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Hog Futures not Responding · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_01: Welcome to the Hog Market Talk Podcast.
• 0:06
  SPEAKER_01: Your weekly deep dive into hog market fundamentals, breaking news, and industry insights.
• 0:12
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: All right.
• 0:22
  SPEAKER_00: Today is August 19th.
• 0:23
  SPEAKER_00: I've got Luke Wells here today for a hog podcast.
• 0:26
  SPEAKER_00: How's it going?
• 0:27
  SPEAKER_02: It's going pretty well, Mike.
• 0:29
  SPEAKER_02: How are you doing today?
• 0:30
  SPEAKER_00: Oh, we're doing pretty good.
• 0:31
  SPEAKER_00: A few things I wanted to start off with, just some of the outside markets, talk about the grains a little bit, and then work our way into some high-level hog talk.
• 0:39
  SPEAKER_00: How's that sound?
• 0:40
  SPEAKER_02: Sounds like a winner.
• 0:41
  SPEAKER_00: All right.
• 0:41
  SPEAKER_00: Well, the grain market's been ripping lately.
• 0:44
  SPEAKER_00: Uh a few different things to talk about.
• 0:45
  SPEAKER_00: Pro farmer crop tours going on as we speak.
• 0:48
  SPEAKER_00: They've been finding some pretty poor yields out and about.
• 0:50
  SPEAKER_00: We've had some pretty erratic weather through the corn belt as well.
• 0:53
  SPEAKER_00: High, heavy winds, rains, uh, flooding, things like that for Illinois, Indiana, some of the more important key crop areas uh throughout the United States, eastern Iowa included.
• 1:05
  SPEAKER_00: So some of the better parts of the U.S.
• 1:07
  SPEAKER_00: are starting to go down a little bit.
• 1:08
  SPEAKER_00: Where we sit, honestly, our crops probably improving a little bit.
• 1:11
  SPEAKER_00: Just a few rains here and there trying to save what is left in some of these areas to try to save at least.
• 1:16
  SPEAKER_00: So the grain markets have been rallying.
• 1:18
  SPEAKER_00: Big part of that as well has been uh lead on the back of crude oil.
• 1:22
  SPEAKER_00: Crude oil's been rallying up into the mid-80s again.
• 1:25
  SPEAKER_00: Uh soybean oil's been rallying right alongside of that.
• 1:28
  SPEAKER_00: So the soybean market that's rallied right along with that group.
• 1:32
  SPEAKER_00: Same with the soybean meal as well.
• 1:33
  SPEAKER_00: So there's quite a bit of strength in these grain markets.
• 1:36
  SPEAKER_00: The wheat market's been giving corn quite a bit of support as well.
• 1:40
  SPEAKER_00: I'd like to think that corn has just been following basically soybeans and wheat with that rally that we've been seeing.
• 1:46
  SPEAKER_00: Today there was some extra stuff going on there.
• 1:49
  SPEAKER_00: Today was a little bit different because if you actually look at a US dollar chart, we had a massive sell-off at the US dollar.
• 1:55
  SPEAKER_00: Uh the bonds shot up there.
• 1:57
  SPEAKER_00: Uh pretty weak bond market there lately.
• 2:00
  SPEAKER_00: Uh, saw some aggressive buying uh occur there.
• 2:03
  SPEAKER_00: A few different things kind of going on.
• 2:05
  SPEAKER_00: Uh gold skyrocketed as well.
• 2:08
  SPEAKER_00: So there was some money flow just flowing into ag commodities here today as well, I think, because some of some of those outside market activities that we saw, Luke.
• 2:17
  SPEAKER_02: For sure.
• 2:18
  SPEAKER_00: What about the hog market?
• 2:19
  SPEAKER_00: Uh been a rough go.
• 2:21
  SPEAKER_00: We've had some bright moments here or there, but the story continues to be about the same, doesn't it?
• 2:26
  SPEAKER_02: Yeah, it it does.
• 2:27
  SPEAKER_02: And I mean, some of the factors, I mean, uh, you know, uh we're we're we're in a demand, we have demand challenges right now, without a doubt.
• 2:36
  SPEAKER_02: Um we've been talking about this, and it's it's it's it's persisting.
• 2:41
  SPEAKER_02: Um we just you know, as we've gone through the summer, you know, this is just inflation affected consumer.
• 2:46
  SPEAKER_02: I mean, the US-Iran conflict, you read you you mentioned crude rallying, right?
• 2:50
  SPEAKER_02: It it doesn't appear, you know, that story and story that in fact I everything I've read Iran is kind of cranking up their escalation, you know, if you will.
• 2:59
  SPEAKER_02: And um, yeah, we've I mean, from a production standpoint, we, you know, uh, you know, I think we're on the fifth or sixth week of reduced year-over-year slaughter, uh 3% less, like this this mythical unicorn we've been looking for all year.
• 3:12
  SPEAKER_02: We're we're we're actually we're in a production hole, you know, and our our price is not our is not moving higher.
