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Cattle: Political Trade · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_02: Welcome to the Cattle Market Talk Podcast with Professional Ag Marketing.
• 0:04
  SPEAKER_02: Come here to get you fresh updates on what's happening week to week within the cattle market.
• 0:09
  SPEAKER_02: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:15
  SPEAKER_02: Today is October 23rd.
• 0:17
  SPEAKER_02: I've got Jeff with us here today, and we've never been so excited to talk about cattle.
• 0:21
  SPEAKER_01: I don't know if that's true or not, but when you flip over and look at the other markets this week, uh I guess corn's been doing it.
• 0:28
  SPEAKER_01: Soybeans today.
• 0:29
  SPEAKER_02: We broke through a close.
• 0:31
  SPEAKER_02: 1045 was a massive close today on soybeans above that resistance line.
• 0:38
  SPEAKER_01: I guess there is world outside of cattle, huh?
• 0:40
  SPEAKER_02: That's 40.
• 0:40
  SPEAKER_02: That's half a dollar in the last week on soybeans.
• 0:44
  SPEAKER_01: Well, that almost compares to the$14 range live cattle have been trading.
• 0:49
  SPEAKER_02: Yeah.
• 0:50
  SPEAKER_02: And we're still losing a lot of money growing soybeans, but let's talk about cattle.
• 0:53
  SPEAKER_02: Yeah, start looking at it.
• 0:54
  SPEAKER_02: Yeah.
• 0:55
  SPEAKER_02: What uh what in the world happened yesterday at 11 30, Jeff?
• 0:59
  SPEAKER_02: Really?
• 0:59
  SPEAKER_02: I mean, all day.
• 1:00
  SPEAKER_02: We locked limit lower yesterday, then we're up this morning, then we're down a few bucks at the close.
• 1:06
  SPEAKER_02: What is going on?
• 1:07
  SPEAKER_01: Yeah, obviously this market is really completely focused on the political scene, as uh everybody can probably imagine.
• 1:14
  SPEAKER_01: So that's mostly what we're gonna talk about today, and maybe just throw our two cents into the ring, if you will, and that's maybe what it's gonna be worth.
• 1:23
  SPEAKER_01: It's uh obviously a very fluid situation, and you know, um as I was first out of college and kind of growing up in the corporate corporate world, we we talked a decent amount, you know, um, you know, how much do you get involved in markets that are politically uh you know motivated or you know, situations that are politically affected.
• 1:44
  SPEAKER_01: And I think the cattle market has been thrown into that um realm here really fast this week, which makes it very difficult to figure out which direction we're gonna go next, right?
• 1:55
  SPEAKER_01: Um so uh a few talking points.
• 1:59
  SPEAKER_01: Um, you know, as you think about the situation with Trump and his social media post yesterday.
• 2:06
  SPEAKER_01: Uh, number one, let's get the Argentina discussion out of the way first, Mike.
• 2:10
  SPEAKER_01: Um, you know, and I think more people are talking about this, but Argentina uh you know provides less than one percent of our supply today.
• 2:19
  SPEAKER_01: We do take some meat from Argentina.
• 2:22
  SPEAKER_01: Um I correct me if I'm wrong on this, Mike, but it looks like we're going to quadruple or increase four times the amount of meat that we can buy from there, uh terra-free.
• 2:33
  SPEAKER_01: That announcement's out this morning.
• 2:35
  SPEAKER_01: That you know, still add the four times as much with terra free.
• 2:39
  SPEAKER_01: I'm sure that'll come to the US, no problem.
• 2:42
  SPEAKER_01: You know, you're still gonna be under one percent of our supply coming from Argentina.
• 2:46
  SPEAKER_01: So Argentina alone is not enough to really matter, big grand scheme of things.
• 2:52
  SPEAKER_01: Yep, it's not gonna move the needle in a big way.
• 2:55
  SPEAKER_02: Brazil and Australia are much bigger players in that market.
• 3:00
  SPEAKER_01: So those are the ones that we're gonna be focused on.
