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Fat Tuesday with Mike Sands | How Low Can Cattle GO? · AG Bull

• 0:26
  SPEAKER_01: Welcome back, Jed Sidwell here with Ag Bull Media.
• 0:30
  SPEAKER_01: We have our Fat Tuesday show for you today.
• 0:33
  SPEAKER_01: It's on a Wednesday, but I'm almost kind of glad that we postponed it today after what happened in the futures market this morning.
• 0:41
  SPEAKER_01: If you weren't paying attention, August was down dang near 10 bucks at one point.
• 0:46
  SPEAKER_01: Massive swings in both fats and feeders.
• 0:49
  SPEAKER_01: And on the grain side of things, they went in the opposite direction off of the oil trade last night.
• 0:54
  SPEAKER_01: We'll get to some more of that here in a bit.
• 0:56
  SPEAKER_01: I'll go ahead and invite the main man on himself, Mr.
• 0:59
  SPEAKER_01: Mike Sands.
• 1:00
  SPEAKER_01: How are you doing today, Mike?
• 1:01
  SPEAKER_00: Just fine.
• 1:02
  SPEAKER_00: Uh Jed, good to be with you this morning.
• 1:05
  SPEAKER_00: Obviously, the volatility in the livestock markets continue.
• 1:09
  SPEAKER_00: We saw a pretty sharp sell-off this morning.
• 1:12
  SPEAKER_00: I think for the most part, a function of uh not only a weaker undertone as far as the cash market is concerned, an extremely strong basis.
• 1:22
  SPEAKER_00: We're looking at beef prices drifting seasonally lower.
• 1:27
  SPEAKER_00: Packer margins are deep in the red.
• 1:29
  SPEAKER_00: We've got a relatively large front-end supply of fed cattle.
• 1:34
  SPEAKER_00: Just a number of things point to kind of a weaker underlying fundamental picture.
• 1:41
  SPEAKER_00: And then you mix in with that higher grain prices and escalating energy costs.
• 1:47
  SPEAKER_00: And it's just a pretty negative looking front end here as far as the market is concerned.
• 1:55
  SPEAKER_00: And that obviously has played a huge role in pressuring the futures market lower.
• 2:01
  SPEAKER_01: Yeah, we've almost taken it for granted that our concentrate prices have been so cheap for so long.
• 2:09
  SPEAKER_01: And now that we're seeing kind of some weather threats there pushing the grain market up makes you concerned when we've been feeding them and having this large front-end supply for so long that, yeah, trying to pencil those ones in that we're going to replace these cattle with their cost of feed is looking like it's going to be pretty high.
• 2:28
  SPEAKER_01: People are pretty optimistic about this 2027 crop as well.
• 2:32
  SPEAKER_00: Yeah, in terms of overall feed costs as far as the livestock industry is concerned.
• 2:37
  SPEAKER_00: Obviously, we've pushed December futures up to new rally highs at this point.
• 2:43
  SPEAKER_00: We had been trading a market basically from the low$4 somewhere in that area of$420,$425 up to$450,$460.
• 2:53
  SPEAKER_00: And now all of a sudden we're talking about making a big challenge to$5 and potentially higher, depending upon where this crop size, not only with regard to the US but worldwide, ultimately develops.
• 3:09
  SPEAKER_00: But it's a combination of both higher flat price levels along with a stronger basis.
• 3:16
  SPEAKER_00: And neither one of those, of course, are particularly beneficial to the livestock industry.
• 3:22
  SPEAKER_01: Yeah, no doubt.
• 3:24
  SPEAKER_01: Well, let's go ahead and tear into our slides here for the day.
• 3:30
  SPEAKER_01: I kind of had a brain fart there for a second, but the things that we are going to get to, similar story that we've had in this first slide here that just kind of tells the story of the market.
• 3:41
  SPEAKER_01: Feedlot inventories exceed last year with a large front-end supply and record heavy weights.
• 3:48
  SPEAKER_01: Mid-year cattle inventory is slightly larger, which kind of gets to the discussion we'll get to here in a bit about just overall numbers, national herd numbers that we have.
• 3:59
  SPEAKER_01: Little change in the mid-year beef cow herd, a few more heifers held as replacements.
