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Is there a fix for bad pork demand? · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_01: I'm ready.
• 0:02
  SPEAKER_00: Welcome to the Hog Market Talk Podcast.
• 0:05
  SPEAKER_00: Your weekly deep dive into Hog Market Fundamentals, breaking news, and industry insights.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: All right.
• 0:21
  SPEAKER_02: Today is September 30th.
• 0:24
  SPEAKER_02: I've got Macy here with us.
• 0:26
  SPEAKER_02: How's it going today?
• 0:26
  SPEAKER_01: Hey, Michael, I'm doing pretty good.
• 0:28
  SPEAKER_02: Good.
• 0:28
  SPEAKER_02: It's been a while.
• 0:30
  SPEAKER_01: Has.
• 0:30
  SPEAKER_01: Yes.
• 0:30
  SPEAKER_02: Let's go.
• 0:31
  SPEAKER_01: Happy to be back.
• 0:32
  SPEAKER_02: Happy to be back.
• 0:33
  SPEAKER_02: You just happen to come on a bad day in the grain market.
• 0:36
  SPEAKER_02: Holy cow.
• 0:37
  SPEAKER_02: Big red day for the grains.
• 0:39
  SPEAKER_02: We had a report come out at 11 o'clock today, a quarterly stocks report, which showed we had a lot more corn out in the countryside than what they anticipated.
• 0:49
  SPEAKER_02: Close the day down, 21 cents on December corn, right at five bucks.
• 0:53
  SPEAKER_02: So that was a doozy of a day.
• 0:55
  SPEAKER_02: We haven't seen below$5 corn really since the end of August or middle of August.
• 1:01
  SPEAKER_02: We filled that gap at$5.09 today that has been talked about since then.
• 1:06
  SPEAKER_02: And uh this grain market really pulled back.
• 1:09
  SPEAKER_02: Even pulled the soybeans lower a handful of cents today, which was a little surprising because they actually had a bullish report, but uh corn was traded that that much lower.
• 1:19
  SPEAKER_02: So we all know funds near record long positions on corn and soybeans.
• 1:23
  SPEAKER_02: So that scares funds a little bit again a report like this uh to see how much more downside there is.
• 1:29
  SPEAKER_02: But they found 2.09 billion bushels of corn today, Macy, that was left over from last marketing year.
• 1:35
  SPEAKER_02: Uh 315 million on the soybeans, just under the average trade estimate there.
• 1:39
  SPEAKER_02: So uh that is only versus average trade estimate, you know, it's only about 200 million bushels more on corn at least.
• 1:46
  SPEAKER_02: That adds about another two bushel bump uh of cushion onto that next year's crop.
• 1:52
  SPEAKER_02: So when I look at it, and what it means is that next year's balance sheet pretty much goes from a 9.7% stocks to use ratio to over 10.8, is what it looks like.
• 2:02
  SPEAKER_02: So pretty rough day in the grain market, wasn't it?
• 2:05
  SPEAKER_01: Yeah, talk about a surprise and and some counter-seasonal movement on corn.
• 2:09
  SPEAKER_02: Yeah, no kidding.
• 2:10
  SPEAKER_02: And what we're gonna look at today, other than uh a few of the input sides, because we were having meal up quite a bit again here before this little pullback today, is uh the hog margin sheet's been squished pretty tight lately.
• 2:24
  SPEAKER_02: We posted 12 bucks negative for the next 12 months uh ahead here going forward.
• 2:29
  SPEAKER_02: Uh, a big part of that has been a rise in input costs, along with yes, a struggling hog market, but uh that eased up a little bit today, didn't it?
• 2:38
  SPEAKER_01: Yeah, I would say that we got a little reprieve from the corn, but the hog market uh needs to pull a little bit of its own weight, I would say.
• 2:46
  SPEAKER_01: They the futures have not um have not helped the hog margin situation.
• 2:52
  SPEAKER_02: No, let's talk about the hog market here a little bit.
• 2:54
  SPEAKER_02: October came off today, 78, 72 and a half, down another half buck or so, not a whole lot of change from where we've been at real recently, near the bottom end of this range.
• 3:05
  SPEAKER_02: But what can you tell me?
• 3:06
  SPEAKER_02: Just uh let's start on the supply side and what you've been seeing there.
• 3:10
  SPEAKER_01: Yeah, sure.
• 3:10
  SPEAKER_01: I like where your head's at, Mike.
• 3:11
  SPEAKER_01: We'll talk simple supply and demand for this week's hog podcast.
• 3:15
  SPEAKER_01: Um, I would say that, you know, um kind of looking back a month and a half to the beginning of August, we were harvesting, oh, in the two two two seven type numbers.
• 3:28
  SPEAKER_01: Um, this last week we harvested a 225 or 255, excuse me.
