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Tyson Closure: The Leverage Shifts Away from Cattle Producers · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Cattle Talk Podcast.
• 0:06
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insights shaping the industry.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: All right, it is Friday afternoon, August 14th, and I am afraid that we have to talk about the cattle market with Jeff today.
• 0:28
  SPEAKER_01: Oh, come on.
• 0:29
  SPEAKER_01: I I know you're gonna be a great guy to have on the podcast, talk about cattle.
• 0:34
  SPEAKER_01: It's just an unfortunate week of events here for the cattle guys, isn't it?
• 0:38
  SPEAKER_02: It's definitely it's been a long three days.
• 0:40
  SPEAKER_02: There's no question about that.
• 0:42
  SPEAKER_01: The cattle producer, cattle buyer, all of all of the people associated with that industry just need a weekend here, don't they?
• 0:50
  SPEAKER_02: Markets can't go down on Saturday, Mike.
• 0:53
  SPEAKER_02: That's the good news about Saturday.
• 0:55
  SPEAKER_02: Cash market can, yes.
• 0:56
  SPEAKER_01: Cash they can.
• 0:57
  SPEAKER_01: You gotta talk.
• 0:59
  SPEAKER_01: What in the heck happened in the last 24 hours?
• 1:02
  SPEAKER_01: I know it had developed earlier in this week, too, is rumors, but just explain why we did what we did here through this trading session today.
• 1:10
  SPEAKER_02: Yeah, well, I think uh most people are aware of the developments as far as Tyson put out there officially yesterday afternoon.
• 1:16
  SPEAKER_02: And yeah, you know, you get rumors starting to float around earlier in the week, but it's not the first time those rumors have been floated, also, right?
• 1:23
  SPEAKER_02: So it is in this environment in these type of markets, it gets hard to know like, okay, um, the stuff that we're hearing, does it really matter?
• 1:31
  SPEAKER_02: Is it uh, you know, just people talking, or is it actually gonna happen?
• 1:35
  SPEAKER_02: And you know, yesterday when uh you know, you even uh most of the packers were showing some interest in some cash cattle right up until about you know noon, one o'clock before they started pulling their bids out of the marketplace.
• 1:48
  SPEAKER_02: So um I think it was certainly a bit of uh new information as we got into yesterday afternoon.
• 1:55
  SPEAKER_02: Um and of course, that announcement is you know, those guys, Tyson went to sell the uh the smaller plant in Pasco, Washington, um, and shut down the Jocelyn, Illinois plant, and then uh make some changes to their for their processing case ready out in Utah.
• 2:15
  SPEAKER_02: Um, so another move by Tyson here to you know adjust their supply situation and try to manage this uh sit the margin um challenges that that whole industry is having.
• 2:30
  SPEAKER_01: So you've got the Illinois one, you've got the Utah one that's in the news here, you've got the Amarillo one as well, and then the the Washington one.
• 2:39
  SPEAKER_01: Yep.
• 2:39
  SPEAKER_01: Jocelyn, Illinois, that's the big one here, right?
• 2:42
  SPEAKER_01: That that one made the most market moving impact.
• 2:45
  SPEAKER_02: Yeah, that's the one that I think really matters.
• 2:47
  SPEAKER_01: Um that was 3,000 head a day initially, is what it the that's your capacity.
• 2:52
  SPEAKER_02: Probably was running slower, just like all the rest of them.
• 2:54
  SPEAKER_01: Should have been like two to twenty four hundred ahead a day type of thing.
• 2:58
  SPEAKER_01: And that one's done as of when?
• 3:00
  SPEAKER_01: Yesterday.
• 3:01
  SPEAKER_01: Done done.
• 3:01
  SPEAKER_02: Yep, yep.
• 3:02
  SPEAKER_02: That's what we're hearing is walked out the door and that was and shut the lights off and then aren't coming back.
• 3:08
  SPEAKER_01: So that's the big one.
• 3:09
  SPEAKER_01: Utah, that one doesn't really matter, right, Case.
