Latest / Professional Ag Marketing Podcast / Kyle Kracht Post Cattle on Feed and Border Reopening

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Kyle Kracht Post Cattle on Feed and Border Reopening · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_01: Welcome to the Cattle Talk Podcast.
• 0:06
  SPEAKER_01: Your weekly breakdown of cattle market fundamentals, key news, and the insight shaping the industry.
• 0:13
  SPEAKER_01: Trading commodity futures and options involves a potential risk of loss and is not suitable for all investors.
• 0:39
  SPEAKER_00: How's it going, Kyle?
• 0:41
  SPEAKER_02: Pretty good.
• 0:42
  SPEAKER_02: Yeah, we're had a little better week this week on the cattle than we did last week, so that feels a little better.
• 0:52
  SPEAKER_00: Yeah, it uh it found some support here.
• 0:54
  SPEAKER_00: And let's just go through a plethora of different items that's kind of came up.
• 0:58
  SPEAKER_00: Uh we had the cattle on feed report last Friday after the last podcast.
• 1:03
  SPEAKER_00: We had a border situation come out late Friday afternoon that we need to address as well.
• 1:08
  SPEAKER_00: I want to talk about the market reaction to that.
• 1:11
  SPEAKER_00: So let's start off with a few different topics here, Kyle.
• 1:14
  SPEAKER_00: Uh take away on what you viewed the uh cattle on feed report like.
• 1:19
  SPEAKER_02: Well, it was pretty pretty neutral according to what the guesses were, but it's interesting to me to see the the on-feed number is up there pretty close to 2019 and 2020.
• 1:35
  SPEAKER_02: Um, there's a lot of cattle on feed with lower placements and lower marketing.
• 1:41
  SPEAKER_02: So, like we all know, the last few years the carcasses have been getting bigger, and just seems like that's we're adding days in the feed yard, so it doesn't take as many in to have a big number there when we're making them bigger.
• 1:59
  SPEAKER_00: Very much so um we've got a few charts up on the board here as well.
• 2:04
  SPEAKER_00: Can you walk us through this first one here, Kyle?
• 2:08
  SPEAKER_02: Yeah, so the we're 102% of a year ago with uh 11 million, 11.3 million head on feed.
• 2:16
  SPEAKER_02: Um, like I mentioned, that's really third to 2019 and 2020 as far as the this data set goes back, and it just proves that there's that we are making them bigger and feeding them longer.
• 2:32
  SPEAKER_02: So the carcass weights are 937 pounds this year versus 906 last year.
• 2:39
  SPEAKER_02: So we're adding a lot of beef to the tune of just about three and a half percent just in carcass weight alone.
• 2:48
  SPEAKER_00: How about on the placement side on the next slide there, Cade?
• 2:52
  SPEAKER_00: Uh talk to me about this number because over time we've noticed a little bit of a trend, haven't we, Kyle?
• 2:58
  SPEAKER_02: Yeah, well, it would reflect our low-cow numbers and that because of persistent drought in a lot of the US, um, just placing just short of 1.4 million last month was uh lowest since June, or the lowest June number since 2009, uh a little bit lower than even what the average guess was.
• 3:23
  SPEAKER_02: So yeah, there's just proof that we don't have uh a lot of cattle.
• 3:32
  SPEAKER_00: And on the the last one for the cattle on feed here, we've got the June marketings.
• 3:37
  SPEAKER_00: And uh talk to me just about what you're seeing based on time frame weights, things like that when it comes to the marketing side.
• 3:47
  SPEAKER_02: Well, yeah, they're definitely feeding these cattle longer, uh making them bigger.
• 3:53
  SPEAKER_02: So as we'll we'll see later in some of our production numbers, the these lower marketings are kind of being offset by that that extra weight and those more days on feed, and therefore, like we saw earlier, the the higher number on feed.