• 3:03
  SPEAKER_01: So I'll hit on Brazil quick and you can jump into Australia if you'd like, Mike.
• 3:07
  SPEAKER_01: But um, what's got the market maybe just a little bit shooking up today is supposedly there's some rumors floating around that there's gonna be some meetings taking place this uh weekend around Brazil and the U.S.
• 3:20
  SPEAKER_01: And maybe Trump himself is gonna be down there.
• 3:23
  SPEAKER_01: So um I think that's the one that's really gonna matter.
• 3:27
  SPEAKER_01: Like you got to start having a few things pile up on top of each other.
• 3:31
  SPEAKER_01: You gotta the Argentina deal, sure that's gonna happen.
• 3:34
  SPEAKER_01: Um maybe we'll uh uh uh encourage some more beef imports from Argentina, but they just don't export enough meat out of that country to really make a big difference all by itself.
• 3:44
  SPEAKER_01: If you threw Brazil on there with it, um, you know, you could start to, you know, if you kind of did something across the board for South American countries, you could start to move the needle on, you know, today Brazil imports about 2% of our production.
• 4:01
  SPEAKER_01: Um, you know, so if you add you could add another percentage point, maybe two percentage points coming from Brazil in my mind without too much trouble.
• 4:10
  SPEAKER_01: Um that would start to move the needle as far as how much meat's coming into the country, how much supply is kind of hitting the grocery stores here.
• 4:18
  SPEAKER_02: Gotcha.
• 4:19
  SPEAKER_02: You know, Australian beef that's still entering the market, um, US market that's under tariff-free quota conditions right now.
• 4:26
  SPEAKER_02: Um, but they make up a pretty big chunk here, actually, of what we import.
• 4:31
  SPEAKER_02: In 24, we imported like 4.6 billion pounds of beef into the United States.
• 4:37
  SPEAKER_02: 24% of that came from Australia.
• 4:39
  SPEAKER_01: So they're a big player.
• 4:40
  SPEAKER_01: So they're they're bigger than Brazil then.
• 4:41
  SPEAKER_01: Brazil's gonna just scratch uh 20%.
• 4:44
  SPEAKER_01: So those are gonna be you know your biggest exporters there.
• 4:47
  SPEAKER_02: Now, if you wanted to talk about a dollar amount, I mean that's like a billion dollars basically, is what they're doing, 1.1.
• 4:53
  SPEAKER_02: So it it matters um going forward, how much more can they do is always a question, right?
• 4:59
  SPEAKER_02: What do they uh consume themselves?
• 5:01
  SPEAKER_02: Like that's one of Argentina's big problems is that they consume a ton of beef themselves, where Australia, a lot of what we're importing is, you know, ground burger basically for McDonald's, crap like that.
• 5:12
  SPEAKER_02: So nonetheless, this is not gonna go away anytime soon.
• 5:15
  SPEAKER_02: But our president seems hellbent on making beef prices go lower, and he said cattle producers basically in a post yesterday, you had your fun the last few years on your rally, it's time to have cheap beef once again, and we're gonna import a bunch of beef to do it, and now he's just checking the list off.
• 5:31
  SPEAKER_01: You know, that's exactly right.
• 5:33
  SPEAKER_01: I think that's the point that I think the market's maybe missing a little bit, or not putting enough weight on, Mike, is uh, and I'm sorry to interrupt, but yeah, we've you've got uh Trump saying he's gonna fix the problem, so now you have to decide like okay, is he just talking and is he gonna do things like that aren't gonna move the needle like Argentina?
• 5:56
  SPEAKER_01: Or is he gonna start working closer with Brazil?
• 5:59
  SPEAKER_01: Maybe the Mexican feeder cattle border thing, um Australia.
• 6:03
  SPEAKER_01: You know, there's more levers that can be pulled there.
• 6:06
  SPEAKER_01: Yeah.