• 3:12
  SPEAKER_01: Correct.
• 3:12
  SPEAKER_01: Yeah, just just no nothing getting killed there.
• 3:16
  SPEAKER_01: Um, yeah, how would you describe that plant?
• 3:19
  SPEAKER_02: Well, I think you know what they'll all they're trying to really do is uh take some advantage of you know economies of scale and efficiencies, right?
• 3:26
  SPEAKER_02: So they'll they'll do all the same work that they're doing there, they'll just try and get it done um spread out over their other feather processing locations.
• 3:34
  SPEAKER_01: So just a case ready plant.
• 3:35
  SPEAKER_01: All right.
• 3:36
  SPEAKER_01: Now, how does Amarillo news fit into this as well?
• 3:40
  SPEAKER_01: And the Washington one, the Washington one, they're just trying to sell that one, right?
• 3:44
  SPEAKER_02: Which that yeah, that part's interesting too, though, because I mean there's not a you know, you get the Pennsylvania situation from a few weeks ago with JBS, you know, um wanting to close that plant down.
• 3:56
  SPEAKER_02: And and this is a similar situation.
• 3:58
  SPEAKER_02: You get way on the fringes here.
• 3:59
  SPEAKER_02: There's not that many cattle.
• 4:00
  SPEAKER_02: You're killing both fed animals and cows.
• 4:03
  SPEAKER_02: Um, so I I'm afraid it's I'm not sure who's gonna step up and want to own that thing.
• 4:09
  SPEAKER_02: Maybe there'll be some um you know, smaller packer who's who's interested in more of a diversified type of an approach, um, show up and and and look to buy that thing.
• 4:20
  SPEAKER_02: But I think that'll be one of the challenges with the Washington location is you know, is somebody gonna want to step in there and own that thing in this type of environment?
• 4:30
  SPEAKER_02: So that'd be worth watching.
• 4:32
  SPEAKER_02: But as of today, it's gonna keep running, and as far as you know, cash cattle markets and and box beef markets, that's what we really care about.
• 4:40
  SPEAKER_02: Um the Amarillo announcement or or or maybe comets, I think the announcement's too strong of a word.
• 4:48
  SPEAKER_02: Um, I'm not sure they're really saying anything there, Mike.
• 4:52
  SPEAKER_02: Um, we knew you know that plant uh slowed down here uh a few months ago when they shut down the Lexington, Nebraska plant.
• 5:00
  SPEAKER_02: Um and still very capable of bringing that B shift, night shift back on at any time, right?
• 5:08
  SPEAKER_02: Um so those guys saying, you know, Tyson saying, hey, we're gonna be able to kill some more at Amarilla.
• 5:14
  SPEAKER_02: Well, I that's not new information necessarily.
• 5:17
  SPEAKER_02: What I think I hear them saying is hey, when the supply increases and our margins increase, well we've got the ability to bring Amarilla back in on a second shift.
• 5:29
  SPEAKER_02: And I I think that's just a a reminder to the industry, if you will, of we can we got a little flexibility here, we can turn back on top some capacity.
• 5:38
  SPEAKER_02: Because and one of their bigger challenges there is you know, they're gonna need to come across to a bunch of workers.
• 5:44
  SPEAKER_02: Um, so that's that's that's not exactly a light switch that you can turn on and off, right?
• 5:51
  SPEAKER_02: It it might take some time once they do pull the pin and say, hey, we're going to um start increasing our our B shift.
• 5:59
  SPEAKER_02: I I foresee that would take some time to ramp that up even.
• 6:02
  SPEAKER_02: But I don't think that's happening anytime soon.
• 6:06
  SPEAKER_02: Um meaning like uh it'd be months, I would sure guess, before they they start working on the second shift to Amarilla.
• 6:14
  SPEAKER_02: That's just me speculating.
• 6:15
  SPEAKER_02: I have no insight in mind.
• 6:17
  SPEAKER_01: So in two simple sentences, try to explain why all of this news came out and then what it means going forward.
