Latest / Professional Ag Marketing Podcast / Is the U.S. Consumer Stung? Pork Demand in a Funk

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Is the U.S. Consumer Stung? Pork Demand in a Funk · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Hog Market Talk Podcast.
• 0:05
  SPEAKER_00: Your weekly deep dive into hog market fundamentals, breaking news, and industry insights.
• 0:12
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: All right, today is June 11th.
• 0:23
  SPEAKER_02: I've got Luke Wells with us here today.
• 0:25
  SPEAKER_02: How's it going, Luke?
• 0:26
  SPEAKER_01: It's going good, Mike.
• 0:27
  SPEAKER_01: I tell you what, too, we got it was 60 degrees this morning.
• 0:30
  SPEAKER_01: Yeah.
• 0:31
  SPEAKER_01: A little rain, kind of after these 90 and humid.
• 0:34
  SPEAKER_01: I'm I'm I operate a little better in this uh this kind of environment here this morning.
• 0:38
  SPEAKER_02: You and I both uh needed a little heat to get some of the crops caught up in our local area here, but honestly, they're looking good now, eh?
• 0:45
  SPEAKER_02: Yeah, they're looking a lot better.
• 0:47
  SPEAKER_02: A little dreary this morning, nice and rainy.
• 0:50
  SPEAKER_02: Uh, we could use a little bit more of that locally here uh in southwest Minnesota.
• 0:54
  SPEAKER_02: So I wanted to just talk to you a little bit today about the hog market, you know, what we're seeing out there.
• 0:59
  SPEAKER_02: But I first wanted to talk to you about the World Pork Expo last week, Fiesta Day Pig.
• 1:04
  SPEAKER_02: What was your overall tone from the audience there and just what did you take from it?
• 1:08
  SPEAKER_01: Yeah, uh the World Pork Expo, I I don't have official stats on this mic, but attendance from my perspective seemed really, really good.
• 1:15
  SPEAKER_02: It was banging.
• 1:16
  SPEAKER_01: Yeah, but both days actually.
• 1:18
  SPEAKER_01: Usually Thursday gets a little slow, and a lot of people Thursday too, but phenomenal turnout.
• 1:22
  SPEAKER_01: Uh uh had a lot of good, a lot of good topics, a lot of good seminars, a lot of good vendors, right, in the industry.
• 1:27
  SPEAKER_01: But we're really happy with World Pork.
• 1:29
  SPEAKER_01: Uh got to see a lot of clients, friends, industry.
• 1:32
  SPEAKER_01: Um, we also we did a new thing this year.
• 1:34
  SPEAKER_01: We fiesta day pig, we had a big party uh Wednesday uh afternoon into the evening, and and I just want to thank you.
• 1:42
  SPEAKER_01: Um we we did that with Marshall McCullin.
• 1:44
  SPEAKER_01: Thank you very much, Jen, and and and that team.
• 1:46
  SPEAKER_01: Um, but uh thanks thanks to the industry for coming.
• 1:49
  SPEAKER_01: We we had an excellent turnout.
• 1:51
  SPEAKER_01: Uh it was uh it was a ton of fun.
• 1:53
  SPEAKER_01: The weather was great, and uh yeah, Oral Pork was uh it's it it was a it was a 2026 big success.
• 2:00
  SPEAKER_02: I had a blast there, it was a good time.
• 2:02
  SPEAKER_02: So thank you for uh helping set all that up.
• 2:04
  SPEAKER_02: But let's talk about the input side just a little bit before we talk about the Hogs.
• 2:09
  SPEAKER_01: That's warranted.
• 2:10
  SPEAKER_02: Yeah, we've got some things going on here.
• 2:12
  SPEAKER_02: We've got a Wazd Airport today.
• 2:14
  SPEAKER_02: Uh uh hopefully we get uh get a little boring news out of this.
• 2:18
  SPEAKER_02: At this point, I don't think I've seen anything that is uh warranted for a yield disruption by any means.
• 2:26
  SPEAKER_02: Weather's been good, planning pace was fast, so I don't see that changing off trend line there.
• 2:30
  SPEAKER_01: We we need a big yield though, right, with this demand structure on corn, right?
• 2:34
  SPEAKER_02: Demand keeps up, and that is the one side of the category.
• 2:37
  SPEAKER_02: You maybe could see some bumps in demand on this report.
