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Cattle: Boom · Professional Ag Marketing Podcast

• 0:00
  SPEAKER_01: Welcome to the Cattle Market Talk Podcast with Professional Ag Marketing.
• 0:04
  SPEAKER_01: Come here to get your fresh updates on what's happening week to week within the cattle market.
• 0:09
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:15
  SPEAKER_01: Today is August 1st.
• 0:18
  SPEAKER_01: I've got Jeff with us here today, and we are going to talk about an exciting cattle market today, Jeff.
• 0:23
  SPEAKER_00: Well, they say August is the most bearish month.
• 0:26
  SPEAKER_00: Good start to that.
• 0:29
  SPEAKER_00: Well, I guess technically we're a day.
• 0:31
  SPEAKER_00: A day.
• 0:31
  SPEAKER_00: We're only down 50 cents today, Mike, so far.
• 0:34
  SPEAKER_00: But what about yesterday?
• 0:35
  SPEAKER_00: Yesterday.
• 0:36
  SPEAKER_00: That was a July.
• 0:37
  SPEAKER_00: That's old news.
• 0:38
  SPEAKER_01: Well, old news was down eight dollars on feeder cattle in those front months yesterday.
• 0:42
  SPEAKER_01: What was live cattle down there, Jeff?
• 0:44
  SPEAKER_01: About five.
• 0:45
  SPEAKER_00: Yeah, it was five to six and a half on the close.
• 0:49
  SPEAKER_00: We did trade limit lower, so we all got to learn what the new live cattle limits really were at seven and a quarter there for a brief moment.
• 0:57
  SPEAKER_01: That's extreme enough.
• 0:58
  SPEAKER_00: Finally answered that question.
• 0:59
  SPEAKER_00: What is the limits on cattle?
• 1:01
  SPEAKER_01: Yeah, we finally got to trade that at uh a ways back.
• 1:04
  SPEAKER_01: I just remember thinking to myself, like, wow, that's gonna take a lot to trade that much in a single day.
• 1:09
  SPEAKER_01: And the odd part is yesterday I looked really hard for a while, like, okay, what's the news here?
• 1:15
  SPEAKER_01: Right.
• 1:16
  SPEAKER_01: And we were down a lot.
• 1:17
  SPEAKER_01: And it was like we did not have a fantastic reason for it.
• 1:20
  SPEAKER_00: I can't even come up with rumors, Mike.
• 1:23
  SPEAKER_01: That was the tough part.
• 1:24
  SPEAKER_01: Brazil rumor of negotiations about tariffs are like the only thing I could think of.
• 1:29
  SPEAKER_00: Yeah, and that uh that I as of what I've seen last night and this morning, that I don't think anything materialized there.
• 1:37
  SPEAKER_00: I I think we're actually gonna put a tariff on Brazilian beef coming this direction.
• 1:42
  SPEAKER_00: Now I'm sure that's changing by the hour, of course, like all that stuff, but um, which actually should be pretty bullish, the cattle market.
• 1:50
  SPEAKER_01: The other part too, I guess, was I did hear things just about Mexico.
• 1:54
  SPEAKER_01: Um, you know, if they were gonna reopen the border at some point, that could potentially uh do have an impact like we saw yesterday, maybe.
• 2:01
  SPEAKER_01: But I uh I thought that was a reach two uh on that front.
• 2:06
  SPEAKER_01: So I'm gonna get started.
• 2:08
  SPEAKER_01: Uh so I just wanted to, you know, we're gonna talk about the cattle market today, we're gonna talk about the big sell-off, we're gonna talk about uh momentum trading a little bit with that and basis uh and some seasonal stuff there, but I I wanted to start with this morning's news actually, which was the the SP 500, you know, we've had a really, really strong correlation with the cattle market on this SP 500, especially in the last two, three months or so, ever since basically April.
• 2:34
  SPEAKER_01: Those two have traded side by side higher with each other, and both probably to more extreme levels than what most people had anticipated.
• 2:42
  SPEAKER_01: And now the last really three days, we've traded lower on the SP.
• 2:47
  SPEAKER_01: We're down 100 points right now on the SP 500, so it's nothing to scoff at there, Jeff.
• 2:52
  SPEAKER_01: And a big part of that is um uh we had treasuries, those really jumped higher this morning.
• 2:59
  SPEAKER_01: We had a week jobs report, manufacturing data report this morning at about 7.30 Central Time.
• 3:06
  SPEAKER_01: And now we're looking at a situation where maybe the Fed isn't gonna cut a whole lot of times going forward either, with the news we had going back to last Wednesday's report here this week that uh dev OMMC decided to stay the same.
• 3:20
  SPEAKER_01: And then going forward, they're like, I yeah, they're moving maybe a cut percentage to just one 125 basis point cut.
• 3:28
  SPEAKER_01: So all these things kind of toppling on each other.
• 3:31
  SPEAKER_01: And then we just got up to a level that was really high, new level, new record levels.
• 3:36
  SPEAKER_01: Uh we needed uh we needed to pull back a little bit, probably from a correction standpoint.
