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Cattle: Policy Driven · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_01: Welcome to the Cattle Market Talk Podcast with Professional Ag Marketing.
• 0:04
  SPEAKER_01: Come here to get your fresh updates on what's happening week to week within the cattle market.
• 0:09
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:15
  SPEAKER_01: Today is November 14th.
• 0:18
  SPEAKER_01: I've got Jeff here with us today.
• 0:19
  SPEAKER_01: How's it going, Jeff?
• 0:21
  SPEAKER_00: It's going good, Mike.
• 0:22
  SPEAKER_00: I just uh started thinking about this as you fired us up here.
• 0:27
  SPEAKER_00: We had a big week in the cattle.
• 0:30
  SPEAKER_00: Did a lot of things, but I think we ended up basically not going anywhere.
• 0:35
  SPEAKER_01: It's an impressive feat this week, given not just how or what direction we traded, but how many different items we traded.
• 0:44
  SPEAKER_01: I didn't even know where to start today when we were talking about this before the podcast.
• 0:47
  SPEAKER_01: I'm like, all right, Jeff, time for the cattle podcast.
• 0:49
  SPEAKER_01: And you're like, gosh, what even happened this week?
• 0:52
  SPEAKER_01: And it's more like we should ask the question what didn't get traded.
• 0:58
  SPEAKER_00: I mean, cattle went up, cattle went down, lots of news.
• 1:00
  SPEAKER_01: So let's talk about.
• 1:02
  SPEAKER_01: So you talked about we really didn't go anywhere through the week, but we were big limit moves, multiple days in trading sessions here this week.
• 1:09
  SPEAKER_01: Can we talk about a few of those reasons why?
• 1:12
  SPEAKER_00: Yeah, I think we can start with that.
• 1:15
  SPEAKER_00: And just a quick start off, um, you know, like the December cattle here closing at 219 uh and some change, you know, last Friday we closed at like 220, um, but you know, similar trading range.
• 1:29
  SPEAKER_00: We did put a lower low in today.
• 1:31
  SPEAKER_00: We'll hit on that here in a minute, too.
• 1:33
  SPEAKER_00: But you know, to start off the week, so as we went home last week, um, I think it was sometime Friday afternoon or evening, it was the DOJ's going to investigate the beef packers that was out on social media.
• 1:48
  SPEAKER_00: Um, we're not sure if that had any huge impact um on the markets, but you know, Monday was uh the limit up day um right out of the gate there on on Monday.
• 2:00
  SPEAKER_00: And we had quite a few things that felt like that was going on that day, so it's a little bit hard to pinpoint really what was important.
• 2:08
  SPEAKER_00: I you know, the the the concept on the DOJ thing, which um again we're we're not putting a lot of emphasis on by any stretch, but you know, we'll will Packers respect um that type of an investigation.
• 2:20
  SPEAKER_00: Will they maybe move the kills just a little bit higher and keep the cash price a little bit higher?
• 2:25
  SPEAKER_00: I think that was part of the thought process.
• 2:28
  SPEAKER_00: Um I don't want to go on record as saying that's gonna that's our position on the topic or anything, but you know, just interesting to think about a little bit.
• 2:36
  SPEAKER_00: Um we also had a lot of things going on, just a ton of optimism on Monday.
• 2:43
  SPEAKER_00: Um, you know, a government was it was getting priced into the marketplace.
• 2:47
  SPEAKER_00: The government didn't reopen until Wednesday, was it, Mike?
• 2:50
  SPEAKER_00: Wednesday or Thursday.
• 2:52
  SPEAKER_00: So, I mean, but that was getting priced in on Monday.
• 2:55
  SPEAKER_00: Um, just the thought that we're gonna get the uh food stamp benefits out here this week and get some more money flowing.
• 3:03
  SPEAKER_00: Um it just the the big time money wanted into the cattle market real bad.
• 3:09
  SPEAKER_00: They wanted into the hog market real bad, just really kind of commonplace uh money movement type of showing there on on Monday to push us higher.
• 3:21
  SPEAKER_00: And then, of course, as we went through the week, um you know, that excitement kind of wore off a bit, of course, especially in the hogs, by the way.
