Latest / Professional Ag Marketing Podcast / Cattle: New Food Pyramid

Transcript

Cattle: New Food Pyramid · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_00: Welcome to the Cattle Market Talk Podcast with Professional Ag Marketing.
• 0:04
  SPEAKER_00: Come here to get your fresh updates on what's happening week to week within the cattle market.
• 0:09
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:15
  SPEAKER_00: Today is January 9th.
• 0:17
  SPEAKER_00: I've got Jeff with us here today.
• 0:18
  SPEAKER_00: How's it going, Jeff?
• 0:19
  SPEAKER_00: Good afternoon, Mike.
• 0:20
  SPEAKER_00: It's going good.
• 0:21
  SPEAKER_00: Awesome.
• 0:22
  SPEAKER_00: Well, we're going to talk about a few things with the cattle market here today.
• 0:25
  SPEAKER_00: We're going to start with the cash a little bit.
• 0:27
  SPEAKER_00: We're going to talk about the demand side of the category, maybe mix in the new food, food pyramid with it, and then uh just wrap up with some final thoughts.
• 0:35
  SPEAKER_00: So, Jeff, kick us off with kind of what the futures did this week and why you think a little bit and how cash was involved with that.
• 0:42
  SPEAKER_01: Yeah, so last week, Friday was the big up day, right?
• 0:45
  SPEAKER_01: And that was on some significantly higher cash one week ago.
• 0:51
  SPEAKER_01: Um and the futures market that was trading some premium to what you know we've we've really narrowed the gap between what the southern bid is and what the northern bid is here the last few weeks, also.
• 1:01
  SPEAKER_01: Um South volume in the south has been really sketchy, but I think that's still a true statement.
• 1:07
  SPEAKER_01: Um so February futures were in the mindset going home a week ago today, Mike.
• 1:13
  SPEAKER_01: Um I know that's getting back their ways on as far as timing goes, but you know that we're gonna continue to put two dollars or more per week onto the cash market as we go through January and into the first part of February is kind of what I believe it was pricing in.
• 1:31
  SPEAKER_01: Um this week was a very flat market to slightly lower.
• 1:36
  SPEAKER_01: And I think what we have going on there is we we did achieve just a little bit higher cash market, uh, especially in the on the uh uh in the meat uh carcass bids.
• 1:48
  SPEAKER_01: Um they're gonna be 365 this week.
• 1:51
  SPEAKER_01: I think most of the cash has taken place and took place here at 232 live.
• 1:56
  SPEAKER_01: So arguably, you know, steady to smidge it higher week over week on that.
• 2:02
  SPEAKER_01: Futures have come down and have lost some of their optimism this week, which I think is kind of justified, Mike.
• 2:09
  SPEAKER_01: It it's I'm not I think the cash market's probably gonna struggle just a little bit um as far as you know the next few weeks at least.
• 2:22
  SPEAKER_01: And largely that is gonna be centered around, you know, as you can imagine, packed margins and lower kills.
• 2:29
  SPEAKER_01: So we are going to uh we're experiencing some of the worst Packer margins that we've seen.
• 2:35
  SPEAKER_01: I think, you know, not the worst, but we're right there um kind of in competition with some of the lowest marks we've seen.
• 2:42
  SPEAKER_00: It's worse than what we've been doing.
• 2:44
  SPEAKER_01: Yeah, I mean it was you know we had some pretty good mar margins for the packer in there for a few weeks.
• 2:49
  SPEAKER_01: That drove product our harvest levels higher, and now we've we've absolutely crushed those cra uh packer margins here.
• 2:58
  SPEAKER_00: So can you explain what came first, like the chicken or the egg here?
• 3:01
  SPEAKER_00: Because when I look back before December, we were killing like uh we had a harvest of like 10% lower year over year on cattle, right?
• 3:08
  SPEAKER_00: Early part of December, it was almost the same as last year.
• 3:11
  SPEAKER_00: Now it looks like we're going lower again, probably harvest five down five percent.
• 3:17
  SPEAKER_00: Explain to me what came first here.
• 3:19
  SPEAKER_00: You know, because I'm trying to figure out like what were the margins there because of the situation we had at hand, or or were they provided to us uh explain to me what came first.