• 4:04
  SPEAKER_01: Still a small number, though.
• 4:05
  SPEAKER_01: The 2026 calf crop looks slightly smaller, and the feeder cattle supplies outside of feed yards is probably smaller.
• 4:14
  SPEAKER_01: Let's look at this first one.
• 4:15
  SPEAKER_01: This was kind of a review from last week, but if you aren't subscribed, you didn't see that one.
• 4:21
  SPEAKER_01: We actually do this every week with Mr.
• 4:23
  SPEAKER_01: Mike Sands, where we do the Fat Tuesday show on the premium side.
• 4:28
  SPEAKER_01: I'll go ahead and plug that real quick before we get too far into things.
• 4:31
  SPEAKER_01: It's$25 a month or$250 annually to join the Ag Bull team.
• 4:36
  SPEAKER_01: It's a heck of a deal.
• 4:38
  SPEAKER_01: Not only do you get Fat Tuesday once a week, but you get the before the bell commentary every single day to keep you updated on the cattle market.
• 4:46
  SPEAKER_01: But back to the chart, Mike, we kind of talked about this some last week.
• 4:51
  SPEAKER_00: Yeah, the overall game plan today is just a recap of the two big reports that USDA is due to release at the end of this week.
• 5:00
  SPEAKER_00: The Catalon feed report, of course, is a monthly report.
• 5:04
  SPEAKER_00: And we've talked a little bit about this over the last couple of weeks, but it does look uh at this point like overall June feedlot placements will be about 2% smaller than last year.
• 5:18
  SPEAKER_00: Overall marketing's down about 2.5% during June.
• 5:23
  SPEAKER_00: But the combination of much smaller marketings during the course of the last month has really pushed some additional cattle forward.
• 5:34
  SPEAKER_00: And as a result, we've got a July 1 feedlot inventory that's about 2% larger than last year.
• 5:42
  SPEAKER_00: So the bottom line is we got more cattle on feed.
• 5:45
  SPEAKER_00: This is the third month in a row in which feedlot inventories have exceeded a year earlier.
• 5:52
  SPEAKER_00: And based on what I see going forward, it looks to me like feedlot inventories are probably going to stay above Eurogo levels through the balance of the year.
• 6:04
  SPEAKER_00: Now that's a much different result, I think, than what the typical news media has in terms of their overall discussion about the cattle inventory being at a 75-year low.
• 6:18
  SPEAKER_00: It's an interesting divergence when we talk about those smaller total inventory numbers and at the same time at least a modest year-over-year increase in uh numbers of cattle on feed.
• 6:33
  SPEAKER_00: And the most troublesome part of that whole picture is that this front-end supply of cattle, those on feed over 180 days, is a half a million head bigger than a year ago.
• 6:47
  SPEAKER_00: That's up something on the order of 39%.
• 6:51
  SPEAKER_00: And it's those cattle, I think, that are limiting, if you will, to some extent, the feed yard, the cattle feeder's flexibility in terms of marketing cattle.
• 7:03
  SPEAKER_00: Now I know basis levels are extremely strong, and that's encouraging people to move cattle.
• 7:09
  SPEAKER_00: The weather conditions in some areas may provide some additional incentive, but the bottom line is the cattle feeder maybe has a little bit less flexibility in terms of what he wants to do with those cattle.
• 7:23
  SPEAKER_00: Feeding them another 30 days may not be an alternative for him.
• 7:28
  SPEAKER_01: Yeah, I mean, like we've talked about before, cattle are a perishable product.
• 7:33
  SPEAKER_01: We can't keep them on, put them in a warehouse and keep them forever.
• 7:37
  SPEAKER_01: We eventually have to take them to town.
• 7:39
  SPEAKER_01: And the longer we delay the inevitable there, the cattle buyer starts to gain some leverage because he knows the time is on his side when we're at 1,600 pounds in the middle of July with record high heats and feedlot territory.
• 7:56
  SPEAKER_01: Some point, yeah, these feet packers and feet or these feeders are going to have to get rid of some of this large front-end inventory.
• 8:03
  SPEAKER_01: But at the same time, there's a lot of big heavyweight cattle, and we're feeding them for longer.
