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Hogs are Shedding a Record Short · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Hog Market Talk Podcast.
• 0:06
  SPEAKER_00: Your weekly deep dive into Hog Market Fundamentals, breaking news, and industry insights.
• 0:13
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:22
  SPEAKER_01: All right.
• 0:22
  SPEAKER_01: Today is uh we're actually September 3rd, Jeff.
• 0:26
  SPEAKER_02: September.
• 0:28
  SPEAKER_01: Yes.
• 0:28
  SPEAKER_02: Good things happen in September, don't they?
• 0:30
  SPEAKER_01: I hope so.
• 0:31
  SPEAKER_01: We start combining in September, so that's good.
• 0:34
  SPEAKER_02: It's about time we get uh better than expected yields out there.
• 0:38
  SPEAKER_01: All right, Jeff.
• 0:39
  SPEAKER_01: We've got uh we're gonna talk about the hog market today.
• 0:42
  SPEAKER_01: We definitely don't want to talk about that.
• 0:44
  SPEAKER_01: Uh we've got hog fundamentals, a little rocky in the last 24 hours here.
• 0:50
  SPEAKER_01: Cutout posted pretty bad print last night, again this morning here.
• 0:53
  SPEAKER_01: However, it seems like honestly, futures are holding up really well given the news we've had on that front.
• 0:59
  SPEAKER_01: So give me a little bit of the setup here on what you see out of this hog market.
• 1:03
  SPEAKER_02: Well, extremely the day's not quite over yet, um, but extremely happy with the way the hogs are trading so far in face of what you're laying out there, Mike.
• 1:12
  SPEAKER_02: Um we had uh cutout down over a little bit, down a little over two dollars your yesterday afternoon.
• 1:20
  SPEAKER_02: Um the morning print was also a little over two dollars lower.
• 1:25
  SPEAKER_02: Um morning print was almost all in the bellies.
• 1:28
  SPEAKER_02: So one of the things that we've been looking at, as you know, Mike, is um what this belly market's going to do.
• 1:35
  SPEAKER_02: You know, we've we've been looking at the seasonal on that, um, and uh it goes down pretty much every year this time of year.
• 1:44
  SPEAKER_02: So I wasn't sure how much the rest of the marketplace was looking at that, right?
• 1:49
  SPEAKER_02: Like um$150,$60 uh bellies probably gotta turn into at least$140, maybe even$130.
• 1:59
  SPEAKER_02: Um, and that was gonna, of course, gonna put some weight on the composite cutout.
• 2:03
  SPEAKER_02: And that's exactly what's going on in the past couple days.
• 2:06
  SPEAKER_02: Sorry for the long answer, but um I think what the futures are suggesting is the rest of the world was looking at it the same way, thinking, okay, bellies are gonna go down, that's gonna bring our product values uh maybe into the uh maybe under 95.
• 2:23
  SPEAKER_02: I I you know the morning cutout was 92 and some change.
• 2:27
  SPEAKER_02: I'm I'm really hopeful that we don't quite have to get that low.
• 2:30
  SPEAKER_02: Um, but maybe a a product value in that 93.50 to 94, maybe that doesn't scare this futures market too much.
• 2:39
  SPEAKER_01: One of the nice things I was thinking was, you know, a big part of the the weakness in the cutout this year had to stem from hams in the past month or so.
• 2:47
  SPEAKER_01: We had a pretty weak ham.
• 2:48
  SPEAKER_01: And it seems like that's not getting worse at least.
• 2:50
  SPEAKER_01: It's stabilized in the 70 to 75 area.
• 2:53
  SPEAKER_01: It I know it it took a little bit off here in the last uh last night's print again, but i if we hold that 70 to 75 area and don't get much worse, that that's a little helpful at least.
• 3:03
  SPEAKER_02: Well, this this discussion reminds me of the crude oil market back in 2020, Mike.
• 3:08
  SPEAKER_02: Kind of when we all thought that you know a commodity couldn't trade less than zero.
• 3:12
  SPEAKER_02: That's kind of the hams.
• 3:13
  SPEAKER_01: Like that's what hams feel like.