• 4:10
  SPEAKER_02: So if we do find numbers come to come into the feed lot later, it would say that the second half of this year we're going to market you know, close to last year's numbers, uh, or a lot closer than we did the first six months anyway.
• 4:29
  SPEAKER_00: So we have the cattle on feeder port, which you would have viewed as somewhat tame, right?
• 4:35
  SPEAKER_00: We came in pretty close to expectations for the most part.
• 4:38
  SPEAKER_00: Talk to me a little bit about Friday afternoon, the uh the order that we had for resuming cattle imports from Mexico after the screw worm ban and and what how the markets reacted to this, and what's your overall take on on the headline and the announcement, what this could be for implications going on on uh August 24th being the date that we could reopen uh Douglas, Arizona's port there?
• 5:05
  SPEAKER_02: Yeah, well, it sure uh kind of caught everybody off guard.
• 5:10
  SPEAKER_02: No one seemed to be expecting it right now, but when we look at that port that they're talking about opening, that's roughly 20% of the cattle that have come across from Mexico come on that crossing.
• 5:22
  SPEAKER_02: So if we start there and we would go into those Mexico ports, we could add, you know, that's 75-80 percent of the cattle crossed on those crossings.
• 5:33
  SPEAKER_02: So yeah, it could be a big deal.
• 5:35
  SPEAKER_02: I mean, we've talked 1.2 million head or so in the past that would come in from Mexico.
• 5:42
  SPEAKER_02: So if we start adding numbers, you know, we don't know what uh how many are going to come this direction, depending on their infrastructure changes since the border closed and and how they view the price here compared to them harvesting themselves and sending boxes elsewhere.
• 6:02
  SPEAKER_02: So I think it's I think it could be impactful, especially with uh uh cattle on feed report with uh feedlots having as many numbers as they do.
• 6:13
  SPEAKER_02: If we have more cattle in the south and can fill some of those Texas yards, uh it looks to me like we're gonna work our way out of a big shortage of beef anyway.
• 6:28
  SPEAKER_02: So on Monday morning, keep going limit down on the on the feeders, and seems like we've kind of found a bottom there for a minute.
• 6:40
  SPEAKER_02: Like let's wait and see if this really does happen and and how many do come across.
• 6:48
  SPEAKER_00: If you pull up the December chart there, Cade in slide seven, you can see that we've made a pretty decent recovery retracement-wise.
• 6:58
  SPEAKER_00: Uh gonna be kind of approaching that gap there in the blue circle soon.
• 7:02
  SPEAKER_00: I'd uh I'd like to see that uh get filled at least.
• 7:06
  SPEAKER_00: But you start to talk about potential retracement areas here.
• 7:09
  SPEAKER_00: Uh it's it's made pretty good ground the last three or four trading sessions here, hasn't it, Kyle?
• 7:15
  SPEAKER_02: Yeah, it's been pretty impressive, really.
• 7:18
  SPEAKER_02: It makes us feel like it's like all the other breaks, so we feel like we're pretty bulletproof and we can come back and hopefully we can.
• 7:28
  SPEAKER_02: But yeah, I believe if we get up to in this gap area, we're gonna find a lot of resistance there with moving averages and retracement levels and stuff.
• 7:39
  SPEAKER_02: So it looks I would feel more like it's a sell rallies type of thing if we can get halfway back.
• 7:46
  SPEAKER_02: That maybe we gotta look at getting a little more coverage on.
• 7:53
  SPEAKER_00: Very much so.
• 7:54
  SPEAKER_00: Some pretty good opportunities here.
• 7:56
  SPEAKER_00: Uh, with this little pop after both of those headlines coming out over the weekend, it uh it's recovered quite well.
• 8:03
  SPEAKER_00: Let's talk about one more item here: the uh heifer side of things.
• 8:09
  SPEAKER_00: Uh retracement gets to or uh uh um retention gets talked about a lot with heifers.