• 2:41
  SPEAKER_02: So maybe watch out for that a little bit, but I think that would be a little expected too.
• 2:45
  SPEAKER_02: Now, one thing is we have taken a lot off this market.
• 2:48
  SPEAKER_02: Now, I'll have Cade pull it up maybe on some charts on just December corn here or something.
• 2:53
  SPEAKER_02: But if you look at these charts, we're at some pretty strong support levels historically on December corn.
• 2:58
  SPEAKER_02: You're looking at 438 and three-quarters was an all-time low on that contract going back to August of 2024.
• 3:06
  SPEAKER_02: Uh many, many support levels in this 440 to 445 range on this contract, going back in history uh many times.
• 3:16
  SPEAKER_02: So a lot of support here.
• 3:18
  SPEAKER_02: Now, seasonal is a different thing.
• 3:20
  SPEAKER_02: Normally, once we kind of sell off here, any recovery is pretty short-lived and it pretty much trails off to the middle of August.
• 3:27
  SPEAKER_02: If you look at the seasonals, so you've got a couple different scenarios that could happen, right?
• 3:32
  SPEAKER_02: You find support here, you pop, which uh there's three mainly good reasons that could happen, I think, which would be weather.
• 3:39
  SPEAKER_02: We could get a pop out of weather.
• 3:40
  SPEAKER_02: It's still dry in Nebraska from the folks I've talked to this morning, for example.
• 3:44
  SPEAKER_02: Uh, if you look at uh Iran, that conflict is picking back up some steam here, especially over the past 24 hours.
• 3:51
  SPEAKER_02: So crude oil could go up.
• 3:53
  SPEAKER_02: And then the last but not least, if China comes in and buying it.
• 3:56
  SPEAKER_02: Sure, especially after a bargain buy, pretty good sell-off here, it makes sense.
• 4:00
  SPEAKER_02: So those three reasons could lead to a little pop in these grain markets.
• 4:04
  SPEAKER_02: But historically, normally once we're off to a good start, market can't really keep up, and we just start to trail off in the middle of August.
• 4:11
  SPEAKER_02: So we'll see.
• 4:12
  SPEAKER_02: But one thing it has provided is a pretty good opportunity for the end users, hasn't it?
• 4:17
  SPEAKER_01: Yeah, that and that's right, too.
• 4:18
  SPEAKER_01: And we we, you know, that's you know, go back to 2023, right?
• 4:22
  SPEAKER_01: That we talk about that, and what was one of the biggest problems when you had six, seven dollar corn and hundred dollar cost of productions, you just couldn't get the meat price high enough to cover that.
• 4:30
  SPEAKER_01: So yeah, no, I think it's a good opportunity for an end user.
• 4:33
  SPEAKER_01: I mean, new crop, especially.
• 4:34
  SPEAKER_01: I mean, that that July D spread, right?
• 4:37
  SPEAKER_01: I mean, you've got a 415 July board, basis dependent, but that puts a lot of corn with a three, you know, cash corn starting with it, you know, really works.
• 4:45
  SPEAKER_01: And you know, we've and on the like the US Iran conflict, you're right, it's going nowhere fast.
• 4:50
  SPEAKER_01: And the corn market doesn't care about that today, but long term, there there will be, you know, my opinion at least, you know, care about it someday again, right?
• 4:59
  SPEAKER_01: Um, yeah, and so for end users, it's it's we we still like some options, you know, around this, and and I actually don't mind some flat price ownership at you know, sub 450 dece corn, right?
• 5:08
  SPEAKER_01: But you know, make sure you keep your cobs cover, your hogs covered.
• 5:12
  SPEAKER_01: Um, it's an opportunity, you know, too, with options, maybe roll some options down, uh, improve your coverage a little bit.
• 5:18
  SPEAKER_01: Just yeah, use the market volatility to your advantage and and defend a cost of production that works.
• 5:23
  SPEAKER_01: And you know, then on meal, I think maybe Kate has a chart on that too.
• 5:27
  SPEAKER_01: I mean, soy crush margins just I mean, they keep breaking records each week.
• 5:30
  SPEAKER_01: It's it's really good.
• 5:31
  SPEAKER_01: And and then that should lead to some nice basis again for for for next year, just like we had this year on Cash Meal.
• 5:38
  SPEAKER_01: But these deferred contracts, they're you know, they're getting around in that 310 plus or minus a little on the option month.
• 5:44
  SPEAKER_01: Like that's some pretty good ownership.
