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Hog Talk: Fair Value · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Hog Market Talk Podcast with professional egg marketing.
• 0:05
  SPEAKER_01: Come here to get fresh updates on what's happening week to week within the Lean Hog Complex.
• 0:10
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_01: And remember to visit swineweb.com, an excellent resource for information in the pork industry, where you can also find this podcast.
• 0:25
  SPEAKER_01: This is your host, Mike Miner.
• 0:26
  SPEAKER_01: Let's cross.
• 0:27
  SPEAKER_01: Today is August 13th.
• 0:29
  SPEAKER_01: I've got Pat back with us here today.
• 0:30
  SPEAKER_01: How's it going, Pat?
• 0:32
  SPEAKER_00: I'm doing well.
• 0:33
  SPEAKER_00: How are you today, Mike?
• 0:34
  SPEAKER_01: We're doing really well.
• 0:35
  SPEAKER_01: It uh a lot of action already to start off our week, I guess.
• 0:38
  SPEAKER_01: Time's flying by, it's already Wednesday.
• 0:41
  SPEAKER_00: Indeed.
• 0:42
  SPEAKER_00: Yeah, we uh had a uh monthly supply and demand report that came out yesterday on on uh the the grain side of things, and uh certainly uh caught uh this market a little bit by surprise, didn't it, Mike?
• 0:56
  SPEAKER_01: To say the least here, it uh it probably could have been worse, I would argue, but the USDA was at a 181 yield in July for corn, and yesterday they came out at 188.8 pat.
• 1:08
  SPEAKER_01: So a very large increase there.
• 1:11
  SPEAKER_01: They also increased acres on corn 2.1 million acres on planted as well.
• 1:16
  SPEAKER_01: So ending stocks came in at 2.1 billion bushels.
• 1:21
  SPEAKER_01: Uh sizable increase.
• 1:22
  SPEAKER_01: Just to put things into perspective, yesterday's increase in production was uh billion bushels.
• 1:28
  SPEAKER_00: That's incredible.
• 1:29
  SPEAKER_00: And that's the first time is in there.
• 1:31
  SPEAKER_00: They're using FSA data for the first time on the acreage side of things, right?
• 1:34
  SPEAKER_01: Mike, yep, acreage on the FSA and NAS was involved on the yield side, which was the first report that they were uh as well here.
• 1:42
  SPEAKER_00: So yeah, I mean the combination of of uh uh some stimulus payments and uh and a wide open spring certainly opened up the opportunity for some more acres.
• 1:52
  SPEAKER_00: And and so, you know, as we think about uh this uh uh expanded balance sheet uh on on the corn side of things, and by the way, it's uh you know at 2.1 billion uh projected ending stocks.
• 2:06
  SPEAKER_00: They did also increase usage.
• 2:08
  SPEAKER_00: Can you talk about that a little bit too, Mike?
• 2:10
  SPEAKER_01: Yeah, about half a mil uh half a billion bushels there.
• 2:14
  SPEAKER_01: So what they increased in production, they pretty much increased demand by half of it.
• 2:18
  SPEAKER_01: And some of it was in exports, they increased that 200 million bushels, they increased ethanol 100 million bushels, and then the rest came from the feed, seed, residual, all that stuff, basically.
• 2:30
  SPEAKER_00: So right, and so that's a pretty optimistic usage number, right?
• 2:33
  SPEAKER_00: And and so when we think about the the potential for that projected ending stocks number, and we're making all a whole bunch of assumptions here on the on the 13th of August.
• 2:45
  SPEAKER_00: We don't know the supply side uh for sure, of course, but but to make these uh relatively significant demand assumptions as well, I I think is is noteworthy.
• 2:56
  SPEAKER_00: And so um so we've seen the uh you know the futures market react the way I suppose one would expect.
• 3:03
  SPEAKER_00: Um, and we've also seen spreads widen here and and and basis widen as well, right, Mike?
• 3:09
  SPEAKER_01: Yeah, spreads are kind of telling the story that we're probably walking into a sizable crop nonetheless.
• 3:14
  SPEAKER_01: Whether we're gonna use it all at the end maybe doesn't matter quite as much to the spreads, but they're saying, you know, at harvest we're gonna have a heck of a lot of corn.
• 3:21
  SPEAKER_01: I'm gonna want it later on in the year, not right away.
• 3:24
  SPEAKER_01: So, I mean, to put things into perspective, uh DS-25 corn was 50 cents lower yesterday than D-26 corn.
• 3:31
  SPEAKER_01: I mean, that's a sizable spread between two crop years.
• 3:35
  SPEAKER_00: Right.
• 3:35
  SPEAKER_00: And so as we interact with our row crop producers, we have some um, you know, we we've we've been in this situation before as it relates to um you know the importance of of managing basis, managing spreads, managing carry, looking for opportunities to to make things work here.
