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Summer Trade · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Miner.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_01: Today is July 8th, and I've got Pat back with us here today.
• 0:27
  SPEAKER_01: How's it going, Pat?
• 0:28
  SPEAKER_00: Good, Mike.
• 0:29
  SPEAKER_00: How are you?
• 0:30
  SPEAKER_01: Fantastic.
• 0:31
  SPEAKER_01: Well, I am gonna break down a few different things here this week.
• 0:34
  SPEAKER_01: We're just gonna have a broad macro overview across these commodities, and we're gonna start with the grain markets.
• 0:40
  SPEAKER_01: It was a uh really interesting week to end off last week with uh extreme momentum to the downside.
• 0:48
  SPEAKER_01: It continued again on Tuesday and Wednesday with the shorter week here this week after the fourth.
• 0:54
  SPEAKER_01: And all of a sudden, you know, we kind of ended up the week almost exactly where we left off last week.
• 0:59
  SPEAKER_01: So it was uh quite a bit of range here in the past week and a half, Pat.
• 1:03
  SPEAKER_01: What do you have to say about the the different uh things pushing this grain market right now and the time of the year we're in?
• 1:10
  SPEAKER_00: Yeah, I guess the first thing that I'd say, Mike, is that we're um I I I find it comforting that we're just trading weather.
• 1:17
  SPEAKER_00: You know, I mean we got this whole all this crazy stuff that's been going on all over the planet for a couple of years now, and and uh uh really the last uh um six to eight weeks or so has been a pretty traditional approach to uh a big focus on uh on uh U.S.
• 1:37
  SPEAKER_00: Corn belt weather and uh and a market that's reacted largely to that.
• 1:41
  SPEAKER_00: And so I mean, I guess the fact that we kind of got back to where we uh started the week off um is more of a coincidence than anything in my mind, right?
• 1:51
  SPEAKER_00: I mean you know, meaning that uh uh we sold off for the right reasons, you know, going through uh last weekend.
• 1:58
  SPEAKER_00: Um there was a significant amount of rain in the forecast, and the forecast was right.
• 2:03
  SPEAKER_00: And a good portion of the corn belt, 85% of it, something like that, had received at least an inch of rain.
• 2:09
  SPEAKER_00: And so um uh great uh a great moisture event and uh a great time of year to get a great moisture event.
• 2:17
  SPEAKER_00: And and uh um I don't know if it's if it uh was worthy of a two dollar sell-off from the highs, but but pretty significant break, but pretty significant rain event.
• 2:28
  SPEAKER_00: Having said that, Mike, kind of going through as we went through this week, it became increasingly obvious, especially on the 8 to 14 day forecast, that uh the uh the next three weeks or so uh is going to be back to what June was all about, right?
• 2:44
  SPEAKER_00: Yeah.
• 2:44
  SPEAKER_00: Above normal temps, um below normal precip.
• 2:48
  SPEAKER_00: And uh well, you start looking at uh comparing this year to uh a few previous ones, uh, you know, June is right up there in terms of some of the driest on record.
• 2:58
  SPEAKER_00: And so while we did just have an extraordinary moisture event, as we mentioned, we really needed it too, and probably just sort of got ourselves caught up to to some of the stresses that were created through that month of June.
• 3:11
  SPEAKER_00: And now it looks as though, uh going home here on Friday, that we're gonna spend the next couple three weeks uh probably deteriorating crop conditions a little bit.
• 3:20
  SPEAKER_00: And I and I would bet uh um you know one of the guys in the office and I were talking uh earlier today, Mike, that uh about Thursday or Friday next week, all of us are gonna forget how good that rain looked uh uh this last week, right?
• 3:32
  SPEAKER_01: So that'll make it interesting for a timeline here, because you know a lot of grain guys were really worried headed into the 4th of July.
• 3:39
  SPEAKER_01: We had a massive sell-off.
• 3:40
  SPEAKER_01: It continued again on Tuesday, even Wednesday, we put in new lows, and really just uh the close Wednesday through Friday here, we really gained some support back to get back to where we ended up last week.