• 5:46
  SPEAKER_01: So just depend your cost of production.
• 5:48
  SPEAKER_01: Uh at these kind of values, they're they're pretty good historic ownership.
• 5:52
  SPEAKER_02: Absolutely.
• 5:53
  SPEAKER_02: I I want to take a look now, just more on the let's talk big macro overview.
• 5:59
  SPEAKER_02: What do you think the consumer looks like today?
• 6:01
  SPEAKER_02: What's the demand side of this hog market look like?
• 6:03
  SPEAKER_02: It's being brought into question a little bit here.
• 6:05
  SPEAKER_02: What do you think?
• 6:06
  SPEAKER_01: I I think it's the biggest, it's the it's the biggest issue we're facing currently.
• 6:10
  SPEAKER_01: Um, and and the question is it is it is it a short-term timing thing or is it gonna manifest itself into a little little longer term thing?
• 6:18
  SPEAKER_01: But I think the US consumer uh is a is a little stung, Mike.
• 6:22
  SPEAKER_01: Um, and I think you know, obviously we got some fresh data um as you look at inflationary things, and it, you know, there's a little bit of food inflation, a little bit of services inflation.
• 6:30
  SPEAKER_01: I mean, but the one that stands out without a without a doubt is is fuel prices, right?
• 6:35
  SPEAKER_01: We've had an extreme uh run up in gas prices.
• 6:39
  SPEAKER_01: That's a direct line to the consumer.
• 6:40
  SPEAKER_01: I mean, this is like an easy proxy.
• 6:42
  SPEAKER_01: I I gotta go, it's been a few years, like now when you fill up your truck, like some gas stations click you out because you hit 125 bucks or whatever, right?
• 6:50
  SPEAKER_01: I mean, it's just that's a direct cost.
• 6:52
  SPEAKER_01: And um, you know, on top of that, K-shaped economy, all the things like you were into that.
• 6:57
  SPEAKER_01: And I, you know, we've we've we've got just uh I'd say a little funk in in the consumer here.
• 7:02
  SPEAKER_01: I think we're feeling that uh, you know, specifically in in the pork industry right now.
• 7:08
  SPEAKER_01: And you know, that's the question.
• 7:09
  SPEAKER_01: Uh is it is it a little short-term thing or is it a little longer-term challenge?
• 7:13
  SPEAKER_01: And we, you know, we we maintain optimism uh for the pork complex.
• 7:18
  SPEAKER_01: And and you know, but it's it's it's like every day here, it's just a little bit fatigued because you know, we've we've we've struggled really since May on pork demand.
• 7:26
  SPEAKER_01: Uh it's it's it's not kind of modeled what it historically would have been relative to the underlying production rates we've we we've been running.
• 7:33
  SPEAKER_01: So, you know, kind of to take a big uh step up and back, right?
• 7:37
  SPEAKER_01: We um you know, this year so far has been real similar to supply to a year ago, right?
• 7:42
  SPEAKER_01: So, and I guess that is the point.
• 7:44
  SPEAKER_01: This this current market, it's not a supply-driven.
• 7:46
  SPEAKER_01: This is this is all about demand, right?
• 7:48
  SPEAKER_01: And and when you look at beef price, uh, I think Kate Choi Kate Kate has a a graph on choice box beef.
• 7:54
  SPEAKER_01: Like you can look at that two ways.
• 7:56
  SPEAKER_01: I mean, the first well, you know, didn't break 400 or rallies above 400, but the way I look at it is it's 400 sub, you know, 390, whatever choice box beef.
• 8:06
  SPEAKER_01: It's up there, it's up there and it's staying up there.
• 8:08
  SPEAKER_01: Yeah, and and so the way I signal that is well, you know, we've we've we've maybe hit a price point where the consumers just cry and uncle a little bit.
• 8:15
  SPEAKER_01: Um, you know, I had a friend text me last night.
• 8:18
  SPEAKER_01: I mean, we're still buying it.
• 8:19
  SPEAKER_01: He had a uh a beef rib loin, and it was like 240 bucks he had in his grocery garden right next to it.
• 8:25
  SPEAKER_01: He had a pork loin for 15, right?
• 8:27
  SPEAKER_01: Yeah, huge spreads there, right?
• 8:29
  SPEAKER_01: But still beef has demand, it's it's it's gonna continue to have demand.
