Latest / CattleUSA Daily / 188: How Fear and Politics Are Shaping Today’s Cattle Market with Dan Gerhold

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188: How Fear and Politics Are Shaping Today’s Cattle Market with Dan Gerhold · CattleUSA Daily

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As cattle producers, we are gravely aware of how insane this
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market has been over the past two weeks.
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And unfortunately, there is no sign of that just roller coaster
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chaos slowing down anytime soon. And today's podcast episode with
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Dan Garahold, We are breaking down at the cattle market, what
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we have seen over the past week, what we continue to see and how
0:24
Trump's comments on Argentina and then the Senate's remarks
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from last night. We are recording this on
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Wednesday morning at 8:00 AM. You guys are going to be seeing
0:32
this on Thursday. So if anything changes over the
0:34
next 24 hours, please take that into consideration as well.
0:37
But taking into consideration the Senate remarks from last
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night, how that's going to affect the cattle market today
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and everything else that we have seen, we cover LRP and coverage
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and just options for cattle producers to protect themselves
0:51
in this market and what that even looks like.
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And if it is the right business decision for you because it's
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not the right business decision for everyone.
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And so Dan breaks that down and just explains what in the heck
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is going on with this market and everything that we have seen
1:06
over the past week. So without further ado, let's go
1:08
ahead and get into this podcast episode with Dan.
1:11
And if you guys to take a second, if you're watching on
1:13
YouTube to like and subscribe, if you are on any podcast
1:16
platform, please make sure that you are following the show and
1:19
take a second to go review it as well.
1:21
Thank you so much from everyone here at the team and let's hear
1:24
from Dan. Welcome to the Cattle USA Daily
1:30
Podcast, your go to source for the latest livestock markets,
1:34
industry insights and the updates shaping agriculture
1:37
today. I'm your host, Lauren Moylan, a
1:39
passionate advocate for agriculture here to keep you
1:42
informed and connected. Now let's dive into today's
1:45
episode. Dan, welcome back to the
1:51
podcast. How is life in Iowa?
1:54
I hear you guys got harvest all finished up.
1:56
You can finally breathe again. Are you getting a full night's
1:59
sleep now? Like what?
2:00
How's life going? Yeah, it's if you could see I
2:04
need a trim then hard and fast and got to love it.
2:08
Done before Halloween. So it was it was a good harvest,
2:13
the minimal breakdown, life is good.
2:15
So starting to catch up on sleep.
2:17
And then this happens with the market.
2:20
So if I could go back and sit in the combine and forget this ever
2:24
happened, I'd do it for everybody.
2:25
But here we are. So.
2:27
Yeah, but harvest is over if this is going to happen.
2:31
Exactly, exactly. At least you're not having to
2:34
juggle both at the same time. So I mean, if you had to choose,
2:37
you'd probably choose Harvest, but it's not both at the same
2:39
time, so that counts for something.
2:42
Yeah. Well, what's happening with the
2:45
markets, Dan? Long story short, it's a great
2:48
big market that's scared of its own shadow producers, is scared
2:53
the government won't stop. Yeah, a lot of people in the
2:59
situation they're not. They're actually doing the
3:01
opposite of what they should be doing.
3:04
But hey, that's the government for you.
3:08
Yeah. Long story short is, I mean, we
3:10
all know our president came out and made some comments he
3:14
shouldn't have. I I truly believe he's been
3:17
misinformed by the wrong people, but that's my opinion.
3:20
He's actively trying to fight what he considers inflation in
3:24
the beef market and it's not working as he thinks it should.
3:29
Ox beef is higher because the consumer still wants beef and
3:33
the supply has changed. So inevitably what the market
3:38
has done in the last week, it's traded A rumor.
3:41
You know, we cannot blame this on Argentina imports that it's
3:45
not the case. There's there wasn't enough
3:47
there to make a difference. This is all based on a rumor,
3:50
the thought that we're going to open the feeder or the border
3:53
here pretty quick. Feeder imports.
3:55
So every day your back month feeders have been down the limit
3:58
for the last what, consecutive 123 nearly five days trading
4:04
days. So yesterday we didn't close on
4:07
the limit. That was nice.
4:10
There's a whole lot of gaps. I think all your back month
4:13
feeder charts have 4 gaps on them now. 1234, yeah.
