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The Pivot · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the egg markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:24
  SPEAKER_00: Today is December 15th.
• 0:25
  SPEAKER_00: I've got Jeff with us here today.
• 0:27
  SPEAKER_00: How are you doing, Mike?
• 0:28
  SPEAKER_01: We're doing pretty good.
• 0:30
  SPEAKER_00: Good deal.
• 0:31
  SPEAKER_00: Well, we're going to talk about this pivot mania this week that has been occurring.
• 0:35
  SPEAKER_01: Jeff you can't help but almost get a little bit, do I dare say, optimistic?
• 0:42
  SPEAKER_00: Yeah, that's exciting.
• 0:43
  SPEAKER_01: That's a little different feeling for us uh livestock producers, Mike.
• 0:48
  SPEAKER_00: You're gonna you're gonna start talking about optimism right before we talk about cattle, aren't you?
• 0:54
  SPEAKER_01: Must be a coincidence.
• 0:55
  SPEAKER_00: Yeah.
• 0:56
  SPEAKER_00: So we're talking about the Federal Reserve chair, J Powell.
• 1:00
  SPEAKER_00: He poured some lighter fluid over the market this week that was already betting on a pretty decent pivot in monetary policy for 2024.
• 1:09
  SPEAKER_00: And you know, bonds, share prices, commodities, whatever the case was, they all pretty much surged after Powell's announcement on Wednesday.
• 1:17
  SPEAKER_01: Hit on a few specifics there for us in case we missed a few items uh on that one, Mike.
• 1:22
  SPEAKER_00: Yeah, so he signaled that policymakers had really discussed interest rate cuts for 2024.
• 1:28
  SPEAKER_00: And uh it with that being said, it was like 110 basis points is kind of what they discussed through through three different cuts.
• 1:37
  SPEAKER_00: Um what time frame that's gonna happen in, not really so certain on the time frame.
• 1:43
  SPEAKER_00: Like I know the New York Fed president, he came out today, tried to attempt to rein in the market a little bit, and some of this euphoria by saying, you know, March was too early to start talking about a cut.
• 1:55
  SPEAKER_00: Before the report, it was already estimated we're gonna have a cut in May.
• 1:59
  SPEAKER_00: So for them to cut 110 110 basis points three times, some people were taking that as well, maybe we'll have a cut before that.
• 2:09
  SPEAKER_00: But nonetheless, um his optimism to cut rates because of uh in his own words, which this is what they really found friendly, the market did at least, was that he has the ability or has is expecting to cut rates without the economy being in a dire position.
• 2:32
  SPEAKER_00: So uh going into this, we raised interest rates too slow at first.
• 2:38
  SPEAKER_00: And they waited for uh economic data to suggest that, okay, now is the time to start raising rates when you already knew inflation was coming.
• 2:47
  SPEAKER_00: So a lot of us figured, and the market especially, that on the way back when we were gonna start cutting rates, uh, the market was already gonna have to be the economy was already gonna have to be in a really dire position, showing a recession, uh times were hard, things like that before we used the leverage we just built and cut rates.
• 3:06
  SPEAKER_00: But he came out and said, no, we can cut rates if we just see normalization, which would be basically inflation stopping.
• 3:14
  SPEAKER_00: Yep.
• 3:14
  SPEAKER_00: And we've pretty much seen that.
• 3:16
  SPEAKER_01: So if I can just say it in a little bit different words, same thing.
• 3:22
  SPEAKER_01: Um, but and we're pretty we're pretty excited about this.
• 3:26
  SPEAKER_01: If I think that's maybe the right term.
• 3:28
  SPEAKER_01: I mean, we'll get into that here in a minute as to how it affects the markets we care about.
• 3:33
  SPEAKER_01: But really, you know, if if everybody remembers, when when inflation started taking off, we we sat in this room and did the podcast, I think, uh, several times.
• 3:42
  SPEAKER_01: I remember talking about like why are we not increasing rates?