• 3:14
  SPEAKER_01: Yeah right now you're gonna give them away for free.
• 3:17
  SPEAKER_02: I don't know if they can get any cheaper, silly things, but I what about exports though?
• 3:23
  SPEAKER_01: Like hams are a big part of our exports, and we've had really good exports now, also best in 12 weeks.
• 3:28
  SPEAKER_01: So it is pork finally at a value that's cheap enough to finally stimulate some demand, not just in the US, but outside of the U.S.
• 3:37
  SPEAKER_01: too?
• 3:37
  SPEAKER_02: Well, uh, I think some of the products are.
• 3:40
  SPEAKER_02: Um the ones that are not are still causing us some problems.
• 3:43
  SPEAKER_02: And unfortunately, I'm not sure there's a great answer for it.
• 3:47
  SPEAKER_02: The things that we're hearing is uh Mexico, you know, of course, the the ham business mostly likes to go down there.
• 3:54
  SPEAKER_02: We are hearing of some competitors into that marketplace that are cheap or priced cheaper than we are today.
• 4:01
  SPEAKER_02: And that is some of the issues that we're experiencing on the ham side, and the same um on the picnics.
• 4:08
  SPEAKER_02: You know, we're we're struggling a little bit on that's an also big export market, and we're struggling um in that marketplace a bit, trying to get into some of those uh or keep our business, I should say, in some of those Pacific Rim areas.
• 4:23
  SPEAKER_02: Some there's been more and more uh cheaper meat coming out of Europe, at least that particular cut, uh, into some of those countries.
• 4:31
  SPEAKER_02: So that's what we're dealing with right now in the exports.
• 4:33
  SPEAKER_02: I think it's a it's a combination of some of the meats moving really well.
• 4:37
  SPEAKER_02: A few of these products are not, and those are what's been kind of holding this product value um lower than maybe what we would expect.
• 4:46
  SPEAKER_02: Now, I feel like we got to take a little bit of a turn here, Mike, because the way the marketplace is set up, um, you know, with October futures continue to trade a pretty big discount to where the current CME index is at, right?
• 5:01
  SPEAKER_02: You get uh$90 some$90 and some change on the index, 83 and some change on October futures.
• 5:08
  SPEAKER_02: So you're in this environment where a steady market is good news or positive news to the futures.
• 5:14
  unknown: Yep.
• 5:14
  SPEAKER_02: That's the thing we've got to remind ourselves.
• 5:15
  SPEAKER_02: So that's why it's important to think about okay, what's priced into this market?
• 5:20
  SPEAKER_02: How low do we have to go before the market looks at that as a bearish um development and has to trade lower?
• 5:28
  SPEAKER_01: And you're talking more like cutout, how low does that have to get?
• 5:31
  SPEAKER_01: Because if you're talking a$95 cutout, you know,$86 October expiration looks like it makes sense, right?
• 5:38
  SPEAKER_02: Makes a yeah, that or even a little higher.
• 5:40
  SPEAKER_01: Yep.
• 5:41
  SPEAKER_01: So we've been taking the discount out of it lately.
• 5:43
  SPEAKER_01: I mean, you start dipping below what we haven't really spent much time below 90.
• 5:46
  SPEAKER_01: I think that'd really scare folks.
• 5:48
  SPEAKER_02: Yeah, for sure.
• 5:49
  SPEAKER_02: And I that's what we kind of started the conversation with.
• 5:51
  SPEAKER_02: I think you know, 93, 94 maybe doesn't scare anybody.
• 5:56
  SPEAKER_02: 90 does.
• 5:56
  SPEAKER_02: I I think I would I think those numbers are are perfect um here in the short run.
• 6:02
  SPEAKER_02: You know, when I'm talking short run, I'm thinking the next week to week and a half, something like that.
• 6:07
  SPEAKER_01: Now, to build uh back on the export thing, just one more final thing.
• 6:12
  SPEAKER_01: It it's gonna be pretty important coming forward because we've got a lot of USMCA chatter going on as well.
• 6:17
  SPEAKER_01: Mexico's a big customer for pork, so we don't want to mess anything up with that.
• 6:22
  SPEAKER_01: Uh obviously the border being reopened.