• 6:26
  SPEAKER_02: Yeah, so one of the the big questions you know people have on this, of course, is well, okay, when the Lexington announcement came out, um the market really didn't suffer at all.
• 6:36
  SPEAKER_02: Um and that's very true.
• 6:39
  SPEAKER_02: Uh I I think this one's different.
• 6:41
  SPEAKER_02: Um, and and we we did perform really well today, um better than what I was expecting now.
• 6:48
  SPEAKER_02: Also we're taking about uh what is it, a good oh ten bucks off the market here in the past three, four days, right?
• 6:57
  SPEAKER_02: So that all plays into it too.
• 6:59
  SPEAKER_02: Um but in our opinion, what's different this time around is the hacking industry is working really hard and making some headway on bringing the leverage back into their camp and forcing some margin, uh Packer margin into the industry.
• 7:20
  SPEAKER_02: And and I think they're doing a pretty good job of it.
• 7:22
  SPEAKER_02: You know, Cade's got the chart up here um on the screen, and and this one that needs to be updated with basically today's information, right?
• 7:31
  SPEAKER_02: Uh as we as we trade some cash yesterday and and into today, but you know, they will um on on our proxy, we'll have a negative$80 margin after today.
• 7:43
  SPEAKER_02: Pretty much a tight as it's been all year.
• 7:45
  SPEAKER_02: Exactly.
• 7:45
  SPEAKER_01: Now on that chart, you can see it there.
• 7:47
  SPEAKER_01: There was one little time frame, the beginning of like March there, where it was almost where we flip positive.
• 7:53
  SPEAKER_01: Otherwise, it's been at least worse than$100 all year.
• 7:56
  SPEAKER_02: Yeah, so you're gonna be some of the and still quite confident that they're losing some money.
• 8:02
  SPEAKER_02: That all depends on what metrics you want to use, of course.
• 8:05
  SPEAKER_02: But um yeah, they're they're they're doing better than than what they have been most of this year.
• 8:11
  SPEAKER_02: Um and and I and they were doing that by really aggressive um slowdown on the chain speeds and kill cuts, right?
• 8:20
  SPEAKER_02: So, in in my opinion, and then you look at the seasonality of this thing.
• 8:23
  SPEAKER_02: This is the time of year that if the feedlot is going to lose some leverage, especially in the northern part um of the corn belt, which is you know uh a heavier percentage of the cash negotiated cattle or come up from Kansas, Nebraska, Iowa, and Minnesota, of course.
• 8:40
  SPEAKER_02: So um you look at the seasonality of it, um, look at what the at the speed at which they were uh had this thing slowed down.
• 8:50
  SPEAKER_02: I think they were making some pretty good progress on gaining some leverage.
• 8:54
  SPEAKER_02: And then so this announcement comes kind of on top of that progress.
• 8:58
  SPEAKER_02: And it's immediate.
• 8:59
  SPEAKER_02: It's not like okay, we're gonna close it down two months from now.
• 9:02
  SPEAKER_02: Immediate impact.
• 9:03
  SPEAKER_02: Um I think this secures, and we've talked about this a few times, Mike.
• 9:08
  SPEAKER_02: I mean, um we're just for us, it it makes us more confident that the Packer will certainly make some money uh this fall.
• 9:17
  SPEAKER_02: So you'll have cash prices um lower than where the box beef is.
• 9:23
  SPEAKER_01: So it's all about leverage here.
• 9:24
  SPEAKER_01: Speaking of boxed beef, that thing's acting actually pretty normal right now, isn't it, Jeff?
• 9:29
  SPEAKER_02: Yeah, so it is a little bit encouraged.
• 9:31
  SPEAKER_02: So that's the next the next question that comes up, right?
• 9:33
  SPEAKER_02: If you think about this in a little bit bigger picture, is like, okay, you're telling me the Packers, uh, if we accept the fact that Packers are gonna have some leverage, Packers are gonna make some money, I don't think it'll be a lot, right?
