll be some geographical differences and challenges, but uh you know, they probably are getting comfortable with this idea that uh you know 176, 177, 178 somewhere in there is probably the right number on the corn side of things.
• 3:25
  SPEAKER_01: And as we go into next week, we've got the Pro Farmer Tour that'll come out, so that'll get some headlines coming across the grain markets if you want to keep uh getting some info on some yield estimates going forward.
• 3:36
  SPEAKER_01: But uh most people find that quite interesting.
• 3:39
  SPEAKER_01: Uh something to look at going forward next week.
• 3:42
  SPEAKER_01: And then on the uh energy markets, those have been really active as well, Pat.
• 3:46
  SPEAKER_01: We've seen some liquidation on that front lately.
• 3:48
  SPEAKER_01: Did see a little bit of support towards the end of the week, kind of got crude oil back up to 90 bucks.
• 3:53
  SPEAKER_01: But just a I'm gonna use it as a macro observation of you know, a crude oil pulled below$87 for the first time since January 25th this week.
• 4:02
  SPEAKER_01: So it's been a while since we were back to this level, and a lot of talk before uh when we were in the 120 type range was well, if we get a recession, we'll pull back to 80 bucks on crude oil, was one specific headline I remember.
• 4:15
  SPEAKER_01: And we've almost got back there, and one could argue, depending on your economist today, we're maybe in a recession, maybe not.
• 4:22
  SPEAKER_01: But it seems this could probably get a little bit worse.
• 4:25
  SPEAKER_01: But I think I want to look at it from just a money flow perspective.
• 4:29
  SPEAKER_01: Money's kind of been out of the way uh getting out of commodities here over the past uh few months, whether it's corn or soybeans or crude oil.
• 4:37
  SPEAKER_01: Um, and I wanted to use that just to see if you've caught on to any of that lately.
• 4:42
  SPEAKER_00: Yeah, I think it's a it's an interesting discussion.
• 4:44
  SPEAKER_00: And last week's uh uh inflation data that came out that we didn't raise inflation for another month in a row there, um, did create the possibility or at least for a lot of traders to to uh uh at least create the the opportunity in our minds to believe that we could have a soft landing here.
• 5:03
  SPEAKER_00: Maybe the Fed does get it right, maybe um we are able to slow the rate of inflation, increase, and at the same time not cause a recession, depending on how you want to measure recessions, right?
• 5:17
  SPEAKER_00: And so um I would have guessed that maybe as a result of that you might have been able to find a little bit better bottom in crude oil, or or uh maybe you'd start to get a little bit more of a risk on sort of an attitude approach as it relates to some of these commodities.
• 5:32
  SPEAKER_00: And we haven't seen much of that yet, you know, week over week, and probably because a whole lot of question marks about that.
• 5:40
  SPEAKER_00: Like this discussion debate that we're having is is uh uh uh is is the same discussion and debate that's happening uh in in investing shops all over the country and the world.
• 5:51
  SPEAKER_00: And so I I think that's probably right.
• 5:53
  SPEAKER_00: Most people want to um try to buy just a little bit of time here and see you know, maybe what next month data says in terms of inflation.
• 6:01
  SPEAKER_00: Maybe let's get some more uh earnings reports or economic activity reports and see if we can can try to get a little bit better gauge for how the Fed is doing in terms of trying to create that soft landing uh uh coming out of uh uh a significant uh inflation period.
• 6:16
  SPEAKER_01: Hopefully it's soft anyways.
• 6:18
  SPEAKER_01: Let's get on to the uh lean hog market.
• 6:21
  SPEAKER_01: This is gonna be our main talk today.
• 6:22
  SPEAKER_01: I want to see what you think from that market after a rough little go here, Pat.
• 6:27
  SPEAKER_01: What have you seen in that lately?
• 6:28
  SPEAKER_00: Yeah, so the market sold off hard this week, as you mentioned, and and uh it was already trading a significant discount uh to spot fundamentals or or to the index here.
• 6:39
  SPEAKER_00: And so, you know, we are getting to the time of year where you would expect uh those kind of, you know, we expect sort of a sell-off um uh this time of year anyway.
• 6:48
  SPEAKER_00: And we have seen some softer product values, we have seen a little bit softer cash.
• 6:53
  SPEAKER_00: I think, but the futures market is anticipating a pretty significant break once we get into a few more few more hogs, probably after Labor Day.
• 7:01
  SPEAKER_00: And so the lead month is now October, doesn't need to reconcile with the index until the 10th business day of October.
• 7:07
  SPEAKER_00: And so we've got quite a bit of time here where this futures market can do what futures markets do and not be so concerned about about spot fundamentals.
• 7:16
  SPEAKER_00: And so uh I think a lot of what we've saw this week was just that some trading activity, uh liquidation of some of some uh uh long positions.
• 7:27
  SPEAKER_00: But on a go-forward basis here, I do uh I guess I do respect the the the discount that the futures market is showing us today.
• 7:35
  SPEAKER_00: I do think that uh once we get into higher pork supplies after Labor Day, that's uh uh uh you know a$125 cutout's pretty fragile.
