Latest / CattleUSA Daily / 153: Market Corrections Are Here What’s Next for Producers with Dan Gerhold

Transcript

153: Market Corrections Are Here What’s Next for Producers with Dan Gerhold · CattleUSA Daily

• 0:00
  Welcome to another episode of the Cattle USA Daily podcast.
• 0:03
  Today we are welcoming back Dan Gearholt with the Cattle USA
• 0:06
  Insurance team. Dan has been coming on every
• 0:09
  week since we pretty well started this podcast and we
• 0:11
  talked the cattle commodities market.
• 0:13
  What is going on in the world of the cattle market?
• 0:16
  Dan breaks it all down. We haven't talked to Dan in a
• 0:18
  couple weeks since I have been out of the office on vacation.
• 0:22
  We didn't get to chat with him last week.
• 0:23
  So this week we are catching up on two weeks worth of the cattle
• 0:26
  market and what all has happened over the past two weeks.
• 0:30
  What is happening right now, Dan breaks every bit of it down for
• 0:35
  us. So let's go ahead and hop into
• 0:36
  this episode with Dan. But before we do, if you guys
• 0:38
  could take a second to like subscribe, rate and review this
• 0:40
  podcast, we would really appreciate it here at the team.
• 0:44
  Now let's go ahead and get into this conversation with Dan.
• 0:51
  Welcome to the Cattle USA Daily podcast.
• 0:53
  Your go to source for the latest.
• 0:55
  Livestock markets, industry insights, and the updates
• 0:58
  shaping agriculture today. I'm your host Lauren Moylan, a
• 1:01
  passionate advocate for agriculture.
• 1:03
  Here to keep. You informed and connected, now
• 1:06
  let's dive into today's episode. Dan, welcome back to the
• 1:14
  podcast. It has been entirely too long
• 1:17
  since we have caught up and talked cattle markets, all the
• 1:21
  things. Happy to be back.
• 1:22
  How's how's life in Iowa been treating?
• 1:24
  You. It's been cool, perfect, perfect
• 1:27
  cattle feeding weather. It's it feels like October, but
• 1:30
  we'll take it. Hey, I love it.
• 1:33
  Honestly, after how hot it's been for the past few months,
• 1:36
  I'm not going to complain about it cooling down just a little
• 1:38
  bit. So I'll take the October cool.
• 1:43
  Agreed. Agreed.
• 1:44
  Yeah. Awesome.
• 1:46
  Awesome. I love it.
• 1:48
  I love it. I love it.
• 1:49
  Well, what's going on in the world of the cattle market?
• 1:52
  It has been a wild two weeks. Catch us up.
• 1:56
  What's been going on? Well, since we last talked,
• 1:58
  we've taken roughly $20 out of feeder cattle and I'd say
• 2:04
  probably 10 to 15 out of fat cattle.
• 2:07
  It was pretty rough there last, well early this week and and
• 2:11
  last week. Not, not what you want to see
• 2:15
  the markets lower on no news. You know, it's, it's kind of
• 2:18
  hard to say that because usually the cattle market has news that
• 2:22
  takes it lower, but it's just the fact of the matter.
• 2:25
  There's not much bullish things we can throw at this market
• 2:28
  anymore. So we all know about the Mexican
• 2:30
  border being closed. We all know about the shortage
• 2:32
  of supply. We also know that here coming up
• 2:35
  September, October is typically not your strongest beef month.
• 2:38
  So the market's kind of deciding to correct early.
• 2:42
  So boxes have slid, you know, I'll call it 10 bucks so far and
• 2:46
  expecting lower tails to fall. So we started pulling this thing
• 2:50
  back to, to add insult to injury, we had the leverage to
• 2:55
  keep cash where it was and did not use it.
• 2:58
  So unfortunate, but cash has slid back to 2 1/2 weeks now.
• 3:05
  I think here this week so far, the little bit that's traded has
• 3:09
  been two, 37238. Not a lot of trade, but Long
• 3:14
  story short, just not a lot of now what do I want to say,
• 3:19
  momentum to push this thing to new record highs, you know,
• 3:22
  coming off some big 248 numbers. Now we're $10 lower than that.