• 3:29
  SPEAKER_00: Um, you know, those deferred hogs were four bucks even limit higher um on Monday and and you know the rest of the week they've traded significantly lower.
• 3:40
  SPEAKER_00: That's a good example of you know money maybe getting a little bit less interested in proteins here.
• 3:44
  SPEAKER_00: But yeah, we started to have some more talk about um Rollins down in Mexico um talking about opening up the border.
• 3:54
  SPEAKER_00: We had uh Trump talking about how beef was too expensive, of course, some more this week, and then um most recently here the Brazilian tariff news, Mike.
• 4:05
  SPEAKER_01: So the fundamentals remain supportive for cattle right up front, right?
• 4:11
  SPEAKER_00: That that might be a little bit on the disappointing side.
• 4:15
  SPEAKER_01: But you're still tight supplies and demands pretty decent.
• 4:17
  SPEAKER_01: Big picture.
• 4:18
  SPEAKER_01: The structural backdrop is friendly to the cattle market.
• 4:21
  SPEAKER_00: Um meat prices are doing pretty good.
• 4:24
  SPEAKER_00: Um I was disappointed in the cash this week a little, but it's a little it was hard to recognize okay, is it kind of happening at the same time as far as the board being way lower and us trading some cash cattle.
• 4:37
  SPEAKER_01: But the large week-to-week volatility, and this is where I'm getting back to your Brazil question, is that market sentiment, whether it's uh yeah, pol it's mainly policy at this point.
• 4:50
  SPEAKER_01: Anything to do with policy uh is influencing this market in very short-term giant moves.
• 4:56
  SPEAKER_01: And this week, Brazil happened to find its way into that in the back half of the week.
• 5:01
  SPEAKER_01: Earlier here, about Wednesday, uh on the 12th, I believe, it was reported that uh Bessent came out and said that we are gonna work on trade deals with countries that we buy stuff from that we can't grow.
• 5:13
  SPEAKER_01: The perfect example of this is coffee.
• 5:15
  SPEAKER_01: We don't grow any coffee in the United States.
• 5:17
  SPEAKER_01: Bananas.
• 5:18
  SPEAKER_01: We don't grow any bananas in the United States.
• 5:20
  SPEAKER_01: We have to buy it all.
• 5:21
  SPEAKER_01: The countries that send that to us is what we're gonna work trade deals on.
• 5:25
  SPEAKER_01: The country that was implicated in that four country set that they talked about was Brazil, because that influenced the cattle market because why we but we were figuring that beef would get tailored into that deal if we work a trade deal out with Brazil anyways on coffee, bananas, whatever.
• 5:41
  SPEAKER_01: The problem was they released those four countries this morning, and it was Argentina, El Salvador, Ecuador, and Guatemala.
• 5:49
  SPEAKER_01: So no Brazil in that in that release.
• 5:52
  SPEAKER_01: So after opening up nine dollars or so lower on feeder cattle this morning, the market ended up trading green by the end of the day up two bucks or so across the board.
• 6:02
  SPEAKER_01: A massive swing in events.
• 6:04
  SPEAKER_01: To top on to put on top of that, you the I I do believe fund money flow uh very interesting momentum shifts as well, because earlier today at the time frame that cattle was down near$9 on feeder cattle, the equities, the SP 500, was also down 80 points at that point.
• 6:23
  SPEAKER_01: The equities, the SP 500, quickly rallied back up 20 points as well, a hundred-point shift in in the equities, which if you don't follow that market, it was a massive day.
• 6:32
  SPEAKER_01: That that's a huge trading range.
• 6:34
  SPEAKER_01: But they both bounced back at the same time.
• 6:37
  SPEAKER_01: So I think that money flow was finding a way back into the equity market there at the same time as cattle.
• 6:43
  SPEAKER_01: Um, it was more of a risk on going into the weekend is the way I took that news.
• 6:48
  SPEAKER_01: Earlier in the week, it has been very, very aggressive money flow trading.
• 6:53
  SPEAKER_01: You saw gold, equities, soybeans, cattle, all of those were getting influenced heavily on the s on the same days.
• 7:01
  SPEAKER_01: The days it was quiet, it was quiet on everything.
• 7:05
  SPEAKER_01: I think that just money flow in general is choosing risk on, risk off that day.