• 3:52
  SPEAKER_01: So some of these grain guys, is this a gift for a little bit here for them uh to try to reward this market?
• 3:59
  SPEAKER_01: I mean, timeline-wise, it's all gonna depend when that next rain comes or how pollination's gonna look individually, right?
• 4:05
  SPEAKER_01: But uh, how aggressive are these guys really gonna have to be over the next couple weeks?
• 4:10
  SPEAKER_00: Well, I think um, I mean, uh first of all, the the prices are in kind of the 50s, right?
• 4:14
  SPEAKER_00: I mean, we kind of went up to 750, we kind of went down to 550, 760, 560, somewhere in there, right?
• 4:20
  SPEAKER_00: And so a 50% retracement would take you into the sixes, 650, 660, somewhere in there.
• 4:26
  SPEAKER_00: Yeah.
• 4:26
  SPEAKER_00: Um, and so that's a technical target that's worth mentioning, I suppose.
• 4:30
  SPEAKER_00: And then to answer your question, how aggressive should you be at those levels?
• 4:34
  SPEAKER_00: Well, I mean, if you get a second chance at a major rally on a weather scare, you should probably think pretty seriously about taking it, right?
• 4:43
  SPEAKER_00: I mean, you know, and I and Mike, for me, it's uh um, I mean, this market has been elevated.
• 4:49
  SPEAKER_00: We're working up to the two-year anniversary, right?
• 4:52
  SPEAKER_00: It was August of 2020 when when corn uh broke out of its five-year funk, right, and and uh and traded higher here.
• 5:00
  SPEAKER_00: And uh I believe, especially coming off that second crop uh uh down in Brazil, that this crop that's in the ground here in the U.S.
• 5:11
  SPEAKER_00: has a chance to sort of fix the global feed grain balance sheet that's hasn't been fixed for working up to 24 months now.
• 5:19
  SPEAKER_00: And that's a I mean, I we we talk a lot, but that's a big statement, right?
• 5:23
  SPEAKER_00: I mean, we've been on this thing for a while, and uh and this crop um has the potential to fix it.
• 5:30
  SPEAKER_00: Um now, whether or not that actually happens, what weather does in the month of July does matter, and that's the point.
• 5:37
  SPEAKER_00: That's why we'll get a corrective rally here, or we are getting some sort of corrective rally here.
• 5:42
  SPEAKER_00: And so um, I mean, if you want to bet that uh, you know, from a crop producer's perspective, if you want to bet that uh um that the crop doesn't achieve trend line yield, that uh um you can't uh that we are gonna do some damage in July and August, then you should hold off.
• 5:58
  SPEAKER_00: But if you I mean if you have some confidence in the ability of your crop to finish off this year in a successful fashion, you probably better bet that others do too, right?
• 6:08
  SPEAKER_00: And uh you probably should be selling these rallies.
• 6:11
  SPEAKER_01: Well, if we really talk about history here, uh normally looking back, if you get a major high put in in May and June, and then you sell off to a low and get a little bit of a spike back in July, normally you're not putting in new highs.
• 6:25
  SPEAKER_00: That's right.
• 6:25
  SPEAKER_00: That's right.
• 6:26
  SPEAKER_01: I mean, you can go back like 50 years and that's almost never happened.
• 6:30
  SPEAKER_00: Yeah, just one and two years ago.
• 6:32
  SPEAKER_00: Exactly.
• 6:33
  SPEAKER_01: And but even then it was like right when the we had a historic storm come through.
• 6:38
  SPEAKER_01: So and it's July.
• 6:40
  SPEAKER_01: So from a seasonal perspective, it makes sense.
• 6:42
  SPEAKER_01: I like the two-year anniversary on that coming up, though, for a timeline.
• 6:45
  SPEAKER_01: That that's interesting.
• 6:46
  SPEAKER_00: Good thing to think about.
• 6:47
  SPEAKER_00: That's right.
• 6:48
  SPEAKER_01: Yeah.