• 3:17
  SPEAKER_02: It's it's not responding.
• 3:19
  SPEAKER_02: Um, so it definitely has futures in a or we'd say a very negative connotation.
• 3:23
  SPEAKER_02: I mean, we've sold off this week.
• 3:25
  SPEAKER_02: We made some contract lows in several contracts, we've moved our forward 12-month margins down to maybe an MS negative number in them.
• 3:32
  SPEAKER_02: Um, we're we're in a tough spot.
• 3:35
  SPEAKER_02: So I'm gonna I wanted to keep this, you know, super, you know, super high level today because uh you know, I'll just kind of basis a lot of questions that our clients have had, you know, kind of our views.
• 3:48
  SPEAKER_02: And so we we absolutely, I mean, 20 26, 25, I mean, they were those were good years in the pork industry, right?
• 3:55
  SPEAKER_02: And and and you've seen that responded in the global market, uh, specifically uh, you know, in in China, uh Brazil, I mean, some of the you know, the key import, you know, China, um, key exports like Brazil, like we we global pork supply is pressuring the market.
• 4:11
  SPEAKER_02: There's more global pork, you know.
• 4:13
  SPEAKER_02: That's a headwind.
• 4:14
  SPEAKER_02: I think that headwind kind of perceives in in 2027.
• 4:17
  SPEAKER_02: Um, the consumer is off, the consumer's stung, um, right?
• 4:21
  SPEAKER_02: Um, you know, U.S.
• 4:22
  SPEAKER_02: Sow base, I don't think we've shrunk it and maybe slightly at it.
• 4:26
  SPEAKER_02: But relatively domestic supply is stable, I would argue.
• 4:29
  SPEAKER_02: But we've, you know, there's been capital reinvested.
• 4:32
  SPEAKER_02: We we we're we're moving some sows out of some high dense spots, we're filtering facilities, we're turning some herds.
• 4:38
  SPEAKER_02: What will health look like year over year?
• 4:40
  SPEAKER_02: We will see.
• 4:40
  SPEAKER_02: It was really bad this year.
• 4:42
  SPEAKER_02: But maybe some, I'd say a I don't think we see worse productivity year over year.
• 4:46
  SPEAKER_02: So 27, that's like the macro point.
• 4:50
  SPEAKER_02: Um, 27 is gonna be a tougher year.
• 4:52
  SPEAKER_02: I think we're gonna just reinforce why we have to manage margins.
• 4:56
  SPEAKER_02: Um, you look at probably the I mean, without a doubt, the best value on the board today would be next summer's.
• 5:01
  SPEAKER_02: I mean, like the June D spread, it's around$21, right?
• 5:05
  SPEAKER_02: It's it's it's 18 would be the normal spread.
• 5:08
  SPEAKER_02: Just there's there's more premium out in the deferred.
• 5:10
  SPEAKER_02: Um, that's where we see um, you know, that's where we see maybe some more headwinds coming at us from our office.
• 5:17
  SPEAKER_02: Near term, obviously, the nearby contracts, October, December, February, April, I mean, they're they're they're they're in a tough shape.
• 5:25
  SPEAKER_02: Um, you know, we've mentioned chicken, lots of chicken at the consumer, a lot of chicken to the poor customers, not right.
• 5:31
  SPEAKER_02: So um now with that said, I'm gonna take it a step in and out.
• 5:35
  SPEAKER_02: Um we we definitely have some demand.
• 5:37
  SPEAKER_02: Fuck, we shouldn't have lower supply and lower price, right?
• 5:41
  SPEAKER_02: That's that's not aligned.
• 5:42
  SPEAKER_02: But we we don't feel in this office and as this team, we we we don't think that the the the the the cycle, the protein demand, it's like broke, okay?
• 5:53
  SPEAKER_02: Um we absolutely have a consumer that's got some that is beat up.
• 5:57
  SPEAKER_02: Um we've obviously got a lot of cheap chicken on it, um, you know, kind of competing against us here.
• 6:02
  SPEAKER_02: Uh we with with that said, and and this is where we could be wrong.
• 6:07
  SPEAKER_02: Um maybe the consumer's in worse shape than than we're willing to acknowledge today, but I'm gonna kind of make a bold statement here.
• 6:13
  SPEAKER_02: And we we feel like October, December, February, April, they're they're over discounted, right?
• 6:20
  SPEAKER_02: Um, and so you know, we like to take a step back there.
• 6:23
  SPEAKER_02: This is why we hedge.
• 6:24
  SPEAKER_02: We got lots of good coverage in these periods.
• 6:26
  SPEAKER_02: Um, but uh, you know, we like moving in, we like starting to step in and you know, on the front month here, October, and again, it's tame in time, like$11 would be uh the three-year average basis from where uh indexed to October drops today.
• 6:39
  SPEAKER_02: We're like a fifth, we're we're a 15 today, right?
• 6:42
  SPEAKER_02: So we we think the front of the curve is plenty beat up.