• 3:27
  I'd like to think that here, you know, maybe 2-3 weeks down the
• 3:31
  road from now, we, we hopefully find the bottom and start
• 3:34
  turning this thing around. The last 2-3 weeks we've had
• 3:37
  really, really strong kill numbers.
• 3:38
  So if we keep the kill numbers at 1:20 or close to it, we could
• 3:43
  open up a pretty big hole here in November, December.
• 3:46
  Originally I was thinking that was going to be October,
• 3:48
  November, December, but but the way the kills were this summer,
• 3:51
  I think they were able to back a few cattle up, you know, looking
• 3:54
  at these weights and whatnot. So might be a big monster hole
• 3:58
  more so in November and December, but we'll see how it
• 4:00
  goes. So yeah, feeder cattle have just
• 4:03
  been unbelievably high in the sale barns.
• 4:06
  I mean, you're 7 weights bringing over 4 bucks a pound.
• 4:08
  I think I did see a few tickets where the 8 weights touched 4.
• 4:12
  It's pretty wild and crazy. I mean, if you think about it,
• 4:14
  few 100 bucks for a yearling steer, I mean even some of the 9
• 4:18
  and 10 weights 3300 + 3500 it I mean a year ago we weren't even
• 4:25
  selling that cattle for that. It's just remarkable.
• 4:29
  We same thing. We know the supply is shorter.
• 4:32
  We know a bunch of those fears got moved early out of fear of
• 4:35
  missing out on a good market and now all these speed yards that
• 4:38
  are profitable are having to fight over the same inventory.
• 4:41
  So that's a big reason why that's going on since last week,
• 4:47
  You know, I should say since that limit down day, we've
• 4:50
  started to see the sail barn soften up some probably overall
• 4:55
  5 to 10 off the high. I really do.
• 4:59
  I don't think feed your cattle are going to be a complete
• 5:01
  bloodbath. You know, just from the
• 5:03
  standpoint there's not as many around, but same thing
• 5:06
  September, October is typically not strong months for for
• 5:09
  yearling sale. There's there's plenty to go
• 5:11
  around. Feed yards are out picking corn,
• 5:15
  just not that, not that time of the year.
• 5:16
  So I looked at open interest. We lost a bunch more open
• 5:19
  interest yesterday on a higher move.
• 5:21
  So that was shorts taking profit or throwing in the towel saying
• 5:25
  they got a little bit of money back.
• 5:26
  So you don't like to see open interest leaving the market
• 5:29
  because that's not a good sign. Like I said, we knew it was
• 5:33
  high. We knew it needed a correction.
• 5:35
  Now we sit and find out, or wait to find out if this is a
• 5:39
  correction or if we just made a cycle high.
• 5:42
  We won't know that for several months, in my opinion, so we'll
• 5:45
  see what happens. Is there a reason that it
• 5:47
  started its correction early? Was there anything that kind of
• 5:51
  like tipped the tipped the pendulum the other way?
• 5:56
  You know, overall it it wasn't drastically early.
• 6:00
  If you compare it to where boxes and the slaughter numbers were,
• 6:03
  it was maybe a week early. But at the same time, the
• 6:06
  Packers are profitable. I think what, what tipped the
• 6:09
  pendulum is probably back. Cash dropped, you know, that 5
• 6:13
  to 10 bucks, you know, off the ties.
• 6:16
  When we had the leverage, we lost that leverage because a lot
• 6:19
  of these Packers got enough inventory bought up.
• 6:22
  I, I think that's what probably tipped the scale.
• 6:26
  There was another headline, I believe a news reporter asked
• 6:29
  Trump about these prices and Trump said that beef prices will
• 6:33
  be coming down. That obviously I would say
• 6:37
  that's spooked a few traders. You know, it's it's just like
• 6:41
  when Trump says it's time to buy the stock market.
• 6:43
  The next day it goes up and now he's saying beef's going to come
• 6:46
  down here we are. So I don't know if that's the
• 6:50
  full blown justification for it. But at the end of the day, we
• 6:54
  don't like being any headline, you know, and all anybody's
• 6:57
  talking about on social media on the major news outlets is how
• 7:00
  high beef is. So hopefully it's just a
• 7:04
  correction and we can move past this as we get closer to the
• 7:07
  holidays. Yeah.