• 7:10
  SPEAKER_01: And a lot of it has been policy driven, if I had to argue.
• 7:13
  SPEAKER_01: The days it's quiet, I feel like we creep back in and say, well, nothing's changed yet, and the cattle market is still pretty friendly, you know, supply's not there, we don't have any trade deals to import a bunch of beef yet.
• 7:24
  SPEAKER_01: And by the way, Mexico's not importing any feeder cattle yet.
• 7:27
  SPEAKER_00: Right.
• 7:27
  SPEAKER_00: No, I think that's probably right.
• 7:28
  SPEAKER_01: So if I had if I had to sum it up, that's pretty much it.
• 7:32
  SPEAKER_00: Another way of saying the same thing is like no news is probably somewhat bullish to the cattle market from these price levels.
• 7:40
  SPEAKER_00: Um and short term, I would uh I would all in it from our in our opinions at least, uh seems like that'd be a short-term observation, bigger picture fundamentals that we think will get weaker um you know later into this year.
• 7:53
  SPEAKER_00: But in the cash front, the last two weeks, um a lot of cattle trading up here at a little bit of a discount to the south, and those cattle are head heading south.
• 8:04
  SPEAKER_00: Um, you know, all that's pretty optimistic.
• 8:08
  SPEAKER_01: That's interesting.
• 8:08
  SPEAKER_01: Move that and we're not used to that, right?
• 8:10
  SPEAKER_01: Sending cattle from the north to the south like that.
• 8:12
  SPEAKER_00: It happens maybe a little this time of year, it happens just a little bit um most of the time, but nothing to the extent that we've seen, you know, in the past two weeks here.
• 8:22
  SPEAKER_01: Seems like a little uptick in slaughter lately, Jeff.
• 8:25
  SPEAKER_01: Do you think that has to do with packer margins improving here a little bit with the drop in cash, or what would you give that reasoning?
• 8:30
  SPEAKER_00: Yeah, I think I think so there's a little bit of a seasonal trend to that also.
• 8:34
  SPEAKER_00: Um, and it's one of the reasons we keep asking ourselves about the Department of Justice thing.
• 8:40
  SPEAKER_00: Like, you know, it seems like packers are more willing to kill some cattle um than maybe what they should be.
• 8:45
  SPEAKER_00: But packer margins are better than what they were, you know, three weeks ago, four weeks ago, quite a bit better than that.
• 8:53
  SPEAKER_00: But still, isn't a jolly old time by any means for them.
• 8:57
  SPEAKER_00: It it looks like they're in a pretty tough spot.
• 8:59
  SPEAKER_01: At a time of the year where they should have their best margins of the year, basically, right?
• 9:03
  SPEAKER_00: Yep, that's very fair.
• 9:04
  SPEAKER_00: Yep.
• 9:05
  SPEAKER_00: There should be a pretty good supply of cattle.
• 9:07
  SPEAKER_00: Obviously, that's uh a lot different this year than it has been in past years.
• 9:11
  SPEAKER_00: So I'm not sure if they're just you know thinking they better ramp up a little bit to get some holiday beef business.
• 9:18
  SPEAKER_00: Um, get some supply underneath their belt, or if there's kind of a broader reason to it.
• 9:23
  SPEAKER_00: But at any rate, you know, we've been running super low kills, like a lot of weeks that were seven to eight percent lower than the last year for that week.
• 9:33
  SPEAKER_00: Um, this week looks like it's gonna be closer into that, like three percent lower than last year.
• 9:39
  SPEAKER_00: So narrowing the gap, there's some still three percent lower on supply, mic is a fairly big number.
• 9:46
  SPEAKER_01: And it looks like we could retain some heifers based on the drought data, and and it's maybe very, very slow, but it looks like if we're gonna start to rebuild the herd, now is a pretty good time to start.
• 9:57
  SPEAKER_00: Yep.
• 9:57
  SPEAKER_00: I think there's some decent feed out there.
• 9:59
  SPEAKER_00: Obviously, the financial uh motivation is there from what calves are worth.
• 10:04
  SPEAKER_00: Uh, we always have the back and forth of you know, gotta give up a heifer revenue to to get the next calf.
• 10:10
  SPEAKER_00: That's a difficult decision, but um, yeah, that's a debate.