• 6:24
  SPEAKER_01: We've had movements between the two countries here on the cattle side.
• 6:28
  SPEAKER_01: Um, just something to keep an eye on going forward with the export front, I think, on the pork side with those talks coming up.
• 6:34
  SPEAKER_02: Good point.
• 6:35
  SPEAKER_02: Good point, absolutely.
• 6:37
  SPEAKER_02: I think the other thing worth uh discussing this week, Mike, is the uh supply situation.
• 6:43
  SPEAKER_02: I know we've talked a lot about that on this podcast, but I think interesting development um working into the marketplace this week.
• 6:51
  SPEAKER_02: We we're experiencing some better cash prices out on the Eastern Front.
• 6:55
  SPEAKER_02: Um, you know, that's kind of Illinois, India, Indiana, Ohio is what I mean by that.
• 7:01
  SPEAKER_02: Uh and then as you flip over and we're starting to look at what Packer owned weights versus producer-owned weights.
• 7:08
  SPEAKER_02: Packer-owned weights are actually flat to lower here in the past week.
• 7:15
  SPEAKER_02: And so it's pretty unusual for this time of year, right?
• 7:18
  SPEAKER_02: Every usually where uh weights are going higher no matter which uh metric you're looking at.
• 7:23
  SPEAKER_02: So I think what that's a I think it's another piece of information that suggests yes, we do have a bit of a uh uh lower supply situation, at least in the short term, and probably um continues to be um in that development because of the disease pressure that we saw on the South farm level.
• 7:48
  SPEAKER_02: So there there appears like there's some integrated systems out there um that are pulling on their current inventory, uh trying to maintain the kills that they're that they're running.
• 7:59
  SPEAKER_01: So you're gonna find out on that real quick though, because once you get past Labor Day there, that chart starts to go straight up in almost every one of those years.
• 8:06
  SPEAKER_01: So I mean, once you get past Labor Day, I think you'll you'll figure that answer out pretty quick here, won't you?
• 8:12
  SPEAKER_02: It's the it's the first lever that that they can pull, right?
• 8:15
  SPEAKER_02: Is okay, we need a few more pigs instead of bidding up aggressively in the cash market, let's use a few more of our own.
• 8:22
  SPEAKER_02: But you're right, Mike, that lasts for a couple weeks, and then um if the situation continues, um, they're gonna have to come and and actually pay a little bit more in the cash market, which is quite optimistic, also considering the the discount that the futures are trading today compared to front-end fundamentals.
• 8:39
  SPEAKER_01: What about on the weight side of the supply?
• 8:41
  SPEAKER_01: I mean, we're seeing a normal seasonal incline here a little bit, but it's not anything out of the ordinary, is it?
• 8:47
  SPEAKER_02: Nothing out of the ordinary.
• 8:48
  SPEAKER_02: I would say in the past week, you probably would say that's a good guy.
• 8:52
  SPEAKER_02: Um overall carcass weights kind of moving sideways.
• 8:55
  SPEAKER_02: Um, I think you're with the higher corn prices that you're starting to see uh hitting the marketplace.
• 9:01
  SPEAKER_02: It I I would not be surprised to see this year's carcass weights kind of get on top of last year's.
• 9:08
  SPEAKER_02: So I think that's that's been an issue for us this year um on the supply side.
• 9:12
  SPEAKER_02: We we our numbers haven't been, you know, haven't been big.
• 9:16
  SPEAKER_02: Maybe at times they were larger than what we'd like to see, and then you know, recently probably um seeing some fewer hogs coming through the system than what we were expecting, but weights have continually been a good percent and a half heavier, creating some of that extra tonnage.
• 9:32
  SPEAKER_02: I believe that's going to change as we go into the fall.
• 9:35
  SPEAKER_01: Uh the corn market, I would say, over the last couple years hasn't had a lot of impact on the the either pork or uh cattle side of the business.
• 9:45
  SPEAKER_01: Cheaper corn, we've had pretty expensive proteins, hasn't seemed to have much of an impact.
• 9:50
  SPEAKER_01: I'd say today's trade action, it definitely helps show what impact corn's making on cattle.