• 6:44
  SPEAKER_02: Um, and so we like to take advantage and bank some equity, lift on some of our futures there, reposition.
• 6:50
  SPEAKER_02: Um, you know, some of the deferred contracts we've put on, April, for example.
• 6:55
  SPEAKER_02: Um, we've got some you know, some nice equity to a lot of positions there, you know, LRPs.
• 6:59
  SPEAKER_02: We got a lot of LRP lineups coming around.
• 7:01
  SPEAKER_02: It's a good opportunity to bank some equity, reposition, right?
• 7:06
  SPEAKER_02: Open up some topside on your position.
• 7:08
  SPEAKER_02: And so kind of kind of like it bull spread the market, if you will, right?
• 7:12
  SPEAKER_02: And we're so we're wanting to adjust up front, lean on the coverage.
• 7:15
  SPEAKER_02: We're not wanting to add sales in here.
• 7:17
  SPEAKER_02: Let's let this market breathe a little bit.
• 7:19
  SPEAKER_02: Let's see if we can stabilize, we can find some value back in this pork chain.
• 7:24
  SPEAKER_02: Okay.
• 7:25
  SPEAKER_02: Now, if we're wrong, if futures is right and we're wrong, it's like I said, because this consumer is worse, is beat up worse than we are acknowledging today, right?
• 7:35
  SPEAKER_02: That's where I came back.
• 7:36
  SPEAKER_02: I talked about the June, the decent June spread.
• 7:39
  SPEAKER_02: I talked about next summer's next summer futures, even where they're selling off, or showing raises year over year, right?
• 7:45
  SPEAKER_02: You know, we like going out further into 27.
• 7:47
  SPEAKER_02: I mentioned 27 right to be more defensive than 26.
• 7:50
  SPEAKER_02: Let's put some floors on out there.
• 7:52
  SPEAKER_02: I mentioned the bull spread the market, right?
• 7:54
  SPEAKER_02: Let's cut, let's cover some good equity and positions we have today, but let's keep extending that coverage on.
• 8:00
  SPEAKER_02: And, you know, we do have some nice seasonals the end of September.
• 8:03
  SPEAKER_02: Um, basically, everybody knows the cutout's gonna fall some degree as we get past Labor Day.
• 8:08
  SPEAKER_02: We have bigger two five runs, we have Saturdays, right?
• 8:10
  SPEAKER_02: It's about rate of descent.
• 8:12
  SPEAKER_02: If it doesn't fall as hard as the future's indicating, um, which a lot of times it doesn't, um, we can get a nice little rally.
• 8:19
  SPEAKER_02: Um, we have uh, you know, a nice Thanksgiving rally, we have a nice first of the year rally, if you will, right?
• 8:24
  SPEAKER_02: So we're, you know, we are wanting to hold up front.
• 8:28
  SPEAKER_02: We're wanting to reposition, take we think we're a little oversold.
• 8:31
  SPEAKER_02: We think we can catch up and find some support here.
• 8:34
  SPEAKER_02: Um, and so we're holding some optimism from these markets.
• 8:37
  SPEAKER_02: Uh, you know, a mass obviously the trend has been down, sell pressure has been hard.
• 8:42
  SPEAKER_02: Um, we do have some some uh some barriers stacked up against us here, Mike, but you know, optimism up front.
• 8:49
  SPEAKER_02: Uh, but just acknowledge in the bigger picture, we've probably we've got more headwinds against us, clearly, right?
• 8:55
  SPEAKER_02: So, you know, if if you know, staying disciplined in that risk plan, protecting yourself further out, putting floors in, giving yourselves an opportunity to position around that, you know, just stay stay focused in that in that aspect, Mike.
• 9:09
  SPEAKER_02: So um it's been hard, you know, to obviously continue to see to see this market move lower, but we're we think we're in a little oversold condition here, Mike.
• 9:18
  SPEAKER_02: That would, you know, that would definitely be our thoughts here today.
• 9:20
  SPEAKER_00: Well, hopefully we can find ways to manage that oversold condition, kind of like where we're sitting at and prep for maybe a a somewhat optimistic Q4 here compared to what we're currently seeing on.
• 9:32
  SPEAKER_02: Yeah, I I think we've got some opportunity and let's uh again, um, you know, I think we're in a little reset, a little re you know, re refreshing kind kind of time frame here.
• 9:41
  SPEAKER_02: But uh yeah, stay after it uh and uh let's look forward to you know seeing some some uh you know some better markets here in the weeks and months to come.
• 9:50
  SPEAKER_00: All right.
• 9:51
  SPEAKER_00: Well, thank you for your time today, Luke.
• 9:52
  SPEAKER_00: Please click the link on the description below to access our daily market commentary and other cool market research.
• 9:58
  SPEAKER_00: Thank you for your time, Luke.
• 10:00
  SPEAKER_00: I appreciate it.
• 10:00
  SPEAKER_02: Thanks, Mike.