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Market Overview · 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 egg 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 involve 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.
• 0:23
  SPEAKER_01: Today is July 28th, and I've got Pat with us here today.
• 0:26
  SPEAKER_01: How's it going, Pat?
• 0:28
  SPEAKER_00: I'm doing well.
• 0:29
  SPEAKER_00: Good afternoon, Michael.
• 0:30
  SPEAKER_01: Awesome.
• 0:31
  SPEAKER_01: Well, we're gonna talk a little bit about a broad market overview today.
• 0:35
  SPEAKER_01: A few things happened this week to really stand out in these markets, Pat.
• 0:39
  SPEAKER_01: And so let's start with the grain markets here.
• 0:42
  SPEAKER_01: Kind of a rough close just to end the week here.
• 0:45
  SPEAKER_01: 530 on the December corn down twelve after we really started the market out uh pretty hot and heavy here this this week.
• 0:53
  SPEAKER_01: On Monday, Tuesday, we got that market up to about 572 both days there.
• 0:58
  SPEAKER_01: So that market really pulled back and the November soybeans, 1435 was as high as we got this week, which was only about 13 cents from the contract highs put back in 22 uh in April.
• 1:12
  SPEAKER_01: So uh that was uh fairly close to what we had seen uh way back when, but we pulled that all the way back uh 15 cents today to 1382, and a few things have been going on in this grain market, Pat.
• 1:26
  SPEAKER_01: Can you walk us just uh kind of through what you've been seeing this week?
• 1:30
  SPEAKER_00: Well, I mean I was just looking at I mean D scorn closed at 536 last Friday and five dollars and thirty cents this Friday and to your so seems like a quiet week over week here until you consider that trade as high as five seventy-two uh at the beginning of the week.
• 1:46
  SPEAKER_00: And so um fair amount of volatility again, or maybe the better observation is still um I appreciate the conversation you and I are having earlier today as it relates to um where this market is is is trading at and and really has maintained its volatility, weather induced mostly volatility, um, later into the growing season than what you'd normally would guess.
• 2:15
  SPEAKER_00: You know, that like the old thought process, the old saying is is uh you know that that 4th of July weekend is is the year a lot of times where you you turn the thing over and and you you break it and you don't get very many chances to to replicate some of the pricing opportunities for row crop producers that you see in May and June, again in July and August.
• 2:34
  SPEAKER_00: And and we have had I guess more than one bite at the apple um the this year and and again sort of later into the season.
• 2:43
  SPEAKER_00: And so that's certainly uh well likely the result of Mike uh um just uh a trending dry pattern extended, right?
• 2:53
  SPEAKER_00: I mean I you know I I keep sort of kind of oscillating back and forth in my own mind between when I say things like, well, this area of the country is living on the edge and needs some moisture here to uh it's gonna need a rain event to finish off this crop.
• 3:09
  SPEAKER_00: And I I would guess that most every year we would say that, right?
• 3:12
  SPEAKER_00: It needs to rain in August, but it certainly is a little bit more critical this year because of the lack of subsoil moisture, right?
• 3:20
  SPEAKER_00: And I and I would just think generally that that's a fair observation to make across across the uh the whole corn belt here.
• 3:27
  SPEAKER_00: And so um that's as good of an explanation as any as to why the market is on the edge here and and uh creates a fair amount of uncertainty um as it as it relates to what final crop size is gonna be.
• 3:43
  SPEAKER_00: You know, we've tried to talk a lot on this podcast about the other things that are going on though in the corn market besides the most important thing, which is what's the final yield gonna be.
• 3:52
  SPEAKER_00: But and so I would just, as a reminder to all of our listeners, that that um what ultimately ends up happening here in terms of the final crop size will be uh manipulated, largely dictated by the amount of moisture that we get over the next three or or so weeks.
• 4:09
  SPEAKER_00: But in addition to that, again, I think that that that re the the um having a conversation again about the importance of how much dam demand destruction has taken place over the last couple three years, how good the Brazilian crop was that that is still in the process of being harvested, and um, you know, sort of the prospects of uh of a weakening demand base uh on because of of larger available supply both in Brazil and and here in the U.S.
• 4:39
  SPEAKER_00: with some more acres.
• 4:40
  SPEAKER_00: And so um, you know, we're we're not expanding animal numbers globally, we're not expanding uh ethanol production here in the US or anywhere else for that matter.