• 6:48
  SPEAKER_01: How about for the end user's perspective here?
• 6:50
  SPEAKER_01: We had a little bit of a setback, crush margins improved a lot here.
• 6:54
  SPEAKER_01: What do you got to say from their end?
• 6:56
  SPEAKER_00: Well, I mean, I we we like just plain straight up crushing some pigs here and just taking a good look at it just because of the the change in margin and the better opportunity, in fact, the best opportunity that we've seen against some of these months, particularly the new crop option months.
• 7:11
  SPEAKER_00: And so love to have that discussion with you.
• 7:14
  SPEAKER_00: But it's uh it's time to uh to be considering that as well.
• 7:18
  SPEAKER_00: And I would just say from a revenue perspective, uh from a hog complex uh perspective for sure, is that it's uh it too is acting or behaving an awful lot like just a normal low hog market would act.
• 7:32
  SPEAKER_00: Like it's not uncommon, as I said earlier as relates to corn, for us to to set some highs during the growing season and trade and trade weather aggressively.
• 7:40
  SPEAKER_00: It's also not uncommon uh for us to be peaking uh uh CME index at this point during the summer on hogs as we're in the tightest supplies of the year, and and uh therefore we should be seeing some of the higher product values of the year and all that business.
• 7:55
  SPEAKER_00: And so um so we've got a nice uh spot market uh going on here today in the hog complex, and uh it's creating uh a nice opportunity in the deferred, and and uh kind of marketing 101 says the guy should be taking a pretty serious look at that.
• 8:11
  SPEAKER_01: You talked about the index reaching highs around this time of year.
• 8:14
  SPEAKER_01: How disappointing has that been here, Pat, just getting stuck around this 110 area?
• 8:19
  SPEAKER_00: Yeah, well, we're gonna put uh the least amount of pork on the market for the year this week, 4th of July holiday and all of that, and and to not uh to not to be able to push product values any higher than what we have is is a statement.
• 8:33
  SPEAKER_00: It's an observation.
• 8:35
  SPEAKER_00: It probably means that we're not gonna be able to elevate it much from here.
• 8:38
  SPEAKER_00: And so it is what it is.
• 8:40
  SPEAKER_00: It's a little frustrating because it's not as high as it got last year, and it's a little frustrating because corn is expensive and all that, but but really from a historic perspective, a$110 um index,$110,$115 cutout is pretty good from historic standards.
• 8:54
  SPEAKER_01: Yeah.
• 8:54
  SPEAKER_01: And on the cattle side of things, a similar talking point there is we look at uh choice and select uh getting a little bit of support here through the holiday weekend.
• 9:03
  SPEAKER_01: Still that uh market continues to struggle, stuck under 134 on the August, uh failing to really catch up to where those northern cash markets have been, Pat.
• 9:13
  SPEAKER_01: Do you have any talk about the uh cattle market right now and try to tie it into a little bit of the uh economic perspective?
• 9:20
  SPEAKER_00: Yeah, good question, good thought process, and the cash market has been impressive in the in the beef complex, right, Mike?
• 9:27
  SPEAKER_00: And that has starting that's starting to be a little counter-seasonal.
• 9:30
  SPEAKER_00: Like we'll start to break that cash market a little bit already here in July historically.
• 9:35
  SPEAKER_00: We're just starting to get start getting to some of those spring calf marketings.
• 9:39
  SPEAKER_00: So um, so anyway, I I I'm impressed with how the cash market has acted.
• 9:43
  SPEAKER_00: Watch box beef values as we go here.
• 9:45
  SPEAKER_00: I mean, I we always talk about how beef is sort of the tip of the spear as it relates to to uh uh recession uh recession activity or slowdown of economic activity, recession concerns.
• 9:57
  SPEAKER_00: And so far, box beef values have been able to hang in there okay.
• 10:02
  SPEAKER_00: But that's the reason why we're seeing the discount in this futures market, is it's quite concerned about the ability to hold these levels given the increasing concerns about economic activity and all of that.