• 8:32
  SPEAKER_01: But you you take a look at that, and my point is I think that continues to bode, like protein still is in a good spot.
• 8:38
  SPEAKER_01: The hog industry is still in a good spot.
• 8:41
  SPEAKER_01: Um, we've got excellent pricing opportunities uh relative to beef.
• 8:45
  SPEAKER_01: Protein demand hit our you know, our nutrition goals, RFKs, food permanent, all that like nothing like since May is like in my mind like broke, but we do have, I think, a little bit uh consumer, the consumers got a little cold.
• 8:58
  SPEAKER_01: I'm not ready to say it's like flu or bowling out pneumonia, but I think there's some pinch points there.
• 9:03
  SPEAKER_01: And and so when you look at 2026 so far versus 25, some more supply so far.
• 9:08
  SPEAKER_01: We'll see what the back half of the year does for supply, right?
• 9:11
  SPEAKER_01: But so far, summer supply.
• 9:14
  SPEAKER_01: Um and and demand, we would have thought, uh, and the market clearly thought the market, you know, when we rallied up these over 110 summer futures, thought suppliables would come a little quicker and what you know, demand would be a little bit better.
• 9:26
  SPEAKER_01: And year to date, we're about even on demand.
• 9:28
  SPEAKER_01: I'm gonna measure pork demand through pork cutout, best proxy.
• 9:31
  SPEAKER_01: I think we're 35 cents higher year over year on pork cutout.
• 9:35
  SPEAKER_01: So, yes, it is a little better year to date, but the inflection point is if you like take May, June versus a year ago, we're like three bucks lower.
• 9:42
  SPEAKER_01: Yeah, I mean, that's May is when it it sub and then also you think about our IAN conflict when it started, prices come up, and then there's always a delay on that.
• 9:50
  SPEAKER_01: You put it on the credit card, you pay it 30 days later, right?
• 9:54
  SPEAKER_01: Um, and we've just we've just got a little little little little stu stunned consumer.
• 9:58
  SPEAKER_01: I'd also say, I mean, this race to compete in this protein market, I mean, it's not just a beef and pork thing.
• 10:04
  SPEAKER_01: I mean, we have we have chicken, and I mean, chicken's the highest consumed pounds-wise protein in the US.
• 10:09
  SPEAKER_01: And the poultry industry's responded.
• 10:11
  SPEAKER_01: I think Cade will have another chart on that.
• 10:13
  SPEAKER_01: Um, I think they're up about 3% year over year.
• 10:16
  SPEAKER_01: Um, they can grow and they can grow quick.
• 10:18
  SPEAKER_01: That's the advantage of a shorter life cycle animal like the chicken, right?
• 10:22
  SPEAKER_01: And then so to kind of take it back and a step up and out, uh, competing proteins.
• 10:27
  SPEAKER_01: I mean, beef still stays really high.
• 10:29
  SPEAKER_01: Pork's just stayed flat.
• 10:31
  SPEAKER_01: These would be wholesale comparisons.
• 10:33
  SPEAKER_01: Um, and and poultry chicken price is going down.
• 10:36
  SPEAKER_01: So there's a little more chicken, and it's a little cheaper.
• 10:38
  SPEAKER_01: And it's all kind of competing against this slightly pinched.
• 10:42
  SPEAKER_01: I don't know if we can, I think I I the way I described that consumer.
• 10:46
  SPEAKER_01: And we just you can you can look at all the reasons why, but I mean we pork demand's got a little funk right now.
• 10:52
  SPEAKER_01: It's it's not responding in the way in which we'd we'd like it to, and the way in which it it it historically does is we get into these sub-2-4 type production runs, Mike.
• 11:01
  SPEAKER_01: And that's what the futures market's looking at.
• 11:03
  SPEAKER_01: That's why we've sold off, and and that's why we're kind of where we're at today.
• 11:07
  SPEAKER_02: We'll keep an eye on the demand side.
• 11:09
  SPEAKER_02: Consumer prices or inflation rose 4.2% annually in May.
• 11:14
  SPEAKER_02: That was the highest in three years, Luke.
• 11:17
  SPEAKER_01: So you it's it's it's it's a real thing.
• 11:19
  SPEAKER_01: So I I know we're kind of getting on time, Mike, but I want to pack, we're packing a lot in, right?
• 11:23
  SPEAKER_01: But that's yeah, that's all right.