4:18
So inevitably a gap is the open today would have to be lower
4:24
than the close yesterday. So if we're or the low
4:28
yesterday, I should say. So inevitably we put these gaps
4:32
on the chart. The old rule of thumb is the gap
4:34
actually the magnet that wants to go back up and fill those
4:36
those gaps. I don't know that we're ever
4:38
going to go back up and fill that top gap.
4:40
But having gaps on a chart, four of them especially, it's pretty
4:45
rare stuff. So everybody's kind of sitting
4:48
on their hands. They're thinking, hey, maybe
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this market bounces. We go back up, fill the first
4:53
one to maybe the third gap and leave that 4th one there.
4:57
Now the more gaps you leave on the chart, the less likely
5:00
you're going to fill the upper 1.
5:01
So, you know, if we could go up, fill yesterday's gap, the gap
5:05
above that from Monday, I think we need to look at some coverage
5:10
considering our governments actively fighting with our
5:13
market. So it's like I said, coming back
5:15
to what caused it, my opinion, a lot of fear.
5:20
So you know, I got to bring it back always Lauren, look at the
5:24
actual signs what's going on. So you know, we've we've talked
5:28
about in the past how open interest is kind of a sign.
5:31
You can watch that so you can trade it now that how they're
5:33
trading it when you're going one that lower, typically you'd
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expect open interest to drop draft your traders want out
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anybody long it's stuck in a long position and they're
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scared. They just want to blow out.
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So everybody's blowing out first thing in the morning goes down
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limit. You would think open interest
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would drop. So up until Monday, open
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interest wasn't dropping. That's the OP.
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It wasn't going up. It was just flat.
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So what's happening? Well, typically you have a few
6:02
traders if you're going down, especially the limit in a flat
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open interest market that means you have nearly an equal amount
6:11
of new sellers coming in as there were buyers leaked OK so
6:16
manage money, small specs, whatever whoever was long this
6:20
market wanted out. So let's say you know on on
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Friday total volume was 34,000 contracts, but open interest was
6:30
nearly flat. So if that was the case, on
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Friday you had 17,000 contracts that were long wanted out, they
6:39
liquidated and you also had 17,000 and put shorts on and
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that's what caused the limit down move.
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That's how you get your open interest to stay flat.
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So inevitably it's a fear driven market.
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You got the fear on the side of the long who's freaking out
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because we just took, you know, 4550 sixty bucks out of a fear
6:58
cattle market that they were long and believed that they had
7:01
a fundamental reason to be. And you also have the head
7:03
drinking side of it. Hey, I can't sell my calves yet.
7:07
Let's just head them off. Let's sell some futures.
7:09
So that's a problem. I, I hate fear markets because
7:14
they way overdo it all the time. You know they will it, you could
7:19
go back a month ago and say the market was going up on fear that
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we were running out of feeder cattle and, and we were going to
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miss out on the biggest move. I'll run to 400 or 500.
7:29
You know, there was all sorts of thought, talk and thoughts.
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Then now we're in a different fear market where, oh, shoot,
7:36
party's over. You know, this thing's going
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down forever. Everybody would just calm down,
7:41
let the market breathe. I think it'd probably level off
7:45
for a little bit, or it's got the potential to level off, but
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inevitably, like I said, you got 4 gaps on a feeder chart.
7:54
It's nasty. Now the really, really how do I
7:57
put it? The really crappy part about
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this Lauren, is obviously some producers kept waiting and
8:02
waiting and were and justifiable.
8:05
So the market was on a tear higher.
8:06
I don't blame them for waiting to put coverage on you know, I
8:11
the way that chart looked and it had more to go, but they were
8:15
waiting and then all of a sudden you lock the market limit down
8:18
and we can't put out our we can't sell futures until the
8:22
next day. You can buy puts, but Oh my
8:25
gosh, were they expensive and at the money put was running like
8:28
2025 bucks. Inevitably the government does
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not allow LRP on limit down days.
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So we had what 3-4 days in a row LRPS were not offered and here
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we are. We go from 380 feeders and last
8:45
night they finally opened LRP since we didn't close on the
8:48
limit. Now best you can ensure January
8:51
is 325 costing 12 bucks. Like boy, we just took the gravy
8:56
out of this market pretty quick. So yeah, I mean, you look at
9:00
3/24/88 coverage costing 12O5, you're covering basically 312
9:06
1/2. So, you know, 3/12/75, whatever.