• 8:15
  SPEAKER_00: What what can you tell me about this chart here and what you're seeing with weather here in the uh in the western corn belt and and kind of cow calf country?
• 8:25
  SPEAKER_02: Yeah, well, it's interesting.
• 8:26
  SPEAKER_02: We've uh followed this for a while now, and it seemed like we've stayed close to average on the heifer slaughter number, but it does feel like we're dropping below that now, and it seems to be staying in that area.
• 8:42
  SPEAKER_02: Uh, talking with industry people, it feels like that heifer retention is real.
• 8:48
  SPEAKER_02: Uh, talk of people doing them in a dry lot situation, you know.
• 8:53
  SPEAKER_02: We wonder about the drought and how that impacts the heifer retention, but seems like there's maybe more being done in the dry lot.
• 9:02
  SPEAKER_02: So I would say the weather this fall and next spring is gonna play into this a lot too, as far as if we do keep these heifers, do we move more cows if we don't have the grass?
• 9:17
  SPEAKER_02: It's yeah, the drought is proved to be the biggest reason that this cow herd is small and it continues to be the biggest struggle we have in getting the numbers back up.
• 9:32
  SPEAKER_00: So we've had pretty small numbers, obviously, for quite a while now.
• 9:37
  SPEAKER_00: Uh, when you pull up the beef production side of things, Kate, uh it really puts the full picture into view for you.
• 9:44
  SPEAKER_00: I want your take, Kyle, just on what you're looking at with total production, how weights are impacting it, even with a few less cattle around.
• 9:54
  SPEAKER_02: Yeah, well, with year to date, we're kind of at 92% of last year's harvest numbers.
• 10:03
  SPEAKER_02: But when we look at the beef production chart here, we can see we're 98.5% of a year ago as far as the beef that we're producing.
• 10:12
  SPEAKER_02: So as we heard back in the winter of maybe the front end of the year being lower numbers harvested and the back half being closer to last year, and maybe even a few places getting above that.
• 10:27
  SPEAKER_02: So with the heavier weights, I feel like there's going to be some more beef on the market, more available, especially when we look at the added imports that we have coming in now, three, four percent more than a year ago.
• 10:42
  SPEAKER_02: We put that on top of this.
• 10:44
  SPEAKER_02: It feels like we're yeah, like we're we're doing okay as far as production to meet the demand here.
• 10:57
  SPEAKER_00: On the demand side, if you look at cutout, we're reaching a really nice seasonal bottom here, hopefully, in this cutout.
• 11:04
  SPEAKER_00: We've seen a slight pop earlier this week.
• 11:07
  SPEAKER_00: Hopefully, it can hold on to these levels because up until this point it hasn't wanted to go below 360 really.
• 11:13
  SPEAKER_00: Uh, what can you tell me from the demand side and what you're seeing there, Kyle?
• 11:18
  SPEAKER_02: Well, yeah, as we look at this chart, it it's mirroring last year pretty close here, the last month or so.
• 11:26
  SPEAKER_02: Uh, this spring we didn't see quite the rally we'd like to have seen, even though we were at really high prices to begin with, and we're able to stay there.
• 11:36
  SPEAKER_02: This chart would suggest we should be finding a bottom here fairly soon and and working higher, but I guess I would caution that when you take out last year's spike, um maybe not so much of a rally.
• 11:52
  SPEAKER_02: So I don't know, I think this next couple weeks will tell us a lot.
• 11:56
  SPEAKER_02: Uh look at the pork cutout, that struggles a little more than we'd like to see, too.
• 12:02
  SPEAKER_02: And just thinking back to the gas prices.
• 12:05
  SPEAKER_02: I mean, when the war in Iran started, it was gas was three dollars, got up to what national average of 450, and but we're still hanging at four.
• 12:16
  SPEAKER_02: So I think that has a bearing on this as well.
• 12:19
  SPEAKER_02: There's that that's just uh a problem that doesn't want to go away as fast as we'd like it to.