• 3:32
  SPEAKER_01: So that's 275,000 more pigs over the last month and a half to two months.
• 3:37
  SPEAKER_01: So obviously, from a seasonal standpoint, not as big of a surprise.
• 3:42
  SPEAKER_01: Um that's been kind of outlined every year, right?
• 3:45
  SPEAKER_01: Um, I think the bigger um question and and a little bit of concern jumping over to the weights would be we still continue to see weights climb.
• 3:53
  SPEAKER_01: Um, both producer packer owned weights combined.
• 3:56
  SPEAKER_01: I would say producer specifically has been doing most of that heavy lifting, but packer weights are or call it relatively flat.
• 4:03
  SPEAKER_01: But the combination of the two, I would argue, has um has a little bit of concern.
• 4:09
  SPEAKER_01: Maybe we're underkilling the available supply.
• 4:12
  SPEAKER_01: Uh, maybe not what we want to hear as we go into the fall months.
• 4:15
  SPEAKER_01: Um, certainly going to need um more discussions wrapped around Saturdays.
• 4:21
  SPEAKER_02: Uh want to finish up on weights a little bit on the supply side there again.
• 4:25
  SPEAKER_02: Uh because we're going pretty sideways versus what normal is, right?
• 4:29
  SPEAKER_02: This time of the year.
• 4:30
  SPEAKER_02: I mean, not as bad as it could be, right?
• 4:33
  SPEAKER_01: Yeah, we're not going um straight up, but we're certainly at a decent uh slant higher on weights as of recently, if you will.
• 4:42
  SPEAKER_02: Yeah, definitely.
• 4:43
  SPEAKER_02: You not the time of year you're gonna see that thing go down anyways.
• 4:46
  SPEAKER_02: It's just seasonal, yeah.
• 4:47
  SPEAKER_02: Well, what can you tell me just about uh, you know, does that mean we're underkilling the supply or where are we sitting at there?
• 4:54
  SPEAKER_01: Yeah, I'm I'm thinking that um that kind of leads us to believe we're underkilling the available supply um uh at today's rates.
• 5:02
  SPEAKER_01: However, we are about 30,000 ahead a week um ahead of last week's um harvest number.
• 5:08
  SPEAKER_01: So we should, I mean, we should start to see that kind of ramp up, if you will, but um yeah, that's what I mean with supply.
• 5:16
  SPEAKER_02: Supply is definitely not the problem, right?
• 5:18
  SPEAKER_02: Let's get to the elephant in the room.
• 5:20
  SPEAKER_02: Let's talk about the demand side of the story.
• 5:22
  SPEAKER_02: What can you tell me about demand on the hog side recently?
• 5:25
  SPEAKER_01: So week over week, we had a relatively flat cutout.
• 5:28
  SPEAKER_01: Um bellies were up a little over four bucks, um, hams were flat.
• 5:33
  SPEAKER_01: Um, ribs did most of um most of the loss.
• 5:36
  SPEAKER_01: They're down four bucks.
• 5:37
  SPEAKER_01: This is Friday to Friday for perspective.
• 5:40
  SPEAKER_01: Um, however, the the um the storyline I've been using this week, Mike, has been um just the like cutout stability, I think is the biggest um elephant in the room, like you will.
• 5:55
  SPEAKER_01: Um bellies have been um free falling here for a bit, um, has been the struggle on cutout.
• 6:01
  SPEAKER_01: We seem to find a little stability on the belly market.
• 6:05
  SPEAKER_01: Um, if you pull up the ham chart, you can see we found that stability a couple weeks ago in the low 70s and um saw a nice little rally back the last 10 days, right?
• 6:15
  SPEAKER_01: So now if we look at the belly chart, that would um, you know, our hopes would be to see a similar type bounce back um on bellies.
• 6:23
  SPEAKER_01: However, the concern is that um, you know, from a cold storage standpoint, typically if we're talking um in in December, late fall, if you will, if we have bellies kind of trading in this lower range, well um a processor will will be more apt to throw those bellies in the freezer and and store them for six months until we have um kind of a pull on on product, right?
• 6:50
  SPEAKER_01: However, we are we are kind of a little bit a little bit further out than that six months, which is a which is a little concerning as far as trying to catch a freezer bit, if you will.
• 6:59
  SPEAKER_01: So um it's nice to see bellies stabilize a little bit here, but we're we're gonna need um some more firm stability, if you will, is is what I believe, what we believe futures need to see.
• 7:10
  SPEAKER_02: What else can you tell me about this hog market kind of before we wrap everything together for the day?
• 7:15
  SPEAKER_01: Yeah, I would I would just say, you know, we continue to to see a demand-driven market, supplies, you know, supportive, uh call relatively supportive um demand.
• 7:25
  SPEAKER_01: If you kind of look back, um we did an exercise here early this week, just really referencing the first week of June.