9:09
It's really hard for me to push coverage now because this market
9:13
could calm down, level off. Everybody goes back to doing
9:17
chores realizes, hey, consumer still eating.
9:21
This isn't World War three, this isn't COVID, this isn't, you
9:25
know, the Great Depression starting.
9:29
This is just a market overreacting to a rumor.
9:33
I I'd love to tell everybody that confidently that that's
9:36
going to happen and we, you know, might bounce back in the
9:39
340 Navy touch on 350 level. I'd love to be confident and
9:43
tell everybody that the problem is I can't, I can't measure
9:47
fear. Now Fast forward to this week,
9:49
they, you know, limit down again.
9:51
Everybody's still in freak out mode.
9:53
Monday was the first day we saw lower open interest.
9:56
We went from 82,000 contracts, down 8166 hundred.
10:01
OK, so we dropped 400 contracts. Nobody's thinking anything of
10:03
it. And then bam, yesterday
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happened. Yesterday we saw a drop of 6000
10:10
contracts. We go from 81622 down to 75461.
10:16
So now all of a sudden you have a market that comes off limit,
10:20
doesn't close on the limit lower but still is down and open
10:25
interest is lower on one of the highest volume traded days we've
10:29
had in forever. I don't it's not a record, but
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you know, we traded 83,000 contracts.
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We traded more than we have an open interest.
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What does that tell us? I mean, now all of a sudden
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first day you're not locked limit you close off your lows.
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Now all of a sudden that mean we're going to calm down and
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bounce back up. It wouldn't surprise me, he
10:54
thought last night, the Senate's up to it.
10:56
If they're starting to point the finger at the beef industry or.
11:01
And I don't know if that means cattle are going to go lower
11:05
again today. But now you're talking Brazilian
11:08
imports. You just can't make this up.
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Lord. It's not a laughable moment.
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It's just truly sad. But it it's the scenario we're
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in. How do we manage that risk?
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You know, we Yeah, if we could all go back in time, we fix it.
11:21
And we would have bought LRPS and puts and sold features all
11:24
at the high, you know, hindsight 2020.
11:26
But we didn't. So here we are trying to figure
11:28
out what do we do? Well, if the market calms down,
11:31
there's a pretty good chance that we can go up until
11:33
yesterday's gap. In order to fill that gap, we
11:35
have to reach three 3442 1/2 in the January, OK.
11:41
Then there's a gap above that from Monday morning.
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That's a big one to me that that should be a big magnet or a
11:47
target for U.S. trade towards. I would like to see us move
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towards that fill it. We have to rally to 348.
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That gap, like I said, big magnet, big magnet, strong urge
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to go fill it. The one above that from Friday
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morning, that one gets harder to fill because you're talking
12:06
about a gap that starts at 35642 and is not filled until 35687.
12:12
OK, so it's a tiny little gap, but it's still a gap
12:14
nonetheless. And you have to break the 40 day
12:16
moving average to get there. That, that next gap that's all
12:20
the way up at at 373 and isn't filled until 37675.
12:26
I, I personally don't think we're going to fill that one.
12:28
So I would be very, very aggressive and getting some
12:32
coverage in place if we get up, you know, knocking on that at
12:35
3:48. You know, I, I really think a
12:40
producer should consider, you know, this year is a perfect
12:43
year. You've got cheap feed.
12:44
There's plenty, you know, a lot of guys have hay laying around,
12:48
they have cheap corn. Have you have you thought about
12:51
if you have the ability background and precondition
12:54
them, you know, take them out to February, you know, make them a
12:57
little bigger. All of a sudden you can insure
12:59
321 yeah, it cost you a little bit more 1397 but you're still
13:04
making money on the game. So that's another thing worth
13:07
considering fibbly. We've got to get away from the
13:10
spear driven market. I would like to be really,
13:13
really optimistic and think that you know, higher boxes are going
13:16
to get speed yards to stand their ground this week.
13:19
Sounds like the Packers are trying to weasel some cattle
13:22
away from producers at 2:30. Not a good look for the fat
13:25
cattle side of things. If people stand on their ground
13:29
and and nothing's changed, even if they open that border, it's
13:33
not going to affect fundamentals of this market between now and
13:37
what they may you start throwing feeder cattle at us.
13:40
We don't have fat until May June.
13:41
So we're not a I'm not a rocket scientist here, but we still
13:46
have the exact same supply and demand we did two weeks ago.