• 8:08
  SPEAKER_01: So we're seeing that slight increase that you were talking about.
• 8:11
  SPEAKER_00: I think that's a big part of the picture over the last 30 days.
• 8:15
  SPEAKER_00: If we go back to the middle part of June, we're looking at a fed cattle market, a cash trade that was basically high 50s, maybe approaching high 250s, approaching 260.
• 8:28
  SPEAKER_00: And last week's late week trade was down around 235.
• 8:32
  SPEAKER_00: So we've seen a huge drop in the overall cash market, and of course, the futures market has led that lower.
• 8:41
  SPEAKER_00: Yeah, of course.
• 8:42
  SPEAKER_01: Yeah, this futures market the past week has just been an absolute roller coaster, but mostly it's been down.
• 8:50
  SPEAKER_01: I mean, we saw a big hard up yesterday and the day before that, but yeah, today, I mean, that was a big gap and move lower.
• 9:00
  SPEAKER_01: This chart here, I thought was, you know, just kind of showed the nice progression there of historic cattle feeding and the mid-year cattle inventory just being slightly larger, but in the grand scheme of things, not that big of an increase.
• 9:13
  SPEAKER_00: That's the other part of the major inventory of the major inventory reports that are due out at the end of the week.
• 9:21
  SPEAKER_00: The USDA's mid-year cattle inventory report does give us a kind of a small snapshot of where the industry stands in terms of expansion or liquidation.
• 9:33
  SPEAKER_00: And of course, in recent years, it's been liquidation, not expansion.
• 9:38
  SPEAKER_00: It does look like that liquidation has come to an end.
• 9:42
  SPEAKER_00: I would put this year's mid-year inventory, total inventory report at around 94.15 million head.
• 9:52
  SPEAKER_00: That's up about 150,000 compared with last year.
• 9:56
  SPEAKER_00: The overall scheme of things, of course, that's rounding error.
• 9:59
  SPEAKER_00: It's not really expansion.
• 10:02
  SPEAKER_00: And for the most part, it does suggest that production potential, beef production potential over the next couple of years is going to be pretty limited.
• 10:13
  SPEAKER_01: Yeah.
• 10:14
  SPEAKER_01: Yeah, we've got to pull cattle from somewhere.
• 10:17
  SPEAKER_01: And right now, where we pull them from, it's not like we're importing anymore right now with our southern border closed.
• 10:23
  SPEAKER_01: We have seen a slight increase in beef on dairy, but at this point, domestic production is just not looking super optimistic with this July 1 beef cow herd unchanged but slightly smaller, kind of plays off of that.
• 10:39
  SPEAKER_00: Yeah, if you go back to January 1, the number of overall beef cow numbers was slightly smaller than a year ago.
• 10:48
  SPEAKER_00: Uh, there were a number of states where cowherd owners were holding a few more heifers.
• 10:55
  SPEAKER_00: So we're kind of tilted toward some longer term expansion.
• 11:01
  SPEAKER_00: But it sure looks to me like the drought during the first half of the year, which certainly intensified as we got into the spring months, may have changed some of those heifer retention plans.
• 11:13
  SPEAKER_00: In addition to that, it probably reduced stocking rates on a number of pastures in the plains area as we move deeper into the spring and early summer grazing period.
• 11:26
  SPEAKER_00: The bottom line is we've got an overall cow herd project, beef cow herd projected around 28.5 million hit.
• 11:36
  SPEAKER_00: Again, that's not far different from where we were a year ago at this time.
• 11:42
  SPEAKER_00: And obviously, it's well below where we were uh back in the peak numbers in 2018, 19, and 20.
• 11:51
  SPEAKER_00: So we got a long ways to go uh to rebuild from these really small numbers.
• 11:58
  SPEAKER_00: And at least at this point, Jed, it looks like we're just getting started and in a pretty tentative fashion at that.
• 12:06
  SPEAKER_01: Yeah, we've seen a lot of cows at the sale barn back home in Colorado.
• 12:11
  SPEAKER_01: I'm actually headed back home here for a week after we get done recording this, but in other parts of the country, you know, like the southern states, we often kind of forget that they're, you know, cattle production states because the feed yards and grow yards aren't there.
