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What to do About This Cattle Rally? · 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.
• 0:13
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:22
  SPEAKER_01: All right, today is August 5th.
• 0:24
  SPEAKER_01: I've got Jace with us here today.
• 0:25
  SPEAKER_01: We're going to talk about the cattle market.
• 0:27
  SPEAKER_01: How's it going today?
• 0:28
  SPEAKER_01: Good.
• 0:29
  SPEAKER_01: Awesome.
• 0:30
  SPEAKER_01: Well, we're going to get started here.
• 0:31
  SPEAKER_01: So let's talk about this futures market on the cattle here.
• 0:34
  SPEAKER_01: We put in a high somewhere around the middle of June on the cattle market, and then we had a really steep sell-off pretty much from June 15th until uh July 15th.
• 0:43
  SPEAKER_01: We didn't have a green day.
• 0:45
  SPEAKER_01: It was a lot of consecutive red days.
• 0:47
  SPEAKER_01: And I wanted you to walk through why we saw some of that weakness and then why we've kind of found a little support here lately to really set us up for why this market has been a hard one to analyze as of late and why this little rally now has us sitting in a bit of a tough spot.
• 1:05
  SPEAKER_02: Yeah, so I think we've we've looked at since the beginning of the year pretty much with the placement numbers and the catalogon feed numbers that that we've beef production was going to get similar to a year ago around this August time frame.
• 1:21
  SPEAKER_02: So that's kind of been in the back of everybody's mind.
• 1:24
  SPEAKER_02: We'd seen cutout put in highs for the year back in March, and then didn't reclaim those highs at all in the rally in June and into July.
• 1:35
  SPEAKER_02: So like last year, your high, your first high was put in in July, and and you that's seasonally normal, and then dipped, and then put in another high, put a year high in like in September, so later than normal.
• 1:51
  SPEAKER_02: And we didn't we we didn't see that this year, so you add that on top of the beef production that's coming down the pipe.
• 1:59
  SPEAKER_02: And you you didn't put in you didn't put in new highs on the cutout.
• 2:04
  SPEAKER_02: You've got weights that are heavier, you've got higher imports, and I think just all of that together had people nervous, and then we started running into some bigger cattle.
• 2:12
  SPEAKER_02: So we saw the cash market fall, we saw bigger show lists, and that just kind of all added on top of it.
• 2:19
  SPEAKER_01: Interesting.
• 2:19
  SPEAKER_01: That's a great setup for this.
• 2:21
  SPEAKER_01: I I want to go a couple steps deeper, though.
• 2:24
  SPEAKER_01: I want Kate to take us through a few more of these slides and just uh take it another step deeper.
• 2:31
  SPEAKER_01: So explain to me what you've seen in particular in in the cutout uh with some of these other factors fundamentally, Jace, to just kind of break down for us.
• 2:42
  SPEAKER_02: Yeah, so the the cutout, like you have outside influences like oil prices being really high this spring.
• 2:50
  SPEAKER_02: You never saw you never saw your um cutout really get above last year's level during the summer, and just just kind of feel like we've been we've we've raised our imports by like five percent year over year, and that makes a that makes a huge difference, especially when they aren't they aren't labeled when you go to the grocery store.
• 3:13
  SPEAKER_02: If you get a Argentina beef patty, you're not you don't you don't necessarily know that you are.
• 3:21
  SPEAKER_02: So it's there's no origin labeling at all.
• 3:23
  SPEAKER_02: There's no country of origin labeling.
• 3:25
  SPEAKER_02: And and if there is, if it was processed here, it looks like a US label.
• 3:31
  SPEAKER_02: So it's it's just there's there's a lot of discussion around that on the cattle guys side.
• 3:36
  SPEAKER_02: You know, they would like that, they would like that changed, but um, you do have you have that piece of it and just more imported beef.
• 3:44
  SPEAKER_02: And so you forced you forced the cutout lower.
• 3:47
  SPEAKER_02: But I will say that even with all that, even with similar production now, it's still lower than last year, but closer to normal or closer to last year's production, and you do still have a beef cutout that is similar to where it was last year.