• 3:41
  SPEAKER_01: But yeah, you did get a few things this morning that kind of helped that market sell off there.
• 3:46
  SPEAKER_01: Um that I think you you opened up the cattle market higher this morning, about up a buck and a half or two there.
• 3:53
  SPEAKER_01: And now what do you see it doing after the equities have really went from like 30 down to like 100 down now, Jeff?
• 4:00
  SPEAKER_00: Yeah, and then so you're the you're right, the cattle market's respecting the equities market a bunch here and and you know ended up trading lower as we've eroded the equities so far into this morning's session at least.
• 4:13
  SPEAKER_00: You know, the the buying on the open today is you know, we we still traded cash cattle uh yesterday, even after the close mic at higher money than than last week.
• 4:24
  SPEAKER_00: Um a lot of 245 was getting done.
• 4:27
  SPEAKER_00: You know, 237 was the day before uh you know why we had that big update.
• 4:32
  SPEAKER_00: That's the other thing you gotta remember on the cattle market.
• 4:34
  SPEAKER_00: We really what we were up uh three something two days ago to you know taking six off yesterday, so that was part of it.
• 4:42
  SPEAKER_00: But um still higher cash here, so I think you know, uh our shop included, we were busy trying to lift hedges on the open there, probably giving that market some pretty good temporary support at least, and then equities got worse as we went into the uh past couple hours too, of course.
• 5:00
  SPEAKER_01: And you've got August futures coming up, what first knows days three days away?
• 5:04
  SPEAKER_00: Yeah, yep.
• 5:05
  SPEAKER_00: So next week.
• 5:06
  SPEAKER_01: Yep, that I guess that'll be coming up with there's quite a few August shorts out there left, isn't there?
• 5:11
  SPEAKER_00: I think there's probably a few some.
• 5:14
  SPEAKER_00: Um we've been we've worked pretty hard about trying to get rid of some of those uh internally here, but yeah, I I I'm sure there's still there's plenty of cattle hedged, I think, from here forward the way it looks to me.
• 5:26
  SPEAKER_01: So based on I wanted to talk about momentum because since April cattle and in the equities followed closely, like we talked about, and it seems like when a market stays in a really tight trading range and just works its way higher in that nice upward trend, it's easier to hop in.
• 5:42
  SPEAKER_01: And it it's not as flog, it doesn't scare you as much on some pullbacks.
• 5:47
  SPEAKER_01: And both the equities and live cattle market have really been like that, and they felt like that because it's like every day when I look at that cattle market, we're up a dollar, and it's like it don't have real fantastic reasons to make a huge setback at any point.
• 6:00
  SPEAKER_01: Supplies are really, really low.
• 6:03
  SPEAKER_01: Um, demand still seemed really good.
• 6:05
  SPEAKER_01: I know we set back a little bit on cutout, but just from a momentum standpoint, it's been pretty easy for people to hop in those two markets, hasn't it?
• 6:12
  SPEAKER_00: Absolutely, and I think that really does a nice job of describing describing the players that we have uh involved today, Mike.
• 6:21
  SPEAKER_00: I think the other side of that coin is I I think there's quite a bit of money sitting on the sidelines that would love to get short this cattle market and write it down for a leg or two, right?
• 6:34
  SPEAKER_00: Um but who wants to do that when ever literally every day it was going higher?
• 6:38
  SPEAKER_00: Exactly.
• 6:39
  SPEAKER_00: So they were sitting there waiting for their moment.
• 6:42
  SPEAKER_00: Um so you get a day like yesterday where you start to turn the thing red and and fundamentally you weren't supposed to, um, they're they're very active sellers at that point.
• 6:53
  SPEAKER_00: But what gets really interesting about the market is you've got you've got weak positions on all sides, and especially on that sell side, I would argue.
• 7:02
  SPEAKER_00: Um if you rode that market down yesterday, as soon as it looks like the momentum's turning positive again on you, those guys are gonna head for the door really fast.
• 7:14
  SPEAKER_00: And uh that's where you're gonna see this volatility come from.
• 7:18
  SPEAKER_00: Um you just got a lot of weak participants.
• 7:22
  SPEAKER_00: You've got a hedger that uh is you know gonna be your really only solid player uh from the short side, but they've been you know, we've all been hedged in this market for a while, so you know they're they're gonna be there, but they're really an innocent bystander at this point, except for when you're trying to lift some hedges uh against some cash sales.
• 7:43
  SPEAKER_01: How about on the basis side, if we're talking about that, and what are you recognizing there, I guess, for opportunities?
• 7:50
  SPEAKER_00: Well, I think you gotta take a really hard look at it.
• 7:52
  SPEAKER_00: So the math that we keep going through with folks is you know, weight is a big deal.
• 7:57
  SPEAKER_00: So you got this huge positive basis compared to this huge return over feed, right?
• 8:03
  SPEAKER_00: So the the math I keep coming up with is roughly a dollar fifty a week per hundred.
• 8:08
  SPEAKER_00: So what I'm trying to say there is the extra weight that you can get by growing that animal one more week, you could take a buck fifty less basis.