• 11:25
  SPEAKER_01: But so all this, like we we still, you know, we still are optimistic pork industry.
• 11:30
  SPEAKER_01: Um clearly in the market, uh, system specific product productivity is a big differentiator out there.
• 11:36
  SPEAKER_01: There still is a lot of PERS around.
• 11:38
  SPEAKER_01: And if you have PERS, you're it's it's it's a tough operating environment.
• 11:42
  SPEAKER_01: Um, PERS always is a tough operating environment, right?
• 11:45
  SPEAKER_01: But materially, we don't think we don't think the demand structure has gone from uh you know really good to like horrible.
• 11:51
  SPEAKER_01: I we think it's tweaked, we think we're in a st you know in a funk year.
• 11:55
  SPEAKER_01: So we still have optimism.
• 11:57
  SPEAKER_01: Um we we still are are and we're friendly December from$74, okay.
• 12:02
  SPEAKER_01: Like put it out there, the futures curve, right?
• 12:04
  SPEAKER_01: But we're getting a little fatigued, right?
• 12:06
  SPEAKER_01: Because the calendar's working against us.
• 12:08
  SPEAKER_01: We're you know, it's June 11th.
• 12:09
  SPEAKER_01: Next week, this week, we're gonna be slightly above a year ago on harvest.
• 12:13
  SPEAKER_01: We think the week after, you're almost into July now.
• 12:15
  SPEAKER_01: So like the calendar is working against us.
• 12:17
  SPEAKER_01: So if you bring up that CME index chart, Cade, that'd be my last kind of points here for today, right?
• 12:22
  SPEAKER_01: And and again, so you know, if if the summer rally doesn't come, and we're not saying it won't, right?
• 12:28
  SPEAKER_01: But we we are looking a lot more at 2024, okay?
• 12:31
  SPEAKER_01: That'd be the red line on that chart.
• 12:33
  SPEAKER_01: And so 2024 is important for a couple reasons.
• 12:36
  SPEAKER_01: Um, we've all moved to more cutout-based pricing, right?
• 12:39
  SPEAKER_01: And and that really kind of kicked up in the how it feeds into the index in in in 2024.
• 12:45
  SPEAKER_01: So uh we don't have the cash hog chart out there, but since less cash hogs are in in it, um, packers are many times not able to leverage us as bad in Q4, right?
• 12:55
  SPEAKER_01: So you in if we had a cash chart, 23 cash hogs went really low, 24, 25.
• 12:59
  SPEAKER_01: Also, supply balance, cash hogs to shackles more balanced now.
• 13:03
  SPEAKER_01: And from what we see from supply and whatnot, we don't we don't see a surge of pigs coming in Q4.
• 13:09
  SPEAKER_01: So if if this year, because demand is a little off, would would it would would be our proxy and and cash hog demand, I mean, cash hogs are 98 bucks, cutouts 96, and index is 93, right?
• 13:22
  SPEAKER_01: I mean, cash is leading the way, so it's not a supply thing, it's a demand thing, in our opinion.
• 13:27
  SPEAKER_01: Um, if if it ends up that we don't get a summer rally, and I would blame that on a consumer issue, a demand issue, um, I'd also say the silver lining to that is we do think it that that that could be a uh a better on the backside.
• 13:44
  SPEAKER_01: So every time we rally, and that's the index, but a cutout chart would look the same when price goes really high and you can stay here, Cade.
• 13:50
  SPEAKER_01: Um, you know, we do curve we sometimes we can cut a little demand with high price.
• 13:54
  SPEAKER_01: Yep.
• 13:54
  SPEAKER_01: So if we don't get a summer rally this summer, again, not crying uncle, not saying it's not coming.
• 13:59
  SPEAKER_01: Um, that should bird for some better prices in the fall.
• 14:03
  SPEAKER_01: Because again, we think baseline demand is still there, right?
• 14:06
  SPEAKER_01: So um, again, that gives us some optimism that we'll get some better hedging opportunities and a better market as we move forward here and uh and and keep hammering things out.
• 14:15
  SPEAKER_02: All right.
• 14:16
  SPEAKER_02: Well, thank you for joining us today, Luke.
• 14:18
  SPEAKER_02: I appreciate it.
• 14:19
  SPEAKER_02: And uh please click the link on the description below to get our daily market commentary and other interesting marketing info that you may find uh on our website as well at professionalite marketing.com.
• 14:30
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• 14:31
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