• 10:14
  SPEAKER_00: We will get a uh report, the inventory report, but that doesn't come until the end of January, so that's a ways out for as far as any information from the USDA there.
• 10:25
  SPEAKER_01: Now, most of what we've talked about has revolved around the fundamental picture and policy-driven uh markets here and in in this week's trade.
• 10:34
  SPEAKER_01: However, managing risk in this environment has been an absolute nightmare, Jeff.
• 10:39
  SPEAKER_01: It's something we haven't dealt with in a long time.
• 10:41
  SPEAKER_01: You buy a you buy a feeder, for example, uh, in the last five years, the price to futures just goes up.
• 10:46
  SPEAKER_01: You've got multiple, if not uh infinite, opportunities to manage risk on that critter.
• 10:51
  SPEAKER_01: These days, you don't even get the chance to half the days because we're locked limit lower.
• 10:57
  SPEAKER_01: How are folks managing risk around this environment?
• 11:00
  SPEAKER_00: Well, a few things.
• 11:01
  SPEAKER_00: We're we're we've been very aggressive on trying to get some positions in place and keeping the bigger picture in mind a bit, you know, keep reminding ourselves uh what percentage of our inventory do we have covered?
• 11:15
  SPEAKER_00: What percentage of our inventory did we have covered a year ago, six months ago?
• 11:19
  SPEAKER_00: What do we have today?
• 11:20
  SPEAKER_00: Because a lot of us uh you know jumped off the bus somewhere on along the way up, right, and and hedged most of our inventory.
• 11:29
  SPEAKER_00: Um so our our main goal is to make sure we don't uh miss the ride on the way back down, um, which is still our position that that indeed is coming um at some point here.
• 11:41
  SPEAKER_01: So maintaining your coverage is difficult when you're talking about such massive discounts in future uh deferred months, isn't it?
• 11:49
  SPEAKER_00: Yep, and you're you know, you like you say, you everybody buys that uh couple loads of cattle the day before the thing is limit down, and then what do you do?
• 11:57
  SPEAKER_00: Well, I mean, I think the first thing you do is you like I said, you you maybe don't just focus on that one load or two.
• 12:03
  SPEAKER_00: Um you're thinking about the bigger picture, making sure you you at least give the market some chance to uh you know create an opportunity at least to try to break even on some of these um calves that you're buying or or yearlings that you're buying.
• 12:19
  SPEAKER_00: Um another thing I I think we need we've I believe we've done a pretty good job of utilizing.
• 12:26
  SPEAKER_00: If we aren't, we we need to be talking is you know, it's amazing how many of these announcements are coming out in the afternoon and evening.
• 12:34
  SPEAKER_00: And you know, utilizing the LRPs and the LGMs um the morning after some additional risk factor takes place in the afternoon or evening has worked extremely well because like you said, um you know, any battle four to seven on the on the fats, right?
• 12:54
  SPEAKER_00: So if we keep our our head on a swivel a little bit and pay attention to what's going on, not just during the market hours, um, there's some opportunities to take advantage of that.
• 13:05
  SPEAKER_00: I would say the other thing that uh you know whenever we have money movement being a big portion of the uh marketplace, in my opinion, technicals become a bigger and bigger factor.
• 13:17
  SPEAKER_00: So we've been watching them a little bit closer here, trying to pick some targets um if you know to get some positions in place.
• 13:25
  SPEAKER_00: And you know, today was another pretty good example of that.
• 13:28
  SPEAKER_00: We've got a 200-day moving average on the screen now for a lot of these live cattle, these upfront live cattle ones probably in my mind matter the most from a technical standpoint.
• 13:38
  SPEAKER_00: We did kind of bounce off that, maybe trade through it just a little bit, depending on which month you're looking at, and then uh didn't take very long to get above that again.
• 13:47
  SPEAKER_00: I think that's offering some some pretty nice support.
• 13:51
  SPEAKER_01: All right.
• 13:51
  SPEAKER_01: Thank you for your time today, Jeff.
• 13:53
  SPEAKER_01: I appreciate it.
• 13:54
  SPEAKER_01: We'll catch you next time on the Grain Market Talk podcast.
• 13:58
  SPEAKER_01: We've got a fun WASDA report talk about just.