Latest / Professional Ag Marketing Podcast / Hog Talk: Margin Crunch

Transcript

Hog Talk: Margin Crunch · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Hog Market Talk Podcast with Professional Egg Marketing.
• 0:05
  SPEAKER_00: Come here to get fresh updates on what's happening week to week within the Lean Hog Complex.
• 0:10
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_00: And remember to visit swineweb.com, an excellent resource for information in the pork industry, where you can also find this podcast.
• 0:24
  SPEAKER_00: This is your host, Mike Miner.
• 0:26
  SPEAKER_00: Let's cross.
• 0:27
  SPEAKER_00: Today I've got Luke back with us.
• 0:29
  SPEAKER_00: How's it going, Luke?
• 0:30
  SPEAKER_00: You know it's not going too bad.
• 0:31
  SPEAKER_00: Mike, how are you doing today?
• 0:32
  SPEAKER_00: Not too bad.
• 0:34
  SPEAKER_00: Well, let's talk a little bit about this hog market.
• 0:36
  SPEAKER_00: I'm curious to see where you're sitting at.
• 0:38
  SPEAKER_00: We've seen uh new contract lows here, or at least for the move on this hog market.
• 0:44
  SPEAKER_00: What's going on?
• 0:45
  SPEAKER_01: Yeah, Mike, we're, you know, we're it we're we're we're just in a little bit of a well, not a little bit, we're you know, we're in a negative tone, right?
• 0:52
  SPEAKER_01: Now, just just a little perspective, so we're not all negative on this.
• 0:55
  SPEAKER_01: I mean, we still have you know December hogs at 77.90, you know, we still have June hogs at 93.50.
• 1:03
  SPEAKER_01: Um, you know, cut out, cut out still on November 18th is trading 97 bucks, right?
• 1:10
  SPEAKER_01: So um 96.
• 1:12
  SPEAKER_01: So all in all, things aren't too bad, but we we've got we we definitely had a big sell-off, and as you mentioned, I think we made contract lows like DES all the way out to June, maybe today.
• 1:22
  SPEAKER_01: And uh I think a few different things are are are going on.
• 1:25
  SPEAKER_01: Um, I I think the market's got some concerns about demand into 26, and you can kind of see that, you know.
• 1:33
  SPEAKER_01: Just for example, I mean, index today is still running like 86, 87 dollars, and you got DEES futures sub 78, 77.90.
• 1:42
  SPEAKER_01: Um, it's just D says 18 days left to expiration, it's already curing a discount.
• 1:48
  SPEAKER_01: It was only down 67 cents today.
• 1:50
  SPEAKER_01: In fact, for a while today, DEC in burst over the Fed, but closed uh Fed 12 and a half cents under.
• 1:56
  SPEAKER_01: Uh, but then you had February down$1.40, April down$1.40, June down$1.27.
• 2:02
  SPEAKER_01: Very pessimistic in those backgrounds.
• 2:03
  SPEAKER_01: Right.
• 2:04
  SPEAKER_01: And I, you know, I think, you know, taking a reach over, I mean the cutout while it's good.
• 2:09
  SPEAKER_01: Um, and I don't want to maybe get repetitive of what we talked about last week, but the hand primal, it's just a little disappointing, you know, kind of given you know high beef price, high turkey price, seasonally, you know, seasonally and all that.
• 2:21
  SPEAKER_01: And and um, yeah, the futures market just remains remains pessimistic.
• 2:25
  SPEAKER_01: You know, I think equities, you know, had another really pretty rough day, right?
• 2:29
  SPEAKER_01: I'm not sure where they're trading at the moment.
• 2:31
  SPEAKER_00: Down about 10 or so, but it's been shaky.
• 2:33
  SPEAKER_00: I mean, we were down like a hundred earlier on the SP 500.
• 2:36
  SPEAKER_00: So it there's some economic concerns there really brewing between a weak labor market and some potential economic slowdown.
• 2:43
  SPEAKER_00: So yeah, but probably a reason we're lowering rates, right?