• 12:29
  SPEAKER_00: One more thing, uh, just as an odd topic to really wrap up before we get into some of the recommendation action items, things like that.
• 12:37
  SPEAKER_00: I I wanted to talk about one of the hotter topics lately, which was hay prices and drought.
• 12:43
  SPEAKER_00: What can you tell me about what you're seeing up in this part of the world in hay prices?
• 12:49
  SPEAKER_02: Yeah, well, in this part of the world, it seems like if there's any extra hay, it's it's headed west.
• 12:55
  SPEAKER_02: There's a lot of a lot of demand for feed to the west, we know, because of the drought and seeing a lot of a lot of hay prices over$200.
• 13:06
  SPEAKER_02: Uh, but a lot of that has to do with even in our area with the drier spring, we didn't produce as much hay.
• 13:13
  SPEAKER_02: And you know, typically 80% of our hay is is there by mid to late June.
• 13:20
  SPEAKER_02: So even if we are to get moisture, it's not going to help much this year.
• 13:24
  SPEAKER_02: And hopefully we do get that moisture because we go into the fall dry, that grass is going to be a lot slower in the spring as well.
• 13:33
  SPEAKER_02: So we could be in for some high prices for a while on this hay.
• 13:40
  SPEAKER_00: Very interesting.
• 13:41
  SPEAKER_00: I know it's been a hot topic for a lot of folks, so I'm happy we brought that up today.
• 13:46
  SPEAKER_00: Let's wrap up just talking a little bit about LGM, uh, some of the opportunities you see uh in the insurance side of the market.
• 13:55
  SPEAKER_02: Yeah, well, I guess there's the two different options we have there, the LRP and the LGM.
• 14:01
  SPEAKER_02: LRP is offering us some great basis opportunities for next summer, but the LGM continues to be uh an option that works well for just a cheap floor.
• 14:14
  SPEAKER_02: Uh we get into September, October timeframe for$20,$30.
• 14:20
  SPEAKER_02: We can we can have a floor.
• 14:22
  SPEAKER_02: We can protect the balance sheet for not a lot of cost.
• 14:25
  SPEAKER_02: You get out further, it's going to cost a little bit more, but we can look at ways to get some of that premium brought down a little bit if we're willing to have a top side to look at some scenarios like in the December time frame.
• 14:44
  SPEAKER_02: If we were to buy the LGM now and put a ceiling in somewhere around contract highs, we can do that for minimal cost.
• 14:54
  SPEAKER_02: So I think great opportunity there to let see if this thing can work back to those highs, but have a floor in place in case it doesn't.
• 15:04
  SPEAKER_02: We see these numbers maybe ratcheting up a little bit.
• 15:09
  SPEAKER_02: We're not sure how significant that's going to be, but it's starting to feel like there could be a few more numbers coming to slaughter in the near future.
• 15:20
  SPEAKER_00: All right.
• 15:20
  SPEAKER_00: Any final thoughts for our listeners here this week, Kyle?
• 15:25
  SPEAKER_02: No, I guess I would just be be cautious.
• 15:29
  SPEAKER_02: Um, we've had a lot of a lot of breaks in this market the last years, and and we've come back from them and made new highs.
• 15:37
  SPEAKER_02: And hopefully we can again, but we're starting to see a few few things that would should suggest there are some headwinds.
• 15:47
  SPEAKER_02: And let's just make sure we have a floor and and protect the balance sheet.
• 15:54
  SPEAKER_00: All right.
• 15:54
  SPEAKER_00: Well, thank you for tuning in today, everyone.
• 15:57
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• 16:00
  SPEAKER_00: Uh please reach out.
• 16:01
  SPEAKER_00: We've got the crop tour heading out this Sunday.
• 16:04
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• 16:08
  SPEAKER_00: Thank you so much.
• 16:09
  SPEAKER_00: Have a great weekend.