• 4:03
  SPEAKER_02: So there are there are good things in this market.
• 4:05
  SPEAKER_01: And that cutout acting pretty seasonal at this point, right?
• 4:08
  SPEAKER_01: We bought them last year at an almost identical price, finding a little bit of support here.
• 4:13
  SPEAKER_01: Uh, very seasonal.
• 4:14
  SPEAKER_01: Normally, this pretty good little run here for a little bit on this cutout.
• 4:18
  SPEAKER_01: So hopefully we can get some good news in there.
• 4:20
  SPEAKER_01: Talk to me a little bit more about the cattle we lost in this heat.
• 4:23
  SPEAKER_02: Yeah, that's a very um nobody really knows the number of what we lost, but there are the numbers of you know in the 30, 20,000, 30,000 number area has been has been thrown around.
• 4:37
  SPEAKER_02: And I that that does matter because you aren't losing a you probably aren't losing a thousand-pound feeder calf.
• 4:44
  SPEAKER_02: You're losing uh the big one.
• 4:45
  SPEAKER_02: You're losing the big one.
• 4:47
  SPEAKER_02: So it hurts it hurts the pocketbook, but it also it also probably helps the cash market for a little bit here because you've got to buy that many more in the cash market.
• 4:57
  SPEAKER_01: It was also announced recently that the border would be reopening on August 24th.
• 5:03
  SPEAKER_01: I want to use this discussion to break into the funds a little bit here because do you think that opening news has just given the funds the ability to not have to worry about it anymore?
• 5:15
  SPEAKER_01: They they know when that date is.
• 5:17
  SPEAKER_01: Now we have the potential to screw it up and not open up, which would be good news, right?
• 5:21
  SPEAKER_01: Uh technically.
• 5:22
  SPEAKER_01: So tell me a little bit about how the funds have been acting lately in light of or following that uh announcement, and and they've trimmed a little bit, haven't they?
• 5:32
  SPEAKER_02: Yeah, they absolutely have.
• 5:34
  SPEAKER_02: And I think I think what you're seeing is just like you said, the the border opening has been this piece that we didn't want to think about.
• 5:45
  SPEAKER_02: You know, it's gonna hurt the market, it's gonna hurt the market.
• 5:48
  SPEAKER_02: And so they've been selling off into that.
• 5:51
  SPEAKER_02: And now you have the announcement, you know the procedure, you know that Douglas, Arizona is gonna open.
• 5:56
  SPEAKER_02: That's about 20% of our live cattle imports if you if you just look at that, or feeder cattle imports from Mexico, if you just look at that port.
• 6:05
  SPEAKER_02: So you know, you kind of know the breakdown of numbers and how it's gonna go.
• 6:10
  SPEAKER_02: And from here, from here, the how they're reacting now is that the news, the news could really only get better, you know, that that you have a screwworm case at the border crossing, and then you shut it back down, or that sort of a thing.
• 6:25
  SPEAKER_02: So it's it's kind of a known as to how that thing's gonna open, and it's they have to be held there for a certain time period.
• 6:32
  SPEAKER_02: And so there's there's a little bit of an uneasy feeling for guys thinking about buying from there, not knowing, you know, what the what the shrink's gonna be, what they're gonna be fed when they're at the border, just just uncertainty around it.
• 6:47
  SPEAKER_02: So I think I think for the funds, that's a that's a bright spot that that we know what that's gonna be now instead of this cattle market has just been a world of unknowns.
• 6:57
  SPEAKER_01: They still have some that they could trim on the funds, so keep an eye on that.
• 7:01
  SPEAKER_01: But I I want you to explain to me a little bit about just in general, why this market has been a really difficult one to analyze as of late.
• 7:09
  SPEAKER_01: And then just talk to me a little bit about the tough spot we're in right now.
• 7:14
  SPEAKER_02: Yeah, well, just like we were talking about those cattle lost in Nebraska and Kansas to the heat, the number, the number not really being known, you know, not not knowing it's a it's a tougher market because you can you know, pigs you sell in a in a certain time period.