• 2:46
  SPEAKER_00: But it seems like that's spilling over into the protein markets.
• 2:50
  SPEAKER_01: I I think for sure it is.
• 2:51
  SPEAKER_01: And I I don't want to be, I mean, I personally I think this hog market into the 26 contracts, I think it's a little overdone.
• 2:57
  SPEAKER_01: I think we've got a little too negative relative to fundamentals and spreads versus spot fundamentals, it's definitely overdone, right?
• 3:03
  SPEAKER_01: All I just we wanted to talk about today is, you know, futures markets a futures market, and sometimes they overdo it.
• 3:09
  SPEAKER_01: And hopefully I give this podcast, and by next week we're limit up, limit up, limit up, right?
• 3:13
  SPEAKER_01: That'd be the whole, but they see some things, right?
• 3:15
  SPEAKER_01: And I just you look out, um, you know, I think there's some concerns about kind of demand into 2026, risk into 2026, uh, and then you just continue to see that on how they continue to trade these different contracts lower.
• 3:28
  SPEAKER_01: So um, yeah, it's been a pullback, it's been a set.
• 3:31
  SPEAKER_01: You know, we kind of you know went into last week and last week, I think it was last week Monday.
• 3:36
  SPEAKER_01: Um, that was when we we it became clear that the government was likely to reopen, right?
• 3:41
  SPEAKER_01: The House approved it what Thursday or actually Friday, President Senate, whatever, right?
• 3:44
  SPEAKER_01: We've had a big rally.
• 3:45
  SPEAKER_01: In fact, like October 26th, if you look at a chart, made contract ties last Monday, the 10th, I think.
• 3:52
  SPEAKER_01: You know, D's 26 spiked up, made a contract high, went to 79.50 at 7455 today.
• 3:59
  SPEAKER_01: And you know, a lot of us were hoping or looking that you know the government gets back open, snap benefits, and we can maybe build on that, right?
• 4:06
  SPEAKER_01: And that could be a foundation to you know, not only make new contract ties in the well-deferred, but work summers back up.
• 4:12
  SPEAKER_01: And that same day where Akin Dis jumped.
• 4:14
  SPEAKER_01: I mean, we also we pushed summers back up like to 98.60 type level, not to their contract highs, you know, well off this 95.
• 4:22
  SPEAKER_01: But you know, as we went through the week and it it you know, it tis the season, you know, the last two weeks' kills have been really big.
• 4:29
  SPEAKER_01: You know, week prior was above a 2.6, last week was above a 2.7.
• 4:33
  SPEAKER_01: Bigger production runs, takes a little lower price to move meat.
• 4:36
  SPEAKER_01: You know, this is the time when packers can leverage the cash a little bit because of the holidays in front of them.
• 4:42
  SPEAKER_01: So cash has been softer, weights are up, and then you come around and you've got a little shakiness in the stock market, and and you know, we're still, even though the government's open, we don't have commitment of traders reports, we're trailing on export reports.
• 4:54
  SPEAKER_01: I mean, just more questions than answers, a little more concern about broader economics, uh, you know, a little higher unemployment rate, uh, unemployment rates, wages falling, consumer settlement low.
• 5:06
  SPEAKER_01: And you know, right now we you know we don't have a bowl in this in the hog market for sure.
• 5:10
  SPEAKER_01: You can maybe argue the protein market, right?
• 5:12
  SPEAKER_01: And it's uh, you know, they're they're they're pushing this thing down a bit, Mike.
• 5:16
  SPEAKER_00: Still waiting for that kind of economic report dump from the government here.
• 5:21
  SPEAKER_00: It seems like we've only got just a few things, but I think that commitment of traders report would be massive to tell us just what long positions we've got in the uh cattle and hog market right now.
• 5:32
  SPEAKER_01: Yeah, I I think so for sure, too.
• 5:34
  SPEAKER_01: And and again, we had that nice rally last Monday and hoped we could build from it, didn't.