• 4:53
  SPEAKER_00: So I'm a little bit concerned about the other stuff.
• 4:56
  SPEAKER_00: And so even if this crop uh does deteriorate uh some more from the average trade guess or it gets smaller than 177 or 175 or 173 for a national yield, last year's yield, um, it certainly seems like the balance sheet's in a little bit different spot.
• 5:14
  SPEAKER_00: The the caveat is, and we've been talking about corn for a little bit here, and I still haven't mentioned Russia and Ukraine, and we need to, right?
• 5:20
  SPEAKER_00: I mean that's that's the other primary uh uh market mover this week, Mike.
• 5:26
  SPEAKER_00: And so, you know, I'd interested in your comments on on the the the geopolitical things that are at play there and outside market influence, and but but um you know that that issue too is is gonna have an impact on the balance sheet.
• 5:40
  SPEAKER_01: And when we talk about something like Russia and Ukraine this week, we really put the brakes on this rally.
• 5:46
  SPEAKER_01: You know, the wheat market actually had a pretty good influence on corn this week.
• 5:50
  SPEAKER_01: Uh we were down on the wheat market again today, but uh after we pretty much found out that the EU was going to try to uh subsidize trucks to move grain out of Ukraine, that really put the brakes on this this market, it seemed like that was just enough.
• 6:07
  SPEAKER_01: But we continue to see like once a month, it seems like you get one or two days of pretty good support out of the Rush Ukraine news, and then that's about it.
• 6:16
  SPEAKER_01: We continue to just uh kind of fall short and continuing that momentum ever since the basically the first time that it got the market to rally.
• 6:24
  SPEAKER_01: Uh we've just failed to have m follow-through momentum out of it.
• 6:28
  SPEAKER_01: So that'll continue to be volatile.
• 6:30
  SPEAKER_01: I I it's one of those things where it seems like get a couple days where it can pop the market up, but to count on it long term to to provide decent support for this market at this point seems like a long shot, doesn't it?
• 6:42
  SPEAKER_00: Right.
• 6:42
  SPEAKER_00: And the so the Ukraine region represents about 10% of the world corn trade, which is I mean it's it's it's noteworthy, of course, right?
• 6:50
  SPEAKER_00: But but it's also in in terms of I guess comparing year over year, um, it's not that significant.
• 6:57
  SPEAKER_00: They've had issues now for for um uh multiple growing seasons or at least two growing seasons here.
• 7:03
  SPEAKER_00: And so um so yeah, I think we just have to keep an eye on all that.
• 7:06
  SPEAKER_00: Hey Mike, what do you uh why don't you talk for just a little bit about um the Fed funds rate and interest activity uh that that that occurred this week and what impact that might have on commodities?
• 7:16
  SPEAKER_01: Definitely.
• 7:17
  SPEAKER_01: So uh Powell came out uh at the FOMC meeting and uh he talked about a couple different items that was first they were gonna raise uh interest rates like they had expect been expected to the 25 basis points.
• 7:32
  SPEAKER_01: So that'll bring something like uh Fed funds up to about 5.5%, or for a lot of you, your operating notes somewhere around 8.25 for prime.
• 7:42
  SPEAKER_01: So that's something we can borrow money at uh real uh real wise.
• 7:47
  SPEAKER_01: But when they came out and talked, uh he had prior to this mentioned that we were planning to have paused on interest rate hikes kind of from this meeting on out.
• 7:59
  SPEAKER_01: And uh one of the things that popped up was uh you when you look at the wage growth that we've had, and when we ha look at the inflation number that we currently have, which has been coming down, inflation at like 3.8 is getting close to 2% that the Fed wants.
• 8:19
  SPEAKER_01: And they've talked about that number for a long time.
• 8:22
  SPEAKER_01: Um the problem is once wage goes above that number, Pat, then obviously uh you have an increase in spending again.
• 8:29
  SPEAKER_01: So that could be one of those categories that they're worried about and maybe have to keep their foot on the gas a little bit longer.
• 8:36
  SPEAKER_01: Uh the good news is that it keeps coming down, inflation.
• 8:39
  SPEAKER_01: Uh, we're getting closer to that 2%.