• 3:54
  SPEAKER_00: And and uh, you know, we do also have some um uh government so support programs, some recent uh nice adjustments uh you know as it relates to uh PLC payments and those sorts of things, which also can be can be helpful, I think, from a real crop producer's perspective.
• 4:10
  SPEAKER_00: And I just say all of that from you know on this hog market uh podcast to to to talk just uh a little bit about what could potentially happen next.
• 4:19
  SPEAKER_00: And as you as you mentioned, uh you know, this will probably be the first time in a while, especially in the Western Corn Belt, where we see um enough of a supply-side push at harvest time to make a difference.
• 4:30
  SPEAKER_00: And and uh you know, we've already uh made some observations and and uh had some discussions with with folks already trying to put some old crop corn and uh into some some uh you know different uh you know bunker space and and those sorts of things.
• 4:47
  SPEAKER_00: And so we're already starting to try to tuck some corn away in anticipation of of a pretty good size harvest here.
• 4:52
  SPEAKER_00: And so from an end user's perspective, it's important that we uh A are aware and then B look for opportunities to try to take advantage of, frankly.
• 5:00
  SPEAKER_00: And and uh and uh the uh the the the primary uh uh focus in uh from an end user's perspective should be to try to get as much cash ownership around us as we can over the next 60 to 90 days.
• 5:13
  SPEAKER_00: And so we'll look to see how that works out uh you know as we go here.
• 5:17
  SPEAKER_00: But uh and and the last thing I'll just say about this this report, Mike, is is this is the number the USDA should have printed based upon their formula or based upon how they go about um determining uh yields in the month of August.
• 5:33
  SPEAKER_00: And and uh you know the combination of farmer surveys and and uh you know satellite imagery, vegetative maps uh um certainly should this year of any year um uh project or present the possibility of yields uh being four percent above trend.
• 5:50
  SPEAKER_00: And that's exactly what they demonstrated to us yesterday.
• 5:54
  SPEAKER_00: And and uh, you know, we we uh um just finished off our crop tour that you and and Jaden led last week and and uh your yields came in at just short of 185 or something.
• 6:06
  SPEAKER_00: And and uh, you know, the the the the interesting part about I guess the spread in terms of what's going on this year on on yields is is going to end up being all about just how incredibly consistent that this crop has the potential to be.
• 6:24
  SPEAKER_00: And and so it doesn't really matter.
• 6:27
  SPEAKER_00: I I I think you know, where where you sort of pop into a field, you can find some pretty good some pretty good yield potential there, just just consistency from one soil type to another, and then all across the corn belt is is something that uh we haven't seen much of in the past.
• 6:43
  SPEAKER_00: And so there's gonna be enough uncertainty, I think, about what the yield potential is in this market to sort of keep a little bit of volatility in here, but nonetheless, we're certainly uh um are in a situation today where the stock situation should be pretty comfortable.
• 6:59
  SPEAKER_01: And on the soybean side there, Pat, heck of a rally here.
• 7:02
  SPEAKER_01: I mean, we uh we were at 980-ish on November soybeans a couple days ago, and now we're uh we're approaching that nine and or ten and a half dollar range.
• 7:10
  SPEAKER_01: So uh we dropped acres to 80 million on uh soybeans, yield was just up to 53.6, which is top end of the range, but nothing crazy.
• 7:19
  SPEAKER_01: Uh we actually dropped uh inning stocks about 20 million bushels month over month there, but that soybean market has liked it.
• 7:27
  SPEAKER_01: Now uh I I would argue on the soybeans at least.
• 7:29
  SPEAKER_01: We're kind of at the point where it's like, okay, does this fundamental change push us higher, or do we just check that mark that we filled the gap here at this and some major resistance lines?
• 7:38
  SPEAKER_01: Uh, you know, this is very familiar territory for the soybean market.
• 7:42
  SPEAKER_01: We've been at ten and a half dollars for what seems like a full year now.
• 7:46
  SPEAKER_00: Yeah, exactly.
• 7:47
  SPEAKER_00: And I and I would uh it might be it might be just one more chance for the soybean producer to get some hedges off here, right?
• 7:54
  SPEAKER_00: That that's one possibility and and uh um something we we certainly are in in engaging uh you know with our guys and having conversations about.
• 8:04
  SPEAKER_00: But from an end user's perspective and and a meal value, hopefully we've been kind of building a little bit of along all the way through here as as we've been crushing pegs.
• 8:13
  SPEAKER_00: But you know, still just from a relatively historic perspective, at least the meal side of the leg still is quite attractive, frankly, and and and given the margin opportunity is certainly something we need to continue to take a look at.
• 8:23
  SPEAKER_00: And I uh and you know, just uh from the bean market's perspective, it is a little different situation, certainly a little bit tighter um projected ending stock situation, but but um but also comfortable, right?