• 8:19
  SPEAKER_00: So big numbers there um on all sides.
• 8:22
  SPEAKER_00: Uh as we've so it's it's important to try to get some weight on these cattle, but clearly, you know, yesterday was just a huge gift.
• 8:31
  SPEAKER_00: We had higher cash, um, way lower futures.
• 8:35
  SPEAKER_00: So, you know, even uh this morning with the August being higher, again, you're still staring, at least in the northern bid, you know, of a$15 to$20 basis.
• 8:45
  SPEAKER_00: Depends if you're looking at the August or the October.
• 8:49
  SPEAKER_00: Um, so you know that will go away, no doubt about it.
• 8:53
  SPEAKER_00: And as we've tried to study some history on that, it it sure looks like by the time, you know, past years uh at least, by the time you get to that second week of September, it's not been uncommon to have that basis at zero to even maybe being a little bit negative.
• 9:11
  SPEAKER_00: So the way I look at that is you know, be awful conscious, do some hard number crunching here, figure out you know what your inventory really looks like.
• 9:21
  SPEAKER_00: Certain, certainly, you know, if you're gonna be trying to take care, take advantage of the higher basis, you're gonna be selling animals at lighter weights than what you'd like to.
• 9:29
  SPEAKER_00: So do all your math on that, but you gotta be taking a hard look at it here with these type of positive basis numbers.
• 9:36
  SPEAKER_01: Speaking of a hard look at things, the 10-year seasonal, pretty much the 5, 10, 15, 20, almost all of those average seasonals are coming to a peak here at about August 3rd, Jeff.
• 9:48
  SPEAKER_01: What do you have to say from a seasonal perspective on cattle going forward?
• 9:52
  SPEAKER_01: Is there when when we see a movement like yesterday, is that a little bit scarier because we know that we typically put in a high around this time of the year?
• 10:00
  SPEAKER_00: Yeah, and I I guess I think that's part of why you have so many people sitting on the sidelines taking, you know, staring hard at this market, wanting to get short.
• 10:07
  SPEAKER_00: Um, and I guess I'm a I'm a pretty big believer in that seasonals.
• 10:12
  SPEAKER_00: I just think from a seasonal perspective, you get into some more willing sellers as you get into the month of August here on the on the live cattle side, Mike.
• 10:20
  SPEAKER_00: Um plus, you know, the the big uh bear in the room here, which we haven't talked much about but have talked about in previous weeks, is you know, that the meat prices continue to erode.
• 10:31
  SPEAKER_00: So you've got to be staring at some really negative margins from a packer standpoint here.
• 10:36
  SPEAKER_00: And from a seasonality, um, that the meat prices usually like to continue to trend lower here for a couple more weeks and then maybe see a bit of a hop there going into labor days.
• 10:47
  SPEAKER_00: So I don't think you're gonna get any good news on that front.
• 10:50
  SPEAKER_00: Um I think you end up with each week that goes by you get a few more willing sellers, maybe from the southern uh geography uh more so than the northern as far as days on feed go.
• 11:01
  SPEAKER_00: Um but and that's what causes that uh you know, at least recently here the last few years, the seasonality of this the during the month of August.
• 11:11
  SPEAKER_00: So, you know, the other thing that you have to recognize that been a lot of years where this market has taken off fifteen, twenty dollars very rapidly for you know reasons that really don't stand out that much to you.
• 11:26
  SPEAKER_00: That's just part of the cattle market, it's part of the setup that we talked about in the beginning of this podcast, Mike.
• 11:33
  SPEAKER_00: Uh some there's those some clear issues there in my opinion.
• 11:37
  SPEAKER_00: Um so don't don't rule that out, I guess.
• 11:40
  SPEAKER_00: It it's hard to imagine with the fundamentals on the cash side the way they were the past couple weeks, that we need to erode this futures market in that fashion, but it has happened before, and then uh cash can kind of have a habit of of fouling that lower.
• 11:57
  SPEAKER_01: Alright, any f any final thoughts for our listeners today?
• 12:00
  SPEAKER_00: I think just try to make good solid decisions, right?
• 12:04
  SPEAKER_00: Um let's not act like we know what this market's gonna do from day to day or week to week.
• 12:09
  SPEAKER_00: Let's uh let's make smart decisions.
• 12:12
  SPEAKER_00: Let's maybe not put all of our eggs in one basket.
• 12:15
  SPEAKER_00: Um and I think we'll we'll get through these markets and just fine.
• 12:18
  SPEAKER_00: There's still there's some really nice opportunities uh on the cattle that we got in front of us here over the next few months.
• 12:25
  SPEAKER_00: We just we gotta we gotta be smart about it.
• 12:28
  SPEAKER_00: We gotta be um, you know, we gotta check the emotions at the door, right?
• 12:33
  SPEAKER_00: And try to make good decisions.
• 12:35
  SPEAKER_01: All right.
• 12:35
  SPEAKER_01: Thank you for your time today.
• 12:36
  SPEAKER_00: Thank you, Mike.