• 12:25
  SPEAKER_01: But I mean, shoot, Florida has the two biggest ranches in America.
• 12:29
  SPEAKER_01: They've seen some drought there in northern Florida all the way up into South Carolina and things like that.
• 12:35
  SPEAKER_01: I think we've seen some cow consolidation just because of that.
• 12:39
  SPEAKER_01: At the same time, though, like you said, there is some light at the end of the tunnel or a small glimpse of hope, and I'll pop up this chart here.
• 12:46
  SPEAKER_01: The small increase in beef heifers held as replacements is kind of an optimistic outlook.
• 12:53
  SPEAKER_00: Yeah, that's the one thing I think that we can kind of point to that might signal a little bit of growth as we move forward.
• 13:01
  SPEAKER_00: I would put these the heifer retention number in this mid-year inventory report, maybe somewhere in the area of 100,000, bigger than a year ago.
• 13:11
  SPEAKER_00: But keep in mind we're comparing with some really small numbers.
• 13:16
  SPEAKER_00: If you look at those heifer retention numbers and compare them back with the peaks that we saw in say 2018 and 19, it's somewhere in the area of a million five or a million six less than during that time frame.
• 13:33
  SPEAKER_00: So even though numbers might be a little bit bigger than a year ago, it's really a pretty small number.
• 13:41
  SPEAKER_00: And as a result, those smaller heifers retained uh really don't contribute a lot to cowherd growth moving forward.
• 13:52
  SPEAKER_00: Now, I would argue that if if this estimate is anywhere close to being in the ballpark, there's probably a reasonable chance that come January 1 of 2027, the beef cow herd might be just a little bit bigger.
• 14:10
  SPEAKER_00: All we're really saying is that the cow herd for the most part probably has stabilized some indication that maybe the first tentative steps are being made toward cowherd expansion, but we really have not confirmed that yet at this point.
• 14:30
  SPEAKER_00: Yeah.
• 14:31
  SPEAKER_01: Well, you know, Mike, I got a finance degree from Oklahoma State, but I spent plenty spent plenty of my time in the animal science building over there where I was on the livestock judging team.
• 14:42
  SPEAKER_01: And in my experience raising livestock, as long as you keep a slightly net positive retention rate on your herd, they grow at an exponential rate from there.
• 14:55
  SPEAKER_01: As long as you keep slightly back more heifers than what you cull, it they tend to grow every single year from that.
• 15:04
  SPEAKER_01: Now, obviously, the cattle cycle is just a slow, slow ordeal.
• 15:10
  SPEAKER_01: They are the exact opposite of rabbits, but uh it it shows some glimpse of hope, especially when we're looking at this 2026 number or calf crop estimate number here.
• 15:22
  SPEAKER_00: Yeah, we've talked in the past, Jed, about turning the inventory around.
• 15:26
  SPEAKER_00: The inventory is huge, of course, and we've got cow herds in in all 50 states.
• 15:33
  SPEAKER_00: I've sometime sometimes likened turning the inventory around is like turning a battleship on a farm pond.
• 15:41
  SPEAKER_00: It just moves slowly and it takes a long time to get that job done.
• 15:47
  SPEAKER_00: The bottom line is looking forward, if if our cow herd really isn't growing very much, then obviously the calf crop isn't either.
• 15:57
  SPEAKER_00: And I would put this year's calf crop maybe just a little bit smaller than last year, somewhere in the area of 32.7 million.
• 16:07
  SPEAKER_00: That's down about 200,000 compared with last year.
• 16:11
  SPEAKER_00: And it's those calves, of course, that will supply feeder cattle supplies going forward.
• 16:18
  SPEAKER_00: It will supply cattle going into grazing programs going forward, and any additional growth in terms of heifer retention, any additional growth into the size of the cow herd.
• 16:31
  SPEAKER_00: So the competition for those cattle as we move forward is going to continue to be pretty stiff.
• 16:39
  SPEAKER_00: That to me looks like it's going to be pretty price supportive.
• 16:43
  SPEAKER_00: Yeah.