• 8:38
  SPEAKER_00: I mean, there really isn't too much to get too concerned about here, and and and certainly we we think more about August weather impacting soybean production and and uh yeah, we're getting a little bit more heat now, but certainly nothing out of the ordinary.
• 8:50
  SPEAKER_01: Yeah, especially if China's not gonna buy any soybeans latest ever that they've never bought any.
• 8:54
  SPEAKER_00: Well, a whole nother discussion.
• 8:56
  SPEAKER_00: And and uh I I part of the reason why they don't have any m maybe the main reason why they don't have anything on the books is because of what we just have been talking about.
• 9:05
  SPEAKER_00: Like we there really hasn't been any any weather forecast the whole growing season that that has has prompted anyone to be incredibly concerned about needing to protect um you know b because of production concerns.
• 9:19
  SPEAKER_00: And that coupled with, you know, if they don't have any beans on the books, if they want to use that as a as a lever to pull the negotiations with with uh Trump, they certainly can do that and start buying some beans they're gonna buy anyway, and and uh you know use that as part of the trade negotiations.
• 9:34
  SPEAKER_00: So we'll see how that turns out too.
• 9:36
  SPEAKER_00: Likely we'll get some good news on that front uh um at some point, I would I would imagine.
• 9:42
  SPEAKER_00: Um But uh again, sort of the backdrop of all of that is a is a relatively comfortable balance sheet situation.
• 9:48
  SPEAKER_01: When I look at the hog market here, you know, the December futures, for example, been very neutral lately.
• 9:53
  SPEAKER_01: It's kind of been a snoozer, hasn't it?
• 9:55
  SPEAKER_00: Yeah, a little bit.
• 9:56
  SPEAKER_00: I I think the the the the most interesting part about the hog market is is uh I mean I gotta squint just a little bit to to declare this, but we've had uh you know a a little bit of an uncommon double top this summer, right?
• 10:11
  SPEAKER_00: It it's uh it's a little bit strange for us to you know to to peak the index and cutout in June, have a modest or or normal sort of a correction or or a regression in in values as we went through the 4th of July and through the month of July.
• 10:31
  SPEAKER_00: And now here in August, really a nice rebound.
• 10:34
  SPEAKER_00: And you know, last night's cutout pret notwithstanding down four bucks or so.
• 10:39
  SPEAKER_00: But you know, we've rallied cut out pretty nicely here, you know, back in in the month of August.
• 10:44
  SPEAKER_00: The index has has uh has followed along there, and so it's it's kind of nice to have a uh however you want to categorize that, a double top or or just a sustained higher values, quote unquote, as we go go through the summer summer here.
• 11:00
  SPEAKER_00: And and now we're you know, we're we're on the brink of you know that seasonal increase in supplies.
• 11:07
  SPEAKER_00: Yesterday's break and cutout might be the beginning of of that seasonal deterioration, or just might be uh a challenging one-day print.
• 11:16
  SPEAKER_00: But you know, either way, um it's uh to to have a kind of a sustained summer of of relative high values, especially relative to input cost here, has been um something that uh the hog market uh has needed for a while and and it's and has been uh has been it's been welcome for sure.
• 11:34
  SPEAKER_00: Uh to your point as it relates to Q4 here and December opportunity, you know, December's is has hung in there you know pretty good.
• 11:42
  SPEAKER_00: And you know, one other observation I would just make over the last five weeks here, you know, the harvest rates uh you know on hogs have been down about two and a half percent relative to a year ago, and five weeks is long enough to to suggest that there's that there there's potentially something adjusting a little bit from an underlying available supply.
• 12:02
  SPEAKER_00: And would argue that it's not a situation where extreme heat or something like that is has been has been pushing marketings back.
• 12:10
  SPEAKER_00: I I think performance has been average or slightly above average as it relates to just just weather versus performance this summer.
• 12:18
  SPEAKER_00: And so we don't think pigs are getting backed up too much here, and harvest rates are still down two and a half percent.
• 12:24
  SPEAKER_00: So so maybe you know the first uh the first top this summer was more about demand, and and the second little rally here this summer might be a little bit more about supply.
• 12:35
  SPEAKER_00: And and so you know, we'll see what happens here as in when we we as we get into our seasonal increase in terms of how much that is, but you know, for the supply side of the equation looks pretty supportive.
• 12:47
  SPEAKER_00: The demand side continues to look pretty supportive.
• 12:50
  SPEAKER_00: Export data that that came out here recently was just a little bit better than expected to, and and so all of the uncertainty as it relates to trade and Trump and tariffs and all those sorts of things is has caused a little bit of challenges on the export side, but but it seems to have calmed just a little bit here lately, and and uh we've seen a little bit better trade as a result.