• 7:32
  SPEAKER_01: You can see um if we pulled up each primal specifically, that's kind of the first week that we started to diverge as far as um a summer increasing into our summer rally versus the stability that we saw.
• 7:45
  SPEAKER_01: Um, and I know you've got a few comments on that referring to um you know consumer confidence and whatnot.
• 7:52
  SPEAKER_02: Well, I think I know how to solve most of your demand problem in the hog market, and it's not just as simple as just saying everybody eat more bacon or pork, right?
• 8:00
  SPEAKER_02: But I mean, uh a big part of it is just what we've seen on inflation.
• 8:04
  SPEAKER_02: If you look at the crude oil market, if you could just make that crude oil cheaper, if you pulled out of Iran, if diesel prices did back off, I think that solves a lot of the world's problems today.
• 8:15
  SPEAKER_02: And I it sounds incredibly simple.
• 8:17
  SPEAKER_02: I know it's hard, but I I think it is that simple.
• 8:20
  SPEAKER_02: If you look, one diesel prices are very expensive.
• 8:24
  SPEAKER_02: We're at record levels, hopefully kind of petering off here this week.
• 8:28
  SPEAKER_02: It looks like we're maybe moving a little lower from the recent data from this past weekend on.
• 8:33
  SPEAKER_02: Um that impact has a big thing to do.
• 8:38
  SPEAKER_02: There's a high correlation between people who eat pork and diesel prices impacting them.
• 8:44
  SPEAKER_02: So that's part of it, first off.
• 8:46
  SPEAKER_02: Two, if uh we backed off inflation, which in inflation right now is hot because of basically energy and food prices alone, what would happen is you could pull back rates.
• 8:58
  SPEAKER_02: Right now, we've tried to we increased rates on this last uh FOMC meeting.
• 9:02
  SPEAKER_02: We probably don't need to continue to do that, but we could lower interest rates um if uh if inflation backed off.
• 9:09
  SPEAKER_02: That would help out a lot.
• 9:10
  SPEAKER_02: Uh that would help out demand in all categories, meat-wise, at least from that perspective, more money to spend.
• 9:16
  SPEAKER_02: Um also if you if you look at it too, it helped the stock market out a lot more, people would feel more wealthy.
• 9:24
  SPEAKER_02: Um it kind of helps lift all of the boats when I talk about uh what impact that could have.
• 9:30
  SPEAKER_02: So if you did by chance happen to ban exports on diesel, something along those lines, if you were able to pull out of a ran, anything like that, get crude oil price to just start moving lower.
• 9:42
  SPEAKER_02: Um, I think that'd have a huge impact on pork demand going forward.
• 9:46
  SPEAKER_02: And it was at that time, early June, that we started to see a really big revamp in crude oil prices again and activity and straight of war moves and Iran talks.
• 9:56
  SPEAKER_02: So they line up very well with each other, I think.
• 9:59
  SPEAKER_02: For when we started to get really high diesel prices, that's when pork demand started to show its struggles or lack of a rally at that time of the year.
• 10:07
  SPEAKER_02: So that would help out a lot, I think, Macy.
• 10:10
  SPEAKER_02: But uh keep an eye on the diesel price, keep an eye on inflation, um, keep an eye on a lot of these different categories, you know, because it it is in that category too that I would argue, you know, high diesel prices have been probably impacting pork consumption, but it hasn't seemed to really impact beef cutout that much.
• 10:30
  SPEAKER_02: Beef cutouts held pretty strong yet.
• 10:32
  SPEAKER_02: Um, and if people have had a trade down at all, they've gone right towards the chicken uh poultry side of the business, which their production's been way up anyways.
• 10:42
  SPEAKER_02: And uh each and every year it seems like uh Americans can sit continue to consume more protein per capita uh in the uh poultry complex.
• 10:50
  SPEAKER_02: So those are just a few of the big ticket items that I like to kind of tie in right now on this uh meat market because it's like each and every week we come on the show and we talk about a demand problem in the pork industry.
• 11:03
  SPEAKER_02: And uh I I uh I would like to think that could be a potential solution towards it.
• 11:08
  SPEAKER_01: I like your optimism, Mike.
• 11:10
  SPEAKER_01: That's what we need.
• 11:11
  SPEAKER_02: I don't know about optimism.
• 11:12
  SPEAKER_02: I didn't say it was gonna happen, but I said how it could.
• 11:15
  SPEAKER_02: So any other final thoughts for our listeners today, Macy?
• 11:18
  SPEAKER_01: I think that pretty well wraps it.
• 11:19
  SPEAKER_02: All right.
• 11:20
  SPEAKER_02: Well, thank you, everyone.
• 11:21
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• 11:28
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• 11:31
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• 11:37
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