• 7:44
  SPEAKER_00: Like it's it's pretty hard, I think, to hold those levels once you start getting into some additional supply.
• 7:50
  SPEAKER_00: So I I think that'll soften up cutout uh fairly significantly as we get into some more pigs.
• 7:55
  SPEAKER_00: And then this cash market is it's just a house of cards.
• 7:58
  SPEAKER_00: I mean, it's uh uh you know inelasticity is the name of the game there, and and uh um you know we've been able to print some some very high cash numbers really for the last uh month or so in particular, but quite a bit all summer long.
• 8:14
  SPEAKER_00: And and uh I don't think that holds either.
• 8:16
  SPEAKER_00: I think as we get into a few more pigs after Labor Day here, why this packers gonna be in a little bit different spot and and probably is not gonna have to push so hard in the cash market.
• 8:26
  SPEAKER_01: With that being said, Pat, you talked about how upfront cash fundamentals, we have quite a bit of time until that October has to kind of come together with that.
• 8:34
  SPEAKER_01: Could that create quite a bit of volatility until we do get further closer to that um typically it does.
• 8:41
  SPEAKER_00: I mean you start to see, well, you start to see uh uh October to reconcile a little bit closer to what's going on in the cash market, but not until the middle of September.
• 8:49
  SPEAKER_00: So you have two or three weeks here where it can be pretty volatile.
• 8:52
  SPEAKER_01: So something to watch out for, anyways, going forward.
• 8:54
  SPEAKER_01: Anything else on the on the hog market?
• 8:56
  SPEAKER_00: Yeah, I would just mention that uh I mean we did today's activity in particular was interesting.
• 9:01
  SPEAKER_00: We had lower markets and uh narrowing of spreads.
• 9:04
  SPEAKER_00: And so, you know, we had uh um, especially the deceas forward ones.
• 9:08
  SPEAKER_00: So that's something to keep an eye on as well.
• 9:09
  SPEAKER_00: That's a little bit different market action than what we had uh experienced over the last week or so.
• 9:15
  SPEAKER_00: So uh was certainly certainly something I want to keep an eye on there.
• 9:18
  SPEAKER_00: And then just a little bit more bigger picture of macro as it relates to proteins.
• 9:22
  SPEAKER_00: Um, you know, we still would make the observation that longer term, first of all, um you know, there's there's no question that operating companies, production companies in China have experienced significantly, significant losses over the last year, year and a half.
• 9:36
  SPEAKER_00: Um, as a consequence to that, there's been some liquidation of breeding stock over there, corresponding rise in pork values and pork prices.
• 9:44
  SPEAKER_00: And so um, you know, the U.S.
• 9:46
  SPEAKER_00: is a little better positioned for for exports as it relates to that.
• 9:50
  SPEAKER_00: We do have headwinds, geopolitical and currency, that that needs to be factored in there.
• 9:55
  SPEAKER_00: But uh, you know, we are in a little bit better position.
• 9:57
  SPEAKER_00: The Europeans uh aren't in expansion mode.
• 10:00
  SPEAKER_00: We're not in expansion mode here in North America.
• 10:02
  SPEAKER_00: So the supply side of all proteins is favorable for producers.
• 10:07
  SPEAKER_00: Um, and so that's a nice tailwind for us and should be supportive uh generally going forward here.
• 10:12
  SPEAKER_00: Um this discussion that we're having as it relates to economic activity and the corresponding impact that has on protein demand is the is the whole key to this thing.
• 10:22
  SPEAKER_00: So for all you guys out there that uh uh we haven't had the opportunity to engage with recently, we should look forward to that opportunity.
• 10:29
  SPEAKER_00: Don't hesitate to give us a call.
• 10:31
  SPEAKER_00: But there's been some real uh real good opportunities from a forward uh curve, a forward uh uh margin perspective.
• 10:38
  SPEAKER_00: And so would encourage everyone to to take a quick look at that before we get too much uh to get too much closer to the end of the month here and into uh uh kind of that post-Labor Day uh additional supply, traditionally weaker markets.
• 10:53
  SPEAKER_01: Well, one of the areas we could do that, get together at Pat is tomorrow night's Ag Farmer Appreciation Day here in Laverne at Take 16.
• 11:01
  SPEAKER_01: Five o'clock start, expecting a big crowd, a lot of sponsors uh looking to get in on that.
• 11:07
  SPEAKER_01: So please uh if you're around, feel free to stop over at that Pat.
• 11:11
  SPEAKER_00: We sure wouldn't mind uh having to use our umbrellas, right, Mike?
• 11:14
  SPEAKER_01: That is for certain.
• 11:15
  SPEAKER_01: We're getting a little bit of rain here this afternoon in this uh southeastern South Dakota, southwestern Minnesota.
• 11:21
  SPEAKER_01: So much appreciated for the local area.
• 11:24
  SPEAKER_01: And thank you to all our listeners.
• 11:26
  SPEAKER_01: Please reach out to us from our website at professionalagmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 11:38
  SPEAKER_01: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.