• 13:11
  SPEAKER_00: And so um, so yeah, I I think that's the right way to to to say what you said, Mike, which is you know the you know December December hogs, December forward crush opportunity um has remained pretty consistent at some historically good values, and and uh and the the you know the longer that we can hold those opportunities uh you know into late summer, you know, early fall is certainly a good thing for the industry.
• 13:37
  SPEAKER_00: So, so you know, everything looks good at this point.
• 13:40
  SPEAKER_00: I would just the the other just domestically, um, you know, protein demand um seems to be pretty good.
• 13:47
  SPEAKER_00: There's an underlying factor going on there that I find interesting.
• 13:51
  SPEAKER_00: I you know, some combination of of improved uh disposable income or wage increases coupled with enough uncertainty in the economy where where where consumers aren't making big ticket purchases, I I think is is allowing for a little better cash flow per s per household.
• 14:09
  SPEAKER_00: And I I I would continue to make and and uh that that has to be the reason why uh you know when you have the tightest beef supplies in seventy-five years or something that it that that product keeps moving at elevated levels, and I and and generally uh uh both uh poultry and pork are benefiting from that.
• 14:29
  SPEAKER_00: And so, you know, we'll see how that goes as we go here.
• 14:32
  SPEAKER_00: We did have, I don't know, just maybe Mike, you should make just a real quick comment on on uh on on Fed and and interest rates from this week too, and then and we can wrap this deal up.
• 14:42
  SPEAKER_01: Yeah, so I mean in general here we had the CPI report on inflation come out yesterday, very close to expectations, but i after all of that being said and the consumer sentiment reports yesterday, the Fed is expected at a 90% chance to drop 25 basis points in the September meeting, which I thought was pretty aggressive.
• 15:02
  SPEAKER_01: I like if you had asked me a month ago, I would have been pretty surprised if it was that high.
• 15:06
  SPEAKER_01: So given some of the recent economic data, um you know, we're seeing a little bit more of a push that we probably should see at least a couple interest rate cuts towards the end of this year.
• 15:16
  SPEAKER_01: We've moved closer towards probably three cuts, it looks like now.
• 15:20
  SPEAKER_01: So given that, this uh SP 500's almost at last I checked uh$6,500, which you know JP Morgan, all these folks had talked about like if we get there by the end of the year, that'd be a pretty good year.
• 15:32
  SPEAKER_01: And it's August, Pat.
• 15:33
  SPEAKER_01: So I mean that we blew that out of the water pretty well, which uh if that has any uh, you know, yeah, it like you said yesterday, if my SP or my 401k is up high, I can go buy a stake or whatever, you know.
• 15:44
  SPEAKER_01: So evidently.
• 15:46
  SPEAKER_01: But yeah, that's kind of how we're looking on the equities at least.
• 15:49
  SPEAKER_01: And uh you've seen massive just from a generic standpoint, people are really short in the US dollar still, and this the stance is really strong there.
• 15:58
  SPEAKER_01: Uh buying the stock market, and then even uh, you know, some of these other trades like long gold, just in case kind of a deal.
• 16:04
  SPEAKER_01: We've seen a lot of action there with some tariff activity lately.
• 16:07
  SPEAKER_01: But one last thing, you talked about uh, you know, the the consumers and what they're yeah, I met with a leadership team of Bayer a couple weeks ago, and the lady, one of the ladies was from Greece, and I asked her, like, how do we eat here compared to over there?
• 16:21
  SPEAKER_01: And what do you see the differences of?
• 16:23
  SPEAKER_01: And she's like, the main one was dairy products, particularly cheese.
• 16:27
  SPEAKER_01: Americans actually don't eat a ton of cheese, but over in Europe and Greece specifically, they're like, we eat a lot of cheese compared to the American consumer.
• 16:35
  SPEAKER_01: So if there's an area that we could grow in there, that was one of them, she thought.
• 16:40
  SPEAKER_01: You were recently traveling, Pat.
• 16:42
  SPEAKER_01: What was something you noticed?
• 16:43
  SPEAKER_00: Yeah, we just uh um got back from a trip in into Germany and and I and and one of the things amongst amongst many others, but uh um just the uh the the uh the propensity for you know that that culture over there to you know utilize more pork products relative to uh you know poultry here in the US.
• 17:04
  SPEAKER_00: And so um yeah, it's it is interesting to see the different uh the different ways that the folks consume different proteins.
• 17:11
  SPEAKER_00: And from a pork producer's perspective, it's uh it was interesting to see that uh you know how how more highly utilized uh pork products are in in that market as well.
• 17:21
  SPEAKER_01: All right.
• 17:22
  SPEAKER_01: Well, and thank you to all our listeners.
• 17:24
  SPEAKER_01: Please reach out to us at professional eggmarketing.com.
• 17:27
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 17:32
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 17:39
  SPEAKER_01: See ya next time.