• 7:08
  As we look out for like the rest of the month, the rest of
• 7:11
  September, what are your thoughts as we kind of prepare
• 7:13
  for fall? Get the direction ready, get the
• 7:16
  Zaprevo ready. These big temperature swings, we
• 7:19
  know it's the caps Even so first and foremost, keep those keep
• 7:23
  those coupons alive because they're worth a lot of money
• 7:25
  right now. Second of all, I would consider
• 7:29
  if Cal calf producer, I would heavily, heavily consider
• 7:33
  looking out the next year and start protecting calf prices.
• 7:36
  It's just it's feeder cattle are going to be a product of the
• 7:39
  profitability in the feed yards. So if we start losing money up
• 7:43
  here in the feed yards or, or down South too, all of a sudden
• 7:47
  that's going to come back and bite Cal calf producers, you
• 7:50
  know, backgrounders the, the grass man.
• 7:53
  So start looking out there. I would use this opportunity
• 7:58
  call us, we can talk through selling some options around your
• 8:00
  LRP. If you just put it on or
• 8:02
  recently or even if you put it on too low, we can look at
• 8:05
  rolling your coverage up using put spreads.
• 8:08
  It's a great, great hedging strategy.
• 8:11
  You know if you put on LRP at 300 and now the market's at
• 8:15
  3:30, you can roll your coverage up.
• 8:18
  Give us a phone call, let's we can walk you through that, show
• 8:21
  you how that works, what it looks like.
• 8:23
  Other than that, not a lot going on right now.
• 8:26
  It's just kind of the boring month of September.
• 8:30
  I think for feed yards we need to be looking at the feed needs
• 8:35
  booked up, the combines, the choppers, the crop insurance
• 8:38
  adjusters. I'm hearing more and more of
• 8:42
  this crop is not what it looked like from the road.
• 8:45
  I think you've got a pretty good opportunity here to get the
• 8:48
  physical bought here, especially, you know right out
• 8:51
  of the field 4 bucks. I think that could wind up being
• 8:54
  a good buy. Now if if we get futures to pull
• 8:56
  back, you know, December futures back to 410 four O 5.
• 9:00
  I would look heavily at buying futures there.
• 9:02
  But overall I would get feed these purchased up, get them
• 9:07
  ready or be ready to. What are we looking at on corn
• 9:10
  and wheat prices right now, or just the market in general?
• 9:14
  The last two weeks, or I should say, yeah two weeks, has been
• 9:17
  pretty sideways and stagnant. Just kind of a wait and see
• 9:21
  game. Very, very common.
• 9:23
  It looks like we could have put a harvest low in back in in mid
• 9:27
  August. I'm optimistic that is the case,
• 9:29
  especially now seeing these yields aren't quite there.
• 9:32
  Wheat has been just brutal. There's no way around it.
• 9:35
  The wheat market is probably holding corn down right now.
• 9:38
  We get another month down the road, I'm going to look at the
• 9:41
  buy side of wheat. A person could look at call
• 9:44
  options on wheat right now if they want, but I would save some
• 9:47
  longs here for, you know, 234 weeks down the road, I'd
• 9:51
  probably be on the buy side of wheat.
• 9:52
  It's just right now there's, there's not a lot of news that's
• 9:56
  going to turn this wheat marker, you know, in a drastic way.
• 10:00
  So it's like I say, boring September.
• 10:03
  Yeah. Absolutely.
• 10:04
  Anything else that we missed today that we need to head on as
• 10:06
  far as the cattle market goes? Any other highs, lows, anything
• 10:09
  else? I hear a pretty common question
• 10:12
  is HEPA LRP doesn't work as good as Steers said.
• 10:16
  A lot of people don't quite understand their LRPS or their
• 10:20
  agents not explaining it well enough.
• 10:22
  Long story short of Lauren is if the steer LRP works, so does the
• 10:26
  heifer because the heifer LRP is just a 90% factor of the steers.
• 10:32
  So if you're looking at, you know, stepping out to March and
• 10:35
  ensuring A yearling out there, you know, whether it's a steer
• 10:39
  heifer, they work exactly the same.
• 10:42
  It's just the heifer of 90% of the quote offered by the futures
• 10:47
  market. The premium is also 90%.