• 6:06
  SPEAKER_01: And I I don't know if he's going to or not, or what the end game is, um, but I think there's the possibility of him affecting the marketplace or the administration affecting the marketplace.
• 6:18
  SPEAKER_01: So I think it has to be um some consideration.
• 6:22
  SPEAKER_02: The those are like the big things up front.
• 6:26
  SPEAKER_02: Because the other parts, which maybe you'll get to, is like CRP, for example.
• 6:30
  SPEAKER_02: And I feel like that's long-term trying to fix we're gonna retain heifers, things like that.
• 6:35
  SPEAKER_02: You can graze CRP.
• 6:37
  SPEAKER_02: Um I I that's not obviously an immediate thing, but over time he's probably trying to bring more cow production back to the United States.
• 6:45
  SPEAKER_01: Yes, and I think that you know, feed availability drives cow herd.
• 6:50
  SPEAKER_01: So that has the ability of moving um the the into this position where he wants to be long term and add some cows.
• 6:58
  SPEAKER_01: The obvious issue with that is short term that removes supply from the um supply chain.
• 7:05
  SPEAKER_01: Yeah.
• 7:05
  SPEAKER_01: So you're keeping the heifers breeding them instead of running them through the packing plant.
• 7:10
  SPEAKER_01: So that's always been the major issue with the cattle cycle, is there's no there's no good way to turn the corner.
• 7:18
  SPEAKER_01: Yeah, it's it's messy no matter how you do it.
• 7:21
  SPEAKER_01: So that's where um I'm uh you know, it'd be interesting to see what their moves look like, you know.
• 7:27
  SPEAKER_01: On one hand, they want to take beef prices down yesterday, on the other hand, they want to build the cow herd.
• 7:33
  SPEAKER_01: It's it's difficult to do both of those.
• 7:36
  SPEAKER_01: Um let me step back to the political thing just one more minute there, Mike, because I think there's another item there that matters, and it's the tone of which the uh the social information and the social supposed have been coming from Trump's office, and they've been a bit negative cattle ranchers, cattle producers.
• 7:58
  SPEAKER_01: Um there's been some articles out, there's been some different discussions, a lot of discussions around, you know, a very negative tone from the cattle industry um towards the administration, from my perspective at least.
• 8:11
  SPEAKER_01: And you know, I I think that's gonna be a little bit of a problem.
• 8:14
  SPEAKER_01: I I kind of think he's turned the corner a little bit um to having maybe a little bit more negative light on on the cattle producers saying, you know what, um we're gonna need cheaper beef prices and you guys are gonna have to be okay with that.
• 8:28
  SPEAKER_01: I think that's a shift um that probably opens the door for them guys, for the administration a little bit wider to do kind of what they want to do, and if it negatively affects cattle prices, that's gonna that's that's acceptable.
• 8:44
  SPEAKER_01: I think that's a piece that the marketplace needs to kind of focus in on just a little bit.
• 8:49
  SPEAKER_02: Interesting.
• 8:50
  SPEAKER_01: So the next big topic.
• 8:52
  SPEAKER_01: So we got this another whole glaring elephant in the room is Mike, we're talking about bringing in beef, lowering beef prices.
• 9:01
  SPEAKER_01: It's a whole nother connect the dot game to make that into lower cash cattle, lower cattle prices, which lower beef.
• 9:09
  SPEAKER_02: Which is very immediate.
• 9:10
  SPEAKER_02: That's like today's news.
• 9:12
  SPEAKER_02: Yes.
• 9:12
  SPEAKER_02: Because even importing beef, that's a more monthly very fair growing cattle herd, that's a couple years.
• 9:19
  SPEAKER_02: And yeah, but cash is trading today, and that does not bring any more availability to the packers that need to kill something two days.
• 9:26
  SPEAKER_02: That's right.
• 9:26
  SPEAKER_01: That's right.
• 9:27
  SPEAKER_01: And we've been under some very impressive trends there, even with the market down hard last Friday, we traded cash higher um week over week.