13:51
Once it comes down to fear. I hate overreacting in a fear
13:56
market because inevitably it can cost producers dearly.
13:59
So hopefully everybody just takes a breath.
14:06
I'd like to see us calm down today.
14:07
But like I said, we'll see how big of a an effect that that
14:11
Senate decision has on our market could drive some more
14:14
fear. Inevitably, I don't think it
14:16
gets passed. It has to go through the House,
14:18
has to go up to the president. Yeah, maybe it does get passed,
14:22
but here we are. So yeah, don't know if I covered
14:27
what you were wanting to cover, Lauren, but what a market.
14:31
What a market. And I think the unfortunate
14:33
thing about a fear driven market, Dan, is the fact that
14:37
like we can sit here week after week and we can look at what has
14:41
happened throughout the week up until Wednesday when we record
14:44
this and we can see signs and we can be like this is kind of what
14:48
it's pointing towards what we think is maybe going to happen.
14:51
But with a fear driven market, like we didn't see the coming,
14:54
there was no indication of this. The market was on its way to a
14:58
little bit of a correction. The market was going to do what
15:00
the market was going to do, but with a fear driven market and a
15:04
market driven by the news in the media.
15:07
And he said, she said, we have no way of sitting here and being
15:11
like, well, as long as no one else says anything, we should
15:16
have a pretty chill fall and like, we'll, we'll be OK and
15:19
we'll recover. But we can't.
15:21
I don't have control over what anyone in the government says
15:25
about the cattle market, unfortunately.
15:27
I would love to send some gags to DC, but can't do that.
15:32
Yeah. And then the whole Senate thing
15:34
that you're talking about to like, good Lord, let's just go
15:37
around the merry go round again. And what's what's going to
15:41
happen next week? I would just really like to find
15:44
a Hobbit hole to go crawl away into right now and be like, Dan,
15:48
can you come knocking when the government stops talking about
15:52
cattle in the cattle market? And then, then we can talk again
15:56
because it's just changing so rapidly right now.
15:58
Inevitably, I mean, I'm not making excuses for President
16:01
Trump. He, he makes statements he
16:03
should have, but I do feel like somebody isn't, you know, he's
16:07
making statements that it, you just about have to be
16:11
misinformed to make those statements because inevitably
16:15
the two are not. We all know we don't sell beef.
16:18
So, I mean, attacking the rancher specifically is not
16:23
going to solve the problem of beef being high in the grocery
16:27
store for the consumer. Inevitably.
16:30
I, I wish I could go back in time and and or I I wish I had
16:35
his number and could make a phone call and, and set him
16:37
straight. But here we are.
16:39
You have the government trying to fight what they consider is
16:41
an inflation caused by Biden. Yeah, it's it's unfortunate
16:47
where we're at it. It really is.
16:49
This is why they always say you don't want to the cab drivers
16:52
talking about the cattle market. You don't want the government
16:55
talking about it. You don't want to be on MSNBC
16:58
and CNN and we were. I mean, how many times did we
17:01
talk about a Lauren? It was just about every other
17:03
day for like 3 weeks straight. That's all they talked about.
17:07
That's never a good sign that could cause some, some serious
17:11
long term damage. I do think producers need to be
17:14
considering very, very heavily getting unborn coverage on on
17:18
their caps for next year. You have a government that's
17:21
aggressively trying to fight this market.
17:24
It was on a runaway train and now it's the opposite.
17:29
You know, I'm going to make the most obvious statement of a
17:32
lifetime. LRPS look like absolute garbage
17:35
compared to two weeks ago, but they look absolutely phenomenal
17:39
compared to a year ago. What do things look like a year
17:42
from now? I we could be right back at 280.
17:46
We could be below that level honestly, as fast as this thing
17:51
has gone down. I mean, we took 10% out of a
17:54
market, a big swing in cattle, you know, a cycle swing I like
17:58
to figure is 25 to 35% over exaggerated in both directions.
18:02
So if, if that move a month ago, you know, that stopped two weeks
18:08
ago. If that one sent us to those new
18:11
highs, if that one was way overdone, we're going to go way
18:14
overdone to the opposite direction.
18:17
You know, it might take us a year, 2 years, 3 to do it, but
18:21
I'd be prepared, get that coverage on a full year out, you
18:25
know, protect that next cap crop.