• 16:44
  SPEAKER_01: Well, yeah, I like that you brought up the battleship on a farm pond there.
• 16:48
  SPEAKER_01: It reminds me of my favorite movie, Secondhand Lions, if you've ever watched that one.
• 16:53
  SPEAKER_01: But it is very true.
• 16:55
  SPEAKER_01: And like you said, even if we have a high retention rate with a small overall calf herd, it takes some time to turn it around because you have more hands trying to grab at those calves.
• 17:06
  SPEAKER_01: And that's why we've seen such this strong cash market and barns and live cattle auctions and videos across the country, is because we just have more people playing for less feeder cattle and less grass cattle every year.
• 17:21
  SPEAKER_00: That's exactly right.
• 17:23
  SPEAKER_00: And that kind of brings us to our last overall slide today, I think, is a quick look at feeder cattle supplies.
• 17:31
  SPEAKER_00: Um obviously, if the calf crop's not growing, it's pretty difficult to grow feeder cattle supplies, particularly with the southern border closed.
• 17:40
  SPEAKER_00: And at least that looks like it's going to remain closed for the foreseeable future.
• 17:47
  SPEAKER_00: Obviously, not in not indefinitely, but at least for the time being, that would be our assumption.
• 17:53
  SPEAKER_00: And the bottom line is the estimated feeder cattle supply outside of feed yards at mid-year is pretty close to 350,000 head or roughly 1% smaller than a year ago.
• 18:07
  SPEAKER_00: Again, the bottom line is in terms of overall feeder cattle supplies, is just continued tightness and some pretty stiff competition for those available supplies going forward.
• 18:23
  SPEAKER_00: Yeah.
• 18:24
  SPEAKER_01: Well, you bring up the southern border there, Mike, and I think it's something interesting that we just don't think about maybe the most, is that those cattle in Mexico still went somewhere, even though they didn't come to the United States and get the big M brand stamped on them.
• 18:40
  SPEAKER_01: And yeah, they look like a hodgepodge in someone's feed yard.
• 18:43
  SPEAKER_01: Because they didn't show up didn't mean they just kicked them loose and no one ate them.
• 18:47
  SPEAKER_01: They got fed in Mexico somewhere.
• 18:49
  SPEAKER_01: And they got converted and turned over and maybe not as efficiently.
• 18:54
  SPEAKER_01: But I'm sure there's some, you know, south of the border operations that have learned how to feed these cattle better.
• 19:01
  SPEAKER_01: And I don't know if we always kind of, you know, add that to our equation for when they do eventually open this border or whether they're going to want to hand them over like they used to.
• 19:09
  SPEAKER_00: Yeah, I think that's a really good point.
• 19:12
  SPEAKER_00: There's not much doubt that with the closure of the border, we have, for all practical purposes, helped make the Mexican cattle feeding industry much more efficient than it had been historically.
• 19:27
  SPEAKER_00: Their feeding capability via a couple of really large cattle feeders down there has expanded.
• 19:34
  SPEAKER_00: And the end result is we are importing more beef from Mexico rather than feeder cattle.
• 19:42
  SPEAKER_00: And once that change gets made, your point is well taken.
• 19:47
  SPEAKER_00: The available supply of feeders to come from Mexico to the U.S.
• 19:52
  SPEAKER_00: in the future probably won't be nearly as big as it has been historically.
• 19:58
  SPEAKER_01: Yeah, it's almost like setting the price at the grocery store for a gallon of milk or just some box of cereal.
• 20:07
  SPEAKER_01: Once you set a certain price level or a certain expectation with regards to performance or efficiency, once you set it there, it can stay there because it can.
• 20:27
  SPEAKER_00: Sure.
• 20:27
  SPEAKER_00: There there will always be potentially some feeder supplies coming in from, say, Sonora, Chihuahua, maybe even Coahuila, in terms of those northern states.
• 20:41
  SPEAKER_00: But for the most part, to go back to importing a million two like we did in 2023 and 24, chances are pretty good we're not going to get back to those kinds of levels anytime soon.
• 20:56
  SPEAKER_00: Yeah, I certainly agree.