• 3:33
  SPEAKER_01: Yeah, the the margins were you know situation based and and they were really driven by the lower futures market that started stemming off back when Trump said he was going to lower beef prices.
• 3:45
  SPEAKER_01: You know, we had lower beef prices, we had um Brazilian uh export um tariff decreases, you know, we had several news items there that uh really you know, in in hindsight here now drove those futures lower, which drove the cash price lower.
• 4:05
  SPEAKER_00: And in that example, that's why we killed more.
• 4:07
  SPEAKER_01: And that's what that's what manufactured the margin for the packer, which they responded to by increasing kills.
• 4:15
  SPEAKER_01: Gotcha.
• 4:16
  SPEAKER_01: Quite a bit.
• 4:16
  SPEAKER_01: Quite a bit.
• 4:17
  SPEAKER_01: We we produced uh there's a couple weeks in December there when you combine the weights and the kills, we put out more meat than what we did last year.
• 4:26
  SPEAKER_01: And like you change the pace.
• 4:27
  SPEAKER_01: Yeah, like you said in October we were we were pushing some of those weeks at almost 10% less.
• 4:32
  SPEAKER_00: So now um we're back into that hole again, kind of, or that that slide back into the room.
• 4:38
  SPEAKER_01: So you chewed up the cattle, and now we're looking at um really short numbers again, and we've had to they've had to bid up the cash market, which drove the futures up.
• 4:49
  SPEAKER_01: That's the way that's all supposed to work.
• 4:51
  SPEAKER_01: But in the background, those heavy kill weeks really put some pressure on box beef.
• 4:59
  SPEAKER_00: Yeah, so the heavy kill weeks put pressure on box weave and beef, which we're still seeing today because we're still running pretty much the lowest now that we've been since going all the way back to spring of of this last year here.
• 5:13
  SPEAKER_01: Correct.
• 5:14
  SPEAKER_01: Like May.
• 5:15
  SPEAKER_01: And I think people are gonna be watching that box beef value really through a microscope here, Mike.
• 5:21
  SPEAKER_01: It's gonna start going up soon.
• 5:22
  SPEAKER_01: Yes, and we're gonna be very sensitive to that.
• 5:24
  SPEAKER_01: So it went up just a little over six dollars in the past week.
• 5:29
  SPEAKER_01: And we are gonna kill um our kills for this week are going to be down uh you know, down in the 550, 560 area, the way it looks, versus six hundred um kind of before New Year's there.
• 5:46
  SPEAKER_01: So significant decrease in kills.
• 5:49
  SPEAKER_01: We saw a six dollar increase in box beef.
• 5:55
  SPEAKER_01: I think that's well clearly, clearly that's enough or at least enough where the futures didn't crash and burn.
• 6:01
  SPEAKER_01: Yeah right.
• 6:02
  SPEAKER_01: So we're that I think we needed to be at least six dollars, probably ten dollars if the February board was a ten dollar increase I'm talking about in choice beef box beef, if the futures were gonna continue to maintain that optimism that we saw one week ago compared to the cash market.
• 6:21
  SPEAKER_01: Okay, so that's what I mean.
• 6:23
  SPEAKER_01: We're gonna be watching this every step of the way.
• 6:25
  SPEAKER_01: I think next week, if you see a three to five dollar increase, expect steady to lower futures values.
• 6:34
  SPEAKER_01: Yep.
• 6:34
  SPEAKER_01: If you see a$10 bump, we're probably charging higher again on the futures market.
• 6:39
  SPEAKER_00: Gotcha.
• 6:40
  SPEAKER_00: I'm really watching that going, especially towards more into that March time frame because we've really fallen off on cutout going into March.
• 6:47
  SPEAKER_00: So I want to see us go up as fast as we can here for a little bit or at least really hold our levels just to prepare for that little setback we may have there.
• 6:54
  SPEAKER_01: I think either way, short term, you're putting significant um pressure on the harvest speeds.
• 7:01
  SPEAKER_01: I gotta believe there's enough cattle around to um, you know, fill the kills that we've currently got scheduled for the next week or two, right?
• 7:10
  SPEAKER_01: And that that'll be another thing we're watching.
• 7:12
  SPEAKER_01: Do do we still have to bid up on cash, even though we've reduced the kills by 50,000 a week?