• 9:44
  SPEAKER_02: Like, I don't think they'll be able to just determine I I whatever you know, whatever the cash market they want it to be.
• 9:50
  SPEAKER_02: Um, it'll be linked to the box beef prices.
• 9:53
  SPEAKER_02: So when you if you make that um kind of adjustment in your thought process compared to what we've seen the past few years, well, now the most logical question is okay, that's great.
• 10:03
  SPEAKER_02: Now where's boxed beef going?
• 10:05
  SPEAKER_02: Right?
• 10:05
  SPEAKER_01: So um history would suggest up till the end of the month.
• 10:10
  SPEAKER_02: Yeah, that's the that's the history, and I and you might see that, but the the important thing to note in this environment is um yes, we're seeing a normal increase in choice meat, um, but and and that could last until Labor Day, but you're doing that with extremely low kill levels, Mike.
• 10:30
  SPEAKER_02: So we are we have reduced the supply of this thing in a big fashion, and that's getting us, you know, this$10 to$13 increase in box beef.
• 10:41
  SPEAKER_02: I I'm afraid uh if if we do see some margins here, and if we see the the I think that I gotta believe the Packers are gonna be interested in killing a few more cattle.
• 10:51
  SPEAKER_02: Um that either that or the fact that you get closer and closer, or you know, in a couple weeks already through uh Labor Day, I think you're gonna take these box beef prices back down again.
• 11:04
  SPEAKER_01: All right.
• 11:05
  SPEAKER_01: Any other final thoughts for our uh cattle guys to look forward to here?
• 11:09
  SPEAKER_01: It's gonna be a hard, hard market to analyze.
• 11:12
  SPEAKER_01: Nothing new there for the cattle market here recently, but uh next week, pretty big week again.
• 11:17
  SPEAKER_02: Yeah, it it'll be interesting to see what cash wants to do.
• 11:19
  SPEAKER_02: You know, what they what they tried to do today is uh come in here and buy them, you know, in the low 220s, right?
• 11:25
  SPEAKER_02: 223 to 225 earlier today.
• 11:27
  SPEAKER_02: Um did not get that job done.
• 11:29
  SPEAKER_02: So had to come back here this afternoon and and pay some more 228.
• 11:34
  SPEAKER_02: I think that's really good news.
• 11:35
  SPEAKER_02: I think we'll see more of that.
• 11:37
  SPEAKER_02: Um the feedlots really aren't interested in in panic selling a lot of cattle here.
• 11:44
  SPEAKER_02: It's gonna make it's gotta make sense.
• 11:46
  SPEAKER_02: It's either gonna make sense from a basis standpoint for the hedger or a way for uh the the open market cattle to maybe get rid of some inventory, but at some um you know reasonable levels compared to their breakeven.
• 11:59
  SPEAKER_02: So I think most of the cattle are probably losing some money today, but not a lot either.
• 12:05
  SPEAKER_02: Um, so I I I think the you know cooler heads kind of prevailed here um when the day was all said and done, and and that's what you've seen happen in the futures market too.
• 12:16
  SPEAKER_02: You know, went down from four something to lower, just trading a dollar lower on the day.
• 12:22
  SPEAKER_02: I I I think that's some really good signals to this market.
• 12:25
  SPEAKER_02: But next week is another week.
• 12:27
  SPEAKER_02: We'll see what happens.
• 12:28
  SPEAKER_01: All right.
• 12:28
  SPEAKER_01: Well, thank you for your time, Jeff.
• 12:30
  SPEAKER_01: Please reach out if you have any questions on some of the LRP or LGM products here going into tonight, or if you have any questions about any other market research or daily market information, please click the link on the description below.
• 12:43
  SPEAKER_01: You can get hooked up with some of that.
• 12:45
  SPEAKER_01: Thank you, Jeff.
• 12:46
  SPEAKER_01: Have a good weekend.
• 12:47
  SPEAKER_02: Thank you.