• 10:12
  SPEAKER_00: And so um, so it's interesting, and we start to talk about outside markets a little bit.
• 10:18
  SPEAKER_00: The Dow is performing pretty well here, yeah.
• 10:21
  SPEAKER_00: Um, given um everything, given how commodities are acting as it relates to concerns about recession, right?
• 10:29
  SPEAKER_00: And so we've seen a major break in crude oil, a little bit of corrective action here the last couple days, but uh but a major break in crude oil over the last couple weeks, um, a pretty big drop in some other commodities that we don't pay as much attention to, a good a good strong rally in the US dollar here as well.
• 10:47
  SPEAKER_00: And so there's a lot of things that are shaping up um from a outside market commodity perspective that's negatively influencing the commodities that we care the most about.
• 10:58
  SPEAKER_00: But would just say that uh um, you know, there's uh that that that story has yet to be told, right?
• 11:04
  SPEAKER_00: And just a reminder of how big of an experiment this is.
• 11:08
  SPEAKER_00: We've never we haven't seen this fast of an increase in rate and inflation in quite some time, early 80s or so, was the last time that it's happened.
• 11:17
  SPEAKER_00: And so there's a lot of things that have changed since then, and and and the way that the Fed is interacting and and trying to aggressively raise interest rate hikes, we just don't know how it's gonna turn out.
• 11:26
  SPEAKER_00: So that likely becomes um the storyline or or is can become the lead story again at some point uh over the not too distant future.
• 11:35
  SPEAKER_01: Interesting stat I heard here today was US dollar 20-year highs, euro 20-year lows.
• 11:42
  SPEAKER_00: Yeah, interesting.
• 11:43
  SPEAKER_00: Yeah.
• 11:44
  SPEAKER_00: What's the uh biggest reason for that spread, Mike?
• 11:47
  SPEAKER_01: Well, there's a few things going on over there right now that uh they've got some scandals going on with uh Boris over there, and uh just not in as good of an economic position right now for Europe.
• 11:58
  SPEAKER_01: But looking forward, I mean, if uh we start talking about how uh US grains and pork exports, how all those are gonna be competitive globally, uh our US dollar being at twenty-year highs is not gonna help that in the long run.
• 12:11
  SPEAKER_00: Oh, that's right.
• 12:12
  SPEAKER_00: And it's uh um we haven't needed to talk a lot about exports uh because of uh slightly lower supplies here uh domestically.
• 12:21
  SPEAKER_00: We so you have been as reliant upon it, but uh this crop has the potential to uh change that just a little bit and and a stronger US currency is gonna be a s a big headwind there, no doubt.
• 12:32
  SPEAKER_01: Definitely.
• 12:33
  SPEAKER_01: Any finishing thoughts for our listeners today?
• 12:35
  SPEAKER_00: Now I just appreciate the opportunity to engage and and uh thanks for taking the time today to visit with us and and if you ever have any questions or just want to talk through your particular situation, don't forget uh to give uh all of us at Professional Ag Marketing a call.
• 12:52
  SPEAKER_00: One just one real quick thing.
• 12:53
  SPEAKER_00: If you happen to be involved in the pork industry and are headed out to the Wisconsin Dells next week, we look forward to uh interacting with you out there at the National Pork Industry Conference.
• 13:02
  SPEAKER_00: Uh, we do have uh a breakout session on Monday afternoon and then also a uh hospitality uh event uh around uh poolside there on Tuesday.
• 13:12
  SPEAKER_00: So looking forward to seeing hog producers out there at the first part of next week in Wisconsin.
• 13:16
  SPEAKER_01: Perfect opportunity to listen to this podcast on the way out there, Pat.
• 13:20
  SPEAKER_01: Sounds great.
• 13:21
  SPEAKER_01: And thank you to all our listeners.
• 13:23
  SPEAKER_01: Please reach out to us from our website at professionalagmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 13:34
  SPEAKER_01: Trading commodity futures and options involves substantial risk and loss that is not suitable for all investors.