• 7:18
  SPEAKER_01: You know, that'll be a that'll be another thing that, you know, kind of day by day, week by week for sure, the market's gonna have an extra sharp eye on.
• 7:27
  SPEAKER_00: And I know from the the demand category as well, it it seems like it's Q1.
• 7:32
  SPEAKER_00: We're off to a pretty decent start.
• 7:34
  SPEAKER_00: The stock market's running well now.
• 7:36
  SPEAKER_00: We're above 7,000 on the S P 500.
• 7:39
  SPEAKER_00: Uh, yes, the fast food industry probably in some of these restaurants have been struggling, just uh rising costs, inflation, labor, and increased competition.
• 7:49
  SPEAKER_00: Um we're changing consumer habits a little bit.
• 7:52
  SPEAKER_00: So you know, we're we're gonna experience more dining at home a little bit, some value seeking out there.
• 7:58
  SPEAKER_00: Um we've had some market saturation over the past few years as well, so we gotta weed out some of the competition probably, and someone's gonna have to close up shop here or there.
• 8:07
  SPEAKER_00: But overall, the uh I think the trend of uh the consumers right now is still okay.
• 8:13
  SPEAKER_00: It could be better, people could spend more money, but at this point, just seeing what we're seeing, uh no uh real alarms are going off at the time being, Jeff.
• 8:22
  SPEAKER_01: If it I think you know, we've always talked about beef being the tip of the spear on this conversation, Mike, and I think that's still true.
• 8:29
  SPEAKER_01: So that's why the next couple weeks are gonna be so important as we watch these values.
• 8:35
  SPEAKER_01: Um, you know, one another thing that we're looking at is so if we struggle to gain some speed here, I think that's that will become a huge alarm bell.
• 8:44
  SPEAKER_01: The other thing that got really interesting is the choice select spread went down to almost zero last week.
• 8:49
  SPEAKER_00: Select traded higher than choice at that at one point there, didn't it?
• 8:53
  SPEAKER_01: Yeah, barely.
• 8:54
  SPEAKER_01: I don't know if that's just a flukey.
• 8:54
  SPEAKER_01: But that was just a fluke weird thing.
• 8:56
  SPEAKER_01: I mean the the points, I mean zero is extremely tight, right?
• 9:00
  SPEAKER_01: Yeah.
• 9:00
  SPEAKER_01: Um whether that's a that can be a supply thing or that can be a demand thing.
• 9:05
  SPEAKER_01: Um we were obviously putting a ton of supply on the market during that same time, also.
• 9:10
  SPEAKER_01: Uh so that's gonna be a you know, watching that spread's gonna be worth your time in the next couple weeks also.
• 9:15
  SPEAKER_01: If if we can spread that back apart to 12 to 15, okay, things are probably fine, especially if a company with higher beef prices.
• 9:24
  SPEAKER_01: If it struggles to come apart, then I'm gonna start getting pretty concerned.
• 9:28
  SPEAKER_01: But I I gotta, I I just think, you know, you're I think your kill levels are down far enough.
• 9:33
  SPEAKER_01: I think everything's gonna be okay.
• 9:34
  SPEAKER_01: We're we're gonna sneak out of here just fine.
• 9:37
  SPEAKER_01: Um, but that's what the market's gonna be watching awful close.
• 9:40
  SPEAKER_00: Speaking of watching some things very close and consumers, I I wanted to take the time to to talk about the new U.S.
• 9:47
  SPEAKER_00: dietary guidelines, Jeff.
• 9:49
  SPEAKER_00: Very interesting.
• 9:50
  SPEAKER_00: It's very interesting.
• 9:51
  SPEAKER_00: And I I want this to be uh I need you to look at this a little bit outside of the box because a lot of us in agriculture, we saw RFK coming into this administration and maybe had us a little worried or concerned about some of the upending of things that he was potentially doing.
• 10:09
  SPEAKER_01: Certainly.
• 10:10
  SPEAKER_00: However, now you are in the protein industry, you produce beef and pork, Jeff.
• 10:16
  SPEAKER_00: And what they just came out with is a good thing for you as a producer.
• 10:21
  SPEAKER_00: And all they did was they took that food pyramid and they flipped it upside down, and that's basically all we did.