• 10:50
  And when we get out to your ending date, you take that 90%
• 10:53
  factor against that for your cattle index and that's the
• 10:56
  price that settles your hepper LRP.
• 10:59
  So really encourage, you know, backgrounders especially, you
• 11:03
  know, everybody's loading up on calves run stocks, everybody's,
• 11:07
  you know, filling their grow yards right now.
• 11:09
  We're going to be starting here at the calf run comes I I would
• 11:12
  really encourage producers to step outlook at coverage because
• 11:16
  like I said, we were just selling fact that'll for this
• 11:18
  kind of money last year. So I don't want to see it go
• 11:21
  that way. That bad.
• 11:23
  Yeah, 100%. So for the people that like
• 11:25
  we're getting ready to get into fall calving, all of those
• 11:28
  things, and you were talking about covering your calves, what
• 11:31
  does that practically look like? Like can you break that down of
• 11:34
  like this is what that looks like?
• 11:36
  If you have a calf drop, get coverage on it in six months.
• 11:41
  What does that look like for them?
• 11:42
  You bet, yeah. So, you know, if you're a cow
• 11:45
  calf producer that's all calving right now, you can certainly do
• 11:50
  unborn coverage on the ones that aren't born on the ones that
• 11:53
  are. You would put, you know,
• 11:54
  lightweight calves on. You can go out six months.
• 11:57
  You can insure them, as you know, 3-4 hundred pounders for
• 11:59
  March, or you can go a full year out.
• 12:02
  You might insure them 6, seven, £800.
• 12:04
  But Long story short, it comes back saying same rules apply
• 12:08
  compared to a yearling theory or yearling effort it's offered.
• 12:12
  The prices are based on the futures month offered that day.
• 12:16
  The quote is the premium is a lot of times based off what a
• 12:21
  put option cost minus the subsidy.
• 12:25
  So then and we get out there to the end date, it's all about
• 12:28
  that feeder Catalan. So you know what if you're 100
• 12:31
  head cow calf produces a cabin right now and you've got 50
• 12:34
  calves on the ground, you might step in and ensure you know
• 12:38
  302540 head, you know, and then you might ensure the other 4050
• 12:44
  head is unborn and wait to see, you know, obviously we don't
• 12:48
  know the sex of all of our calves, but if we can step out a
• 12:50
  full year or nine months when your sale day would be, we know
• 12:54
  that we've at least got a good market locked in for one more
• 12:57
  calf crop. So kind of a big deal to me.
• 13:00
  We've never had this opportunity as a Cal calf producer to step
• 13:03
  out a whole year with these kind of prices.
• 13:05
  So don't miss out on. It yeah, a hundred, 100%.
• 13:09
  Especially when we were just talking about the fact that fats
• 13:12
  were selling for what your lanes are selling for right now last
• 13:15
  year. And it's it's a crazy market out
• 13:18
  there and it's extremely unpredictable.
• 13:19
  And we had no idea that we could predict the the fall was going
• 13:23
  to look like what it looks like right now.
• 13:25
  And we had no idea we were going to have the spring we had.
• 13:28
  And we have no idea what next year's going to look like.
• 13:30
  So it's one of those situations that's kind of like protect
• 13:33
  yourself, protect your operation while you can and while things
• 13:37
  are still positive and numbers are still high enough, getting
• 13:42
  all of those coverages is kind of in your back pocket so that
• 13:46
  you're prepared in case something does go awry.
• 13:49
  Well, Dan, thank you as always for your time today.
• 13:52
  Coming on chatting with us, to all of our listeners out there,
• 13:55
  if you are interested in talking to the Cattle USA Insurance team
• 13:59
  and just seeing what your options are, if you have any
• 14:02
  questions, anything like that, that link for you guys is down
• 14:05
  in the show notes where you can get a hold of the team and get
• 14:08
  on the phone with someone or e-mail someone and just talk
• 14:11
  about what your options are. And kind of go from there.
• 14:14
  So that'll be the first link down in the show notes for all
• 14:16
  of you guys down there. If you are interested in
• 14:19
  checking that out. I would run down there and get a
• 14:23
  hold of that while you still can.
• 14:24
  So thank you to everyone listening, Dan, thank you for
• 14:26
  your time. And we will see you all tomorrow
• 14:28
  on another episode. Have a good one y'all.