• 3:46
  SPEAKER_01: We've got eight, nine percent in um inflation year over year, and they waited for you know quite a few months of higher inflation before they started aggressively uh adapting the rates higher.
• 3:59
  SPEAKER_01: And now it looks like we're gonna start um chasing them lower without uh, like Mike's saying, without any negative news.
• 4:07
  SPEAKER_01: So kind of pro, um I guess the easiest way for me to think about it is we're going to we're we're if we're gonna miss this thing, um, we're not going to adjust rates too high for too long.
• 4:21
  SPEAKER_01: If we're gonna get it wrong, if the Fed's gonna get it wrong, they're gonna favor in the in the in the form of uh too high of inflation versus pushing ourselves into a recession.
• 4:33
  SPEAKER_01: That's that's what I think the marketplace is most focused on is the chances of recession in in their minds and and I think ours as well has uh decreased here substantially based on the idea if we're gonna take hundred and some basis points out of the interest rates in the next twelve months.
• 4:49
  SPEAKER_00: And why this matters, so like crude oil, they rallied most in over a month after being propelled by this broader risk-on sentiment after the central bank's focus seems to be shifting more towards cutting rates, which would be that's your pivot.
• 5:04
  SPEAKER_00: Um you know, when we look at the other commodities, gold kind of reacted from this too, the Dow put in a record price, which kind of snuck up on us as well.
• 5:14
  SPEAKER_00: Uh the commodities uh otherwise got a pretty decent little lift.
• 5:18
  SPEAKER_00: But I think the the crude oil getting a bounce here, that's gonna impact corn and other things too.
• 5:23
  SPEAKER_00: But I I don't want to sleep on the impact of the U.S.
• 5:26
  SPEAKER_00: consumer when it comes to not just crude oil, but also the cattle side.
• 5:31
  SPEAKER_00: You know, this is gonna encourage the thought that interest rates have one peaked and that the implications are positive for beef as consumers might be in store for some much more needed relief from the burden of high interest rates on household budgets, for example.
• 5:48
  SPEAKER_00: Um, it's also a positive influence on beef exports, where you know the value of the dollar in in a current cross-currency transaction is uh a large factor in the price of our beef abroad.
• 6:02
  SPEAKER_00: So with that being said, I mean the US dollar tanked really hard after this news as well, and that's helping these commodities really rally.
• 6:10
  SPEAKER_00: But yeah, that US dollar, the value of the dollar plunging um after uh Powell's statement, anyway.
• 6:16
  SPEAKER_01: So you get a you get a good guy from a couple different angles.
• 6:19
  SPEAKER_01: Exactly.
• 6:19
  SPEAKER_01: A little bit less chance of recession, a little bit better movement as far as uh the export market goes.
• 6:25
  SPEAKER_01: And you know, on the other side of maybe the third item here in question is just the money flow.
• 6:30
  SPEAKER_01: And I know we've talked about money flow on this podcast and others much more often in the past few weeks than what we have in the past few years, Mike.
• 6:38
  SPEAKER_01: But I do think that's important.
• 6:40
  SPEAKER_01: I think it's been a big factor in the marketplaces that we care about.
• 6:44
  SPEAKER_01: So, you know, they've continued to sell off uh a lot of these markets, and especially on the protein side in the past two to three weeks.
• 6:52
  SPEAKER_01: And cattle have had one of the bigger top um targets on the back on their back here.
• 6:58
  SPEAKER_01: And you know, there's still the managed money was still a little bit long that uh you know, a week ago when we were putting in the lows in the cattle market, um, but they had really reduced that position by a bunch.
• 7:10
  SPEAKER_01: And I I continue to blame maybe you know half or so of this drop that we've seen in cattle futures on the managed money and and index fund liquidation here.
• 7:22
  SPEAKER_01: Um, no question in that market specifically, and in the hog market for that matter, um, but specifically on the cattle, we've gotten ourselves into trouble on the uh supply situation, short-term supply situation.