• 20:58
  SPEAKER_01: Your uh knowledge of uh Rio Grande geography always impresses me, Mike, that your clear pronunciation of each district and county and things like that, especially when we talk about the big bad bug, the screw worm, and that I'm sure, yeah, it was nice to not have to talk about them for a week, even though there has been a night a slight increase there still in cases it's starting to maybe be less of a headline than what it was.
• 21:24
  SPEAKER_00: Yeah, it certainly doesn't make the headlines that it did back in the early part of June, but by the same token, it's still with us.
• 21:32
  SPEAKER_00: And the bottom line is the the control capabilities, the management capabilities that we have to deal with this infestation now is dramatically different than it was 50 years ago.
• 21:49
  SPEAKER_00: So this is a manageable problem.
• 21:51
  SPEAKER_00: Uh, there are going to be costs associated with it, there will be some livestock losses, but for the most part, uh, this is a management issue going forward, and it looks to me like we've got a number of pieces in place uh that look pretty positive.
• 22:09
  SPEAKER_00: Yeah.
• 22:10
  SPEAKER_01: I couldn't agree with you more, Mike.
• 22:12
  SPEAKER_01: Well, I think that's about all we have to go over today.
• 22:16
  SPEAKER_01: But like you said, we have that cattle on feed report that comes out on Friday, and I'm sure everyone's eyes and ears are going to be directed towards that, and we'll be talking about it next week on your daily show, but then on Fat Tuesday as well.
• 22:30
  SPEAKER_01: What kind of closing comments do you have regard regarding that report that comes out on Friday?
• 22:36
  SPEAKER_00: Well, uh just two major conclusions, I think, and and maybe a little bit of a divergence between the two reports.
• 22:43
  SPEAKER_00: Number one, we got more cattle on feed.
• 22:46
  SPEAKER_00: Uh and at least at this point, thinking about August through December or even early next year, an argument can be made that Fed cattle supplies might be at least equal to a year ago or slightly larger.
• 23:01
  SPEAKER_00: And if you combine that with record heavy carcass weights, Fed beef tonnage looks to me like it has reasonable odds of at least matching last year's levels, if not slightly larger.
• 23:15
  SPEAKER_00: The other report, of course, is the inventory report.
• 23:18
  SPEAKER_00: And at that, at this point, mid-year, it surely looks to me like the strongest statement that I would make from an inventory standpoint is that we have stabilized the decline in overall inventories, but any real growth in either the cowherd or calf crops or feeder cattle supplies is still to be determined going forward.
• 23:46
  SPEAKER_01: Well, Mike, every week you just make me feel so much more educated and more prepared for these reports.
• 23:52
  SPEAKER_01: And then I'm supposed to be the ag Intel Ag Bull Media guy that's supposed to go on in the morning show and tell people about what's happening in the markets.
• 24:00
  SPEAKER_01: But you do such a great job of breaking it down and each part of it and making it digestible.
• 24:05
  SPEAKER_01: It's really fun to watch you do it each week.
• 24:07
  SPEAKER_01: And I appreciate you coming on, even though it's maybe not the most convenient to hop on while the market's still open at times.
• 24:15
  SPEAKER_01: But I think this one's going to be pushed to the public, and it's going to be great to hear everyone's feedback on the Fat Tuesday show because we always get some comments and they're always pretty dang positive on what you have to say.
• 24:28
  SPEAKER_01: Well, I'm really excited to see how this one does when we release it to everybody.
• 24:32
  SPEAKER_01: Mike, thanks for coming on.
• 24:34
  SPEAKER_01: I'll go ahead and talk to you next week.
• 24:36
  SPEAKER_01: I'll probably be in Colorado then.
• 24:38
  SPEAKER_00: Good to visit with you today, Jed.
• 24:40
  SPEAKER_00: Look forward to getting together again next week, and we'll have some report results to talk about.
• 24:46
  SPEAKER_01: Yeah, we will.
• 24:47
  SPEAKER_01: We'll get to all of that catalog on feed report next week.
• 24:51
  SPEAKER_01: I'll talk to you then, Mike.
• 24:53
  SPEAKER_00: Good to visit with you, Jed.
• 24:54
  SPEAKER_00: Have a good thing.