• 7:32
  SPEAKER_02: You kind of know when they're gonna gonna go out.
• 7:35
  SPEAKER_02: These cattle, especially lately, we've taken them to such big weights that if they really wanted to to slam the packers with inventory, I mean they could sell them all down to 1,500.
• 7:48
  SPEAKER_02: And that would add a couple, that would add a lot of meat, you know.
• 7:52
  SPEAKER_02: And so we've we've really we've our cattle on feed numbers have gone up because we've got we probably do have more on feed just because we have the bigger ones in addition to all the other ones that are that are on feed.
• 8:05
  SPEAKER_02: So it it's a tough one from that side because they can be selling anything from that in that weight range, can completely completely change.
• 8:14
  SPEAKER_02: And as long as the producer feels like they have the leverage and they can hold them for another couple weeks, then they have the leverage.
• 8:22
  SPEAKER_02: When they feel like they don't, they don't.
• 8:24
  SPEAKER_02: It's pretty much what it is.
• 8:26
  SPEAKER_02: Talk talk to me a little bit about why this price point is hard.
• 8:30
  SPEAKER_02: As far as on the on the profitability, where we're at.
• 8:35
  SPEAKER_01: Because like when I look at this, we've we've rallied back up, we're close to the 50-day moving averages on a lot of these.
• 8:42
  SPEAKER_01: Uh, you could look at a few different technical things.
• 8:44
  SPEAKER_01: We've got some gaps that we've almost got back up to to fill today, but it it's not quite enough, right?
• 8:50
  SPEAKER_01: I mean, I have a lot of cattle, August through AUC, that are in the 230s on breakev.
• 8:56
  SPEAKER_01: Like you're you're almost there to be okay again, but you're not quite.
• 9:01
  SPEAKER_01: So you're at a tough spot where it's like, do I do I try to just lock in a minimal loss today, or or do we roll the dice and try to get back to some levels that we were at before?
• 9:11
  SPEAKER_02: Well, the the easy answer is the reason it makes it hard is the last few times that they feel like they've missed it, it's been followed by new highs.
• 9:21
  SPEAKER_02: So that's that's why it makes it a tough decision.
• 9:24
  SPEAKER_02: If you were if you were just looking at breakevens and thinking that you'd made really good money on the past few and you're at break-even here, and you feel like there's quite a bit of risk, well, then you'd then you'd lay it off.
• 9:36
  SPEAKER_02: But there are also some technical reasons or technical resistance points here, like the gap in October and beyond on the fats.
• 9:45
  SPEAKER_02: And you just you just have a few of those headwinds now that are gonna make it easier for people, the funds to sell at those type of price levels instead of continue to buy it.
• 9:57
  SPEAKER_01: We're gonna wrap up the podcast here just with you giving our listeners their final need-to-know items here going into the rest of this week.
• 10:05
  SPEAKER_02: Yeah, so feeder cattle prices have been really high in the barns, break-evens are still really high.
• 10:11
  SPEAKER_02: It's tough to manage those.
• 10:13
  SPEAKER_02: Um, we are, you know, looking at next summer and that sort of thing.
• 10:18
  SPEAKER_02: There are options on those cattle when you look at the insurance products and those sort of things.
• 10:24
  SPEAKER_02: Um, but just being careful, I I think corn's a topic that needs to be talked about a little bit.
• 10:31
  SPEAKER_02: Corn, corn in the 460 area on D's is still relatively cheap when you look at break-evens or when you look at cost of gains and that sort of thing.
• 10:41
  SPEAKER_02: So just protecting the corn and protecting the price of these cattle, I think, is very important here.
• 10:47
  SPEAKER_01: All right.
• 10:47
  SPEAKER_01: Well, thank you for your time today.
• 10:49
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• 10:52
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• 10:54
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• 11:03
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• 11:04
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• 11:06
  SPEAKER_01: We would like to talk to you about each and every aspect of risk management advice.
• 11:10
  SPEAKER_01: So thank you for your time today, Jace.
• 11:12
  SPEAKER_01: We'll catch you next time.
• 11:13
  SPEAKER_01: Thanks, Mike.