• 9:56
  SPEAKER_01: So I uh that makes it a little bit more interesting here.
• 9:59
  SPEAKER_01: If corn does want to run up, what impact that can have on on feed here for hogs and cattle.
• 10:04
  SPEAKER_02: Very much agree it's gonna look be a lot different margin overfeed situation than what we've seen the past year.
• 10:10
  SPEAKER_01: Very much so.
• 10:11
  SPEAKER_01: Keep an eye on uh on the input side.
• 10:13
  SPEAKER_01: If you follow wheat and oil, I feel like those are two of the main drivers daily for price action.
• 10:18
  SPEAKER_01: Uh, you've seen peace talks here on the wheat side with Russia.
• 10:23
  SPEAKER_01: Uh, it seems like that's been pushing prices down a little bit.
• 10:26
  SPEAKER_01: Russia's still looking to export some cheap wheat out in the countryside.
• 10:29
  SPEAKER_01: That's pushing uh prices down a little bit the last couple trading sessions, and that's been pushing corn down right along with it, too.
• 10:35
  SPEAKER_01: But uh before we get out of the outside kind of influences and inputs, I just want to mention too, we're seeing some really wacky trade and just overall money flow outside markets.
• 10:47
  SPEAKER_01: Like is a broad big picture, Jeff.
• 10:50
  SPEAKER_01: Last month was one of the best months we've had in and and commodities and the indexes in a long time.
• 10:55
  SPEAKER_01: Last month we averaged almost 13% higher uh in across the commodity indexes.
• 11:01
  SPEAKER_01: So really good month last month for buying in those and corn's at a record long, soybeans, hogs are getting rid of a record Norton, record short position here recently.
• 11:13
  SPEAKER_01: Cattle uh are still trying to hold on to a big position that they've held for what feels like an eternity now.
• 11:19
  SPEAKER_01: Um, but commodities just in general, I think it's worth noting, they still look like a uh a good investment for a lot of uh big money managers here, which is uh a friendly sign that it doesn't look like they want to just give up on the entire uh commodity index here.
• 11:35
  SPEAKER_01: And with the debasement trade going on, you know, we've seen a little weaker dollar here and there.
• 11:41
  SPEAKER_01: Just maybe watch it a little bit if interest rates do want to go up here because of uh you've got expensive beef still, you've got record high diesel prices.
• 11:51
  SPEAKER_01: Um I say uh this because you could see some interesting trade out of the Federal Reserve going forward with interest rates towards the end of the year.
• 11:59
  SPEAKER_01: Impacts big money flow.
• 12:01
  SPEAKER_01: And I feel like a lot of the setup we've had in these commodities lately has been just macro sentiment around I want to own some commodities, Jeff.
• 12:09
  SPEAKER_02: Yeah, I I appreciate you bringing that up.
• 12:12
  SPEAKER_02: And the the interesting point for the hog market, of course, is the record short that they had on our last report, which is last Tuesday.
• 12:20
  SPEAKER_02: Um, most likely was a big reason why we could see the three dollar bump that we've seen so far this week.
• 12:25
  SPEAKER_02: And you know, hopefully some of what you're talking about will give that give us a little bit more fuel for this hog market and get those guys going long the the complex sum would would go a long ways, absolutely.
• 12:38
  SPEAKER_01: And to build on that, it was nice to see on a couple of these up days this week you had open interest going up.
• 12:44
  SPEAKER_01: Yep.
• 12:44
  SPEAKER_01: So it wasn't like they're just getting rid of short positions, which wouldn't have been as bullish, but the fact that people were adding contracts on the long side, I thought was a really good sign for this hog market.
• 12:55
  SPEAKER_02: Excellent points, agree.
• 12:56
  SPEAKER_01: All right.
• 12:56
  SPEAKER_01: Well, thank you everyone for tuning in.
• 12:58
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• 13:00
  SPEAKER_01: Uh, we've got some really cool stuff coming out of uh of our office with the technology space.
• 13:05
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• 13:13
  SPEAKER_01: Thanks, guys.
• 13:14
  SPEAKER_01: Thanks, Jeff.