• 9:35
  SPEAKER_02: That was a specific day, a specific example that the market could say, oh, it's not changing that much, I guess.
• 9:42
  SPEAKER_01: Yep.
• 9:42
  SPEAKER_01: And each week we will rehearse the same exercise, right?
• 9:46
  SPEAKER_01: Yes.
• 9:47
  SPEAKER_01: We'll look at what the board's at, look at what basis is doing, and uh trade cash cattle.
• 9:52
  SPEAKER_01: We'll make some really important observations as to whether we think um the supply situation is just burdensome enough where they can affect the the cash prices.
• 10:02
  SPEAKER_01: Because we are big believers that, you know, and today's example is perfect, today's situation.
• 10:10
  SPEAKER_01: Um even last Friday, we still had a negative basis uh where the October futures were trading when we're trading much lower and trading the cash cattle.
• 10:21
  SPEAKER_01: So I think the motivation hasn't been there for the cattle that are hedged to um come to the surface and move into the packers' hands.
• 10:31
  SPEAKER_01: So as soon as we get this, if we end up with a zero basis this week or a slightly positive basis, I think that that's gonna be key to uh cash cattle trade.
• 10:42
  SPEAKER_01: I think as soon as we get into that territory, I believe you will have supply coming to the table and very willing sellers of that supply.
• 10:51
  SPEAKER_01: But you know, that back and forth combined very much where the futures markets at is gonna, I believe, really drive what those cash results are, drive the attitude of the futures markets.
• 11:02
  SPEAKER_01: Because you have this situation, we've talked about it over the years, Mike, where the tail can wag the dog, right?
• 11:07
  SPEAKER_01: Like futures can be lower, that can drive cash cattle lower.
• 11:11
  SPEAKER_01: That in turn sends more negative signals to the futures market, which drives them lower.
• 11:16
  SPEAKER_01: Those are the type of markets you can get into.
• 11:19
  SPEAKER_01: Now I'm I'm trying to be very careful not to make huge predictions.
• 11:22
  SPEAKER_01: Like I said, political environments make things really difficult to try to have a firm stance on.
• 11:29
  SPEAKER_01: But those are the things that we're trying to watch in this cattle market right now to see what kind of situation we're gonna get ourselves into.
• 11:35
  SPEAKER_02: Past two days here, buck or two lower on cash, maybe, but that's probably just what you're talking about there, right?
• 11:41
  SPEAKER_02: Taking advantage of yesterday's big down move.
• 11:44
  SPEAKER_01: Yeah.
• 11:44
  SPEAKER_01: That's we've seen just a little bit of activity starting to take place um at a buck or two lower.
• 11:50
  SPEAKER_01: So we'll see once it looks like maybe they'll drag this thing into a Friday cash trade, which is not bearish either, right?
• 11:57
  SPEAKER_01: Uh they wait until the last uh day, last minute of the week.
• 12:01
  SPEAKER_01: That's that's usually a good sun, a good signal.
• 12:04
  SPEAKER_02: But this is a massive volatile market right now.
• 12:07
  SPEAKER_02: And you know what they say, like uh the higher you get, the more volatile it gets, especially near the high or at the high.
• 12:13
  SPEAKER_02: And um, these moves are massive, a lot of risk out there.
• 12:17
  SPEAKER_02: Feeder calves are still getting traded at astronomically high levels.
• 12:21
  SPEAKER_02: So please reach out, talk to Jeff on some LRP, LGM options, things like that, that we can take some risk off the table and when and how to navigate through this crazy market.
• 12:31
  SPEAKER_01: Yeah, we can do some pretty neat things.
• 12:33
  SPEAKER_01: Most of uh I think the listeners have been exposed to them a time or two, but we can do some pretty neat things with some discounted uh floor prices coming from the USDA um on the insurance side, and we've we've been using those pretty heavily.
• 12:46
  SPEAKER_01: That we have.
• 12:47
  SPEAKER_01: All right, thank you, Jeff.
• 12:48
  SPEAKER_01: Thank you, Mike.