• 7:35
  SPEAKER_01: You know, we've we've uh had some on-feed reports that were higher than what we thought, and that kind of kept us uh with equal supply as what we were at a year ago, and then you know, we held some cattle from October, put those into November, December.
• 7:51
  SPEAKER_01: We and then this weather has just been phenomenal for cattle growth.
• 7:56
  SPEAKER_01: So, you know, not only are we having to deal with a few cattle that we've drug into this time of year from the month prior, I think we also are starting to deal with some of the cattle that were slotted maybe for you know the very end of December going into January, and they're just fifty, seventy-five pounds heavier than what they're supposed to be, Mike.
• 8:17
  SPEAKER_01: And uh, I think you know, especially in some of the geographies further south, if you're trying to hit a grid market or something, you're uh conscious of those weights and you're trying to get rid of them before the uh the high heavy carcass stocks uh start coming into play.
• 8:33
  SPEAKER_01: So we've been disappointed in the cash market, we've been disappointed in the available supply.
• 8:39
  SPEAKER_01: We've uh been disappointed because of the a large amount of sell-off that we've seen in from the fund activity.
• 8:47
  SPEAKER_01: So we're hoping we can see a pretty significant short covering type of a move here.
• 8:55
  SPEAKER_01: As uh you know, folks that have bailed out of these markets, maybe some of them have gotten short here.
• 9:01
  SPEAKER_01: They're gonna want to be buying back or getting out of those short positions.
• 9:06
  SPEAKER_01: And you know, as you break down the two protein markets that we're watching on the hogs and the cattle here since this announcement here the past couple days, and we've had two up days, which I guess that's that's probably a pretty big win in both of those markets.
• 9:21
  SPEAKER_01: But I've been just a little disappointed with the cattle.
• 9:24
  SPEAKER_01: Maybe that's me being too optimistic.
• 9:27
  SPEAKER_01: I we've done some good things, we've crossed over some moving averages, we've crossed over kind of a downtrend uh channel, you know.
• 9:35
  SPEAKER_01: So so from a technical standpoint, I like what we've done here.
• 9:39
  SPEAKER_01: We've fought off this tendency to rally three, four days and then all of a sudden crash back to new lows that we've been accustomed to as this market has moved lower over the past two months.
• 9:52
  SPEAKER_01: Um so we're we're optimistic.
• 9:56
  SPEAKER_01: We're optimistic the outside markets can kind of be a friendly factor here on both the hogs and the cattle, specifically the cattle.
• 10:04
  SPEAKER_01: Um we probably aren't out of the woods from a supply standpoint in any of those in either of those markets at this time, but hopefully the futures can kind of help start pushing us out higher and or at least establish some sort of baseline here.
• 10:20
  SPEAKER_01: Um, you know, we're already six, seven dollars off a lot of the lows on the cattle market, so we're we're going in the right direction, at least for the time being here.
• 10:30
  SPEAKER_00: That slaughter number, that's only about 13,000 head less than uh last year.
• 10:35
  SPEAKER_00: That's that's that was like 40, 50k, not too long ago.
• 10:40
  SPEAKER_01: I so I'm gonna call that a good guy, honestly.
• 10:42
  SPEAKER_01: I mean we we are going to have to ramp up the shackle to get rid of some cattle.
• 10:46
  SPEAKER_01: That's all there is to it.
• 10:48
  SPEAKER_01: Um this this killing fifty thousand less than last year, like we did most of the summer and early fall, that's just not enough.
• 10:57
  SPEAKER_01: And so, like it or not, we're gonna have to work through some and if we're gonna see any better markets as we get into next spring.
• 11:05
  SPEAKER_00: Thank you for joining us today, and thank you to all our listeners.
• 11:09
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 11:12
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 11:18
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 11:24
  SPEAKER_00: See you next time.