18:26
And, and like I said, consider, you know, if you can consider
18:31
making your cattle bigger, stepping away from this market,
18:34
letting us get out of the spotlight.
18:37
Inevitably, the worst part about this, as everybody's seen, boxes
18:40
have gone up. So while they're attacking
18:43
cattle industry, consumers have the potential to end up paying
18:46
more in the grocery store. Have you ever seen a politician
18:49
go back and apologize and say they screwed up?
18:51
I haven't. So I think we have to use the
18:55
market we have. We have to look forward, look at
18:58
your PNLS. I I still think protecting all
19:00
the way out 52 weeks, you're covering A yearling at three O
19:03
9. Looking at history, that's still
19:04
a good price. We could be above it next year.
19:07
We could drastically be below it.
19:09
So I think we have to move on, get past this.
19:13
Like I said, pay attention to those gaps, see what trading
19:15
does in the next finish this week off and inevitably make
19:21
sound decisions not here driven decisions.
19:24
Yeah, yeah. I'm running out of out of words
19:30
to describe this absolute disaster.
19:33
Yeah, absolutely. I think that our call as cattle
19:36
producers and as people within the beef industry is, excuse me,
19:40
is to not fall into the whirlwind that is happening
19:45
right now. Like don't let fear drive you.
19:48
Don't let the media drive you. Don't let what the government is
19:52
saying drive you. We need to be paying attention
19:54
to it, absolutely, because it affects us.
19:57
It affects us gravely. We've seen that over the past
20:00
two weeks. But don't be a part of the
20:02
problem, be a part of the solution in the aspect of we're
20:06
going to keep a level head. We're going to understand that.
20:09
We don't have control over this, unfortunately.
20:12
And so how can we best protect ourselves?
20:14
How can we best look at this and take the emotion out of it and
20:18
look at this as a strategic business decision that we have
20:20
to make? Like sit down and actually, like
20:24
you said, Dan, look at your PNL, look at your numbers, talk to
20:28
your board of directors, AKA your wife and family or whoever
20:32
else is helping you on the operation.
20:34
And make a sound business decision that works for you and
20:38
your operation because everyone is going to be in a different
20:41
situation right now. Like, if you can hold on, it
20:45
might not be the worst idea, but not everyone has that ability.
20:48
So what are you going to do right now to help prepare you
20:53
for next year, next spring, next fall, all of those things and
20:57
what that looks like for you and your operation?
20:59
Dan, do you have any closing remarks as we round out the
21:01
podcast or do we do we hit on everything today?
21:04
And I, yeah, I think we've would probably cover just about
21:09
everything. Yeah, buckle up.
21:11
I. Love it.
21:13
Buckle up. It's one hell of a roller
21:15
coaster ride that we didn't think that we were going to have
21:17
to be on, but here we are. So buckle up and we're here with
21:21
you. Who would have known this was
21:23
going to be the Black Swan, that they put an end to the great
21:27
cattle market? Did not see this coming, that's
21:30
for darn sure. But I feel like that's also the
21:32
theme of this year. I remember like 3 or 4 months
21:35
ago I was saying how they were going to put 2025 and AG
21:39
economist textbooks here in about 5 years as research,
21:42
research studies of the economy within agriculture.
21:46
Well, yeah, I think we solidified that aspect over the
21:49
past couple weeks. 2025 is definitely showing up in some
21:52
textbooks for some case studies in the future.
21:56
Absolutely, yeah, get get ready. It's it's going to be a time of
22:00
tight margins. I I feel like and nobody enjoys
22:03
those. We we all like hitting the big
22:05
home runs but be ready to protect them based it.
22:08
Yeah, absolutely. I couldn't round it out any
22:11
better. Dan, thank you for your time.
22:12
Thank you for your insight to all of our listeners out there.
22:15
If you enjoyed today's podcast episode, please make sure that
22:18
you like and subscribe on YouTube.
22:20
We really appreciate it over here at the team.
22:22
And if you enjoyed what Dan and I talked about today, you want
22:24
to learn more about LRP, learn more about coverage insurance,
22:27
just what your options are for you and your operation, head
22:30
down to the show notes. We have a link down there for
22:33
you guys through Cattle USA Insurance where you can get a
22:35
hold of the team and discuss those options, options that you
22:37
may have for your operation. Dan, thank you for your time and
22:40
to all of our listeners. We will see you all tomorrow on
22:43
another episode. Have a good one y'all.