• 8:42
  SPEAKER_01: So uh for us to continue to do this and then for them to come out in this week's report and say that our odds in their eyes of a recession is smaller than uh what they had seen prior to the last couple meetings was a good sign that we could get this soft landing that they've talked about.
• 9:01
  SPEAKER_01: So if we do end up getting this soft landing, uh maybe the lit risk of a recession is a lot lower than what they anticipated.
• 9:10
  SPEAKER_01: Um we could see money maybe flow back into the US dollar a little bit, which we saw this week after we've sold that off pretty significantly here over the past few months, which, you know, even this week we saw some flash sales in commodities out of the United States, which is maybe helping a little bit.
• 9:28
  SPEAKER_01: But nonetheless, uh when it comes down to it, Pat, uh, you know, the SP 500 and the Dow Jones have been rallying really significantly.
• 9:37
  SPEAKER_01: Um we had 13 straight days where the Dow Jones had rallied uh in a row, which was one of the longest streaks we've had since 1987.
• 9:46
  SPEAKER_01: Um, you know, in if you would have gone past that, if it would have been 14 days, it would have basically been the longest rally on closes we've ever seen uh for business days.
• 9:55
  SPEAKER_01: So uh when it comes down to it, the stock market's feeling better, the consumer sentiment is feeling better.
• 10:02
  SPEAKER_01: Uh we maybe have another chance to raise interest rates in September, which I think would be a little discouraging, but uh other signs of inflation seem lower.
• 10:12
  SPEAKER_01: So I wouldn't be surprised if we didn't, but I definitely don't expect them to drop interest rates anytime soon.
• 10:18
  SPEAKER_00: No, we're not dropping interest rates anytime soon.
• 10:20
  SPEAKER_00: We're probably not done raising them.
• 10:22
  SPEAKER_00: Yeah.
• 10:23
  SPEAKER_00: Uh and I would just uh I I'm I'm I'm struck in by the soft landing observation again, right?
• 10:31
  SPEAKER_00: We keep and we keep talking about that as being a a possibility as as do many others, of course.
• 10:37
  SPEAKER_00: But I um I I don't think you can stop I don't I don't think you can stop inflation without stopping wage growth.
• 10:47
  SPEAKER_00: And I don't think you can stop wage growth softly.
• 10:51
  SPEAKER_00: Yeah.
• 10:52
  SPEAKER_00: Like someone isn't gonna have a soft landing.
• 10:56
  SPEAKER_00: Yeah.
• 10:56
  SPEAKER_00: Right?
• 10:57
  SPEAKER_00: So that's the that's the sort of the tricky part about all of this is is that I I I still find myself wanting to to to believe all of the things that the Fed is saying as it relates to the, you know, we got this, we're gonna figure out the right combination of timing and quarter rate interest hikes to to to create this soft landing.
• 11:17
  SPEAKER_00: And and by someone's definition, I'm I'm sure that they c they that's possibly successful by that, but until we get to the point where where companies aren't actively hiring and and aren't aren't actively uh um um you know we raising wages and if n anything this week uh it w didn't get a tremendous amount of chatter, but a major uh uh strike was averted at at uh UPS with uh with a a a pretty significant uh deal with the union there.
• 11:48
  SPEAKER_00: And so anyway, that that would be another example of of wage inflation still taking place, which is uh is good for the economy, and that's why the stock market's higher and all those sorts of things.
• 11:59
  SPEAKER_00: But uh um if anything, we we have been uh having more uh I guess uh uh concerns about inflation and the re need for raising interest rates as a result.
• 12:10
  SPEAKER_01: The most recent example of this I've heard, and you talked about maybe certain industries getting hurt along the way.
• 12:17
  SPEAKER_01: Um out of Sioux Falls today they announced that uh Yellow Transportation, their trucking company, they're gonna be ending in Sioux Falls 150 employees.
• 12:26
  SPEAKER_01: And that trucking industry, uh, they've been struggling really hard after this.
• 12:30
  SPEAKER_01: So you are starting to see some very individual uh sectors kind of start to bite the bullet here from higher interest rates.
• 12:38
  SPEAKER_01: And it's not maybe it's not affecting everyone across the board, but it's starting to hit some people, isn't it?
• 12:46
  SPEAKER_01: Yeah.
• 12:46
  SPEAKER_01: How about the uh proteins here quick before we wrap up, Pat?