• 10:27
  SPEAKER_00: And if you think about it, you know, they're trying to discourage things like ultra-processed foods, added sugar, refined carbohydrates, and and they're trying to promote higher consumption of protein, Jeff.
• 10:39
  SPEAKER_00: And what you produce is protein, whole foods, whether it be, you know, milk at a dairy or whether it be uh, you know, pork or beef, that's what we're uh that's what agriculture is producing.
• 10:51
  SPEAKER_00: Sure, when I'm looking at it from the lens of as a row crop producer, I really like the 700 or so million bushels of corn that's produced to make uh things like corn syrup and that we use now in the more middle aisle of the grocery store.
• 11:05
  SPEAKER_00: However, I would much rather take that bushel of corn and feed a calf rather than have it be made into corn syrup.
• 11:13
  SPEAKER_01: You'd much rather put the last 50 pounds on a 1600 pound steer where it takes 15 pounds of corn to make a little over a pound of beef or something like that.
• 11:22
  SPEAKER_00: Exactly.
• 11:22
  SPEAKER_00: That's much more beneficial to everyone involved in agriculture.
• 11:25
  SPEAKER_00: Now, this is a I I I should say some people, you know, more Pat than me.
• 11:31
  SPEAKER_00: He he's a little bit further thinker and can see further out in the future than I can.
• 11:35
  SPEAKER_00: He's been expecting this down the road, where I I was maybe a little bit more naive and cautious on this approach.
• 11:42
  SPEAKER_00: But I viewed this, I'm like, this is awesome for you livestock producers in this world.
• 11:48
  SPEAKER_01: Well, I think for the grain pers producer too.
• 11:50
  SPEAKER_01: Like I say, it's it's a really inefficient um that's probably the wrong term, but it it takes more more grain to put on to put them to make protein, of course, than you know, a corn syrup based diet or something like that.
• 12:04
  SPEAKER_01: So you can and one thing that livestock producers do, just like uh row crop producers, Mike, if if we make a little bit of money, we're gonna expand.
• 12:14
  SPEAKER_01: Yeah.
• 12:14
  SPEAKER_01: Right?
• 12:15
  SPEAKER_01: So uh the whatever this demand uh if there's some demand, and I do think there'll be demand driven into the the US um dietary guidelines here for protein, but that soon will trickle down into the grain portion of the world, also would be my belief.
• 12:32
  SPEAKER_00: Yeah, it is just gonna take a little bit.
• 12:34
  SPEAKER_00: Um so that's kind of what I had on it on the new pyramid, anyways.
• 12:38
  SPEAKER_00: I think Jeff that was worth talking about.
• 12:40
  SPEAKER_01: Yep, definitely something to be aware of.
• 12:42
  SPEAKER_01: I I I think it matters.
• 12:44
  SPEAKER_00: Any final thoughts about the uh cattle market here this week?
• 12:47
  SPEAKER_01: The only other thing we've been watching a little bit is the chart again.
• 12:50
  SPEAKER_01: Um you know, we had that big update a week ago since then.
• 12:53
  SPEAKER_01: We've we've had some lower highs, and the lows have been kind of steady to slightly lower.
• 13:00
  SPEAKER_01: I'd call I'd say we're in a very sideways uh pattern here this week, but very narrow, Mike.
• 13:07
  SPEAKER_01: So let's be watching that.
• 13:08
  SPEAKER_01: We know momentum traders love to get on board with this cattle market, so I think whichever direction you start moving next week, expect some follow-through.
• 13:17
  SPEAKER_00: Good point, good point.
• 13:18
  SPEAKER_00: It's gonna be a vol of the week.
• 13:20
  SPEAKER_00: Monday, we got the Wazd Airport gonna come out with a bunch of good stuff on the grains and livestock included.
• 13:26
  SPEAKER_00: Uh, some of today maybe was in anticipation of that on the on the cattle trade I saw uh seemed a little bit off, but hey, they mentioned it anyway.
• 13:34
  SPEAKER_00: So thank you for coming on the show today.
• 13:35
  SPEAKER_00: I appreciate it, Jeff.
• 13:36
  SPEAKER_00: We'll see you tomorrow at the Port Classic at SDSU, where we're gonna get down on the floor and hopefully buy a pig, Jeff.
• 13:43
  SPEAKER_00: Awesome.