• 5:38
  SPEAKER_01: And you know, I mean, and on the charts right now, I mean, we made new lows in June, and there's you know, not you know, that it's unfortunately a 93.50 and$90 June looks a little more eminent, maybe at the moment, right?
• 5:51
  SPEAKER_01: Than back to$100 June.
• 5:52
  SPEAKER_01: So, you know, we got to give the market some good news.
• 5:55
  SPEAKER_01: Um, like I did mention, come back to, I mean, we're looking at a very positive versus historic basis.
• 6:00
  SPEAKER_01: I mean, basis is still running like eight, nine bucks positive, uh, probably four or five bucks wider than normal.
• 6:06
  SPEAKER_01: Deep discount up front, D to be gone in a few years.
• 6:08
  SPEAKER_01: We'll get done with Thanksgiving.
• 6:09
  SPEAKER_01: A lot of times after Thanksgiving, Packers want to run really hard those few weeks between Thanksgiving and Christmas.
• 6:15
  SPEAKER_01: Hopefully, we get some good holiday demand right, um, and you know, and put some things back in it.
• 6:20
  SPEAKER_01: But uh yeah, right now this week, Mike, we're the market's on seals a little bit.
• 6:24
  SPEAKER_01: So use the volatility.
• 6:26
  SPEAKER_01: Um, it gives you a chance to reposition some some of your short side positions, you know, look for maybe ways to convert to options or or LRPs or whatnot, open up some topside on it, stay hedge, open up toxide.
• 6:37
  SPEAKER_01: But you know, use the volatility to your advantage and uh you know, be in position, look for the next spot to get back in.
• 6:43
  SPEAKER_01: But right now it's it's giving us good basis up front.
• 6:46
  SPEAKER_01: Uh use the vault to your advantage.
• 6:48
  SPEAKER_01: Uh, you know, we'll look forward to uh you know, hopefully a few better days to come.
• 6:52
  SPEAKER_01: But uh yeah, like I said, right now, Mike, I or just uh yeah, we're just got a little sour tone to this thing.
• 6:58
  SPEAKER_01: It's hard to I wish I could give a little bit higher, higher uh or more optimistic point, but the trade is the trade is pretty sour.
• 7:05
  SPEAKER_00: Not to add fuel to the fire, but I was just looking at like today's hog margin continues to slip there, not just from the futures dropping, but also the input side has been going up as well.
• 7:15
  SPEAKER_00: Uh December corn here up front, up two cents again, 436.
• 7:19
  SPEAKER_00: We went over 440 at the end of last week for a couple days for the first time in quite some time.
• 7:25
  SPEAKER_00: Uh meals back up over 330 as well.
• 7:28
  SPEAKER_00: That's had a big rally lately.
• 7:29
  SPEAKER_00: So uh uh just looking, remember, uh next week is a shorter-ish week because of uh Thanksgiving coming up, and then that December is gonna be coming off the board first notice day on your D's corn as well.
• 7:44
  SPEAKER_00: So a few things with that shorter count of week, a lot of business is gonna be having to be dealt through the first three days of the week next week.
• 7:51
  SPEAKER_01: Well, for sure, Mike.
• 7:52
  SPEAKER_01: For sure, Mike.
• 7:53
  SPEAKER_01: And you're you you're exactly right with your observations.
• 7:55
  SPEAKER_01: The scissors are kind of cutting from both sides here, higher cost of production and uh and uh and and lower revenues.
• 8:02
  SPEAKER_01: But you know, even with all that said, we're we're still showing about a ten dollar margin on that would be for a friend.
• 8:07
  SPEAKER_00: That used to be good at one point.
• 8:09
  SPEAKER_01: At one point, right.
• 8:10
  SPEAKER_01: I mean, we'll offer highs of 35s we saw a bit ago.
• 8:13
  SPEAKER_01: So so still there's profit in it, just not near the profit it was.
• 8:16
  SPEAKER_01: And um, yeah, we'll look forward to uh catching up with you maybe next week or the week after, Mike.