• 12:50
  SPEAKER_01: Uh hogs have been on uh a pretty good tear here on the front months, but those back months are still struggling to gain some support, aren't they?
• 12:58
  SPEAKER_00: You know, I actually feel better about pork product values this Friday than I did uh last Friday.
• 13:04
  SPEAKER_00: We had um, you know, last Friday we we we did have either like an unchanged or slightly higher print on the the pork uh carcass composite cutout report.
• 13:13
  SPEAKER_00: Um, but that was because um one primal, uh Belly's in particular, was quite a bit higher and everything else was was weaker.
• 13:23
  SPEAKER_00: It just happened to hold the overall average it basically unchanged.
• 13:26
  SPEAKER_00: And I would just say that as we've gone through this week, um we've seen steady to a little bit better composite numbers getting printed, but it's it's it's it's been better in terms of its distribution amongst those primals.
• 13:40
  SPEAKER_00: And so feeling better about um maybe able to hold some values here longer.
• 13:46
  SPEAKER_00: Um and so we say that, and then we just need to make the observation that that uh you know as we you know turn the the calendar from July to August, um we're inevitably or seasonally gonna get into a bit more production, um, should be getting some lower temps here as we go here too, should probably add some weight to uh to the production side of this thing.
• 14:08
  SPEAKER_00: So um we're certainly going to be fighting that seasonal tendency over the next couple weeks of of increased production and and uh maybe just a little bit softer demand, just just as that calendar starts to leak itself just a little bit closer to fall.
• 14:22
  SPEAKER_00: Um, what about beef?
• 14:23
  SPEAKER_00: Why don't you talk a little bit about uh what's going on in the beef sector, Mike?
• 14:26
  SPEAKER_01: The beef sector, uh, we've seen a little bit of volatility here recently.
• 14:30
  SPEAKER_01: We actually had live cattle prices pull back to some support levels and uh it got a little bit of a correction, but we still haven't seen that massive correction in uh live cattle values that we've kind of been waiting for for a long time.
• 14:44
  SPEAKER_01: So uh we're we're still in a supply situation that is quite friendly longer term.
• 14:49
  SPEAKER_01: We had a cattle on feed report on Friday, and we had a cattle inventory report on Friday.
• 14:54
  SPEAKER_01: Uh not much sign of uh heifer retention at this point, Pat, but uh when it comes down to it, uh, you know, the beef cutout values are dropping a little bit, so that's putting some pressure on packer margins a little bit, but uh they're still relatively high compared to normal.
• 15:12
  SPEAKER_01: So they can live with it at this point with where we're sitting.
• 15:15
  SPEAKER_01: The cash cattle world, the producers kind of know they have the leverage right now and they've been using it.
• 15:21
  SPEAKER_01: And this week was another sign of that, I think, with the way trade developed through the week, and uh it doesn't look like this is gonna stop uh anytime soon, but there was a couple instances now that we've seen where it was like, oh, something can happen.
• 15:35
  SPEAKER_01: And uh the one this week was all of a sudden there was rumblings about uh, you know, the the packing plant in Colorado and a fire that had been going through Colorado that could have damaged their facility, and it's like, oh great, now this stuff again, you know, we know exactly what happened to the cattle market the last time we heard the word fire.
• 15:54
  SPEAKER_01: And uh it it just takes something like that to wreck a market.
• 15:57
  SPEAKER_01: So uh this this cattle market with as much risk uh as we've got on the board at this point, I think uh cattle producers are understanding the uh risk associated with capital at this point and uh maybe turning a little bit more towards uh uh protecting themselves at this point.
• 16:15
  SPEAKER_01: But I think things are turning really good.
• 16:17
  SPEAKER_00: Yeah, exactly.
• 16:18
  SPEAKER_00: A very good point.
• 16:19
  SPEAKER_00: And I there is some there is some real nice uh opportunities and ways out there to to manage to manage risk and and sure uh look forward to the opportunity visiting with folks about what makes sense for their operation.
• 16:32
  SPEAKER_01: All right, thank you, Pat.
• 16:33
  SPEAKER_01: Thank you.
• 16:33
  SPEAKER_01: And thank you to all our listeners.
• 16:35
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 16:39
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 16:44
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 16:50
  SPEAKER_01: See you next time.