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Hog Talk: 8 Day Rally · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_02: Welcome to the Hog Market Talk Podcast with Professional Egg Marketing.
• 0:05
  SPEAKER_02: Come here to get fresh updates on what's happening week to week within the Lean Hog Complex.
• 0:10
  SPEAKER_02: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_02: And remember to visit swineweb.com, an excellent resource for information in the pork industry, where you can also find this podcast.
• 0:25
  SPEAKER_02: This is your host, Mike Minor.
• 0:26
  SPEAKER_02: Let's crush.
• 0:27
  SPEAKER_02: Today is actually September 3rd.
• 0:30
  SPEAKER_00: Luke, how's it going?
• 0:31
  SPEAKER_00: It's going pretty good, Mike.
• 0:32
  SPEAKER_00: It's feeling, you know, a little more like fall, a little cooler nights and all whatnot, huh?
• 0:38
  SPEAKER_00: Trying to at least here.
• 0:39
  SPEAKER_02: A little bit cooler nights, some into the 40s now, starting to chill things up.
• 0:44
  SPEAKER_02: But speaking of chilling things down, the hog market's been pretty hot lately, hasn't it, Luke?
• 0:49
  SPEAKER_01: Yeah, I mean, over the last what, 10 days or whatever.
• 0:51
  SPEAKER_00: I mean, up until today, I mean, like new contract highs, basically December all the way out to next summer.
• 0:57
  SPEAKER_00: It's been ripping, Mike.
• 0:58
  SPEAKER_00: Eight straight consecutive closes green.
• 1:00
  SPEAKER_02: What's been going on?
• 1:01
  SPEAKER_02: I mean, the cutout's been holding right at basically 114 since that time frame.
• 1:06
  SPEAKER_02: I mean, did they finally say that staying here is good enough, I guess, to go up?
• 1:11
  SPEAKER_01: Yeah, so it's so it's interesting.
• 1:12
  SPEAKER_01: I mean, we we we we we've been, and I maybe make the argument maybe slightly underkilling the available supply.
• 1:19
  SPEAKER_01: And I what I mean by that is I mean, like the last two weeks, we've been like three almost four percent less hogs slaughtered than a year ago.
• 1:27
  SPEAKER_01: Um now, you know, with that said, that's that's that's helped support um some really strong pork cutout values.
• 1:33
  SPEAKER_01: Now, we've got a great underpin just in the competitive protein landscape, right?
• 1:38
  SPEAKER_01: And choice box beef is I mean, it's what 314, I mean north of 310 yet.
• 1:43
  SPEAKER_01: I mean, just staying very competitive in landscape.
• 1:46
  SPEAKER_01: And you know, everybody owns a calendar, everybody knows typically our production runs go up, and and cutout usually starts to make it slide lower right here, so it's about rate of descent, but very manageable harvest numbers, cash has been hanging in there very well.
• 2:02
  SPEAKER_01: You know, pork cutout around this 114 actually gained a little bit last week, and you know, just kind of boil all those things together, and this market's gotten really fired up and uh and done some really cool things, and you know, and I I you know a lot of things in the pork complex that I think we can be really excited about, I think are really, really good.
• 2:22
  SPEAKER_01: But I'd also say the futures market, Mike, is reflecting that even with today's board drop, we're still looking at north of a$30 rolling 12-month margin, right?
• 2:32
  SPEAKER_01: Um, and also, you know, just doing a little bit of math, this is gross math.
• 2:36
  SPEAKER_01: Last year, December index went off at about$84, which is a very high close.
• 2:41
  SPEAKER_01: Some similarities last last year's supply was manageable.
• 2:44
  SPEAKER_01: We had a late season rally, right?
• 2:46
  SPEAKER_01: Um, but you know, kind of asks the question, how good can good be?
• 2:50
  SPEAKER_01: And I'm trying to make the argument that the board is is has been showing some excellent prices.
• 2:55
  SPEAKER_01: So 4% less hogs, like I don't believe this is all I guess like that's the trend.
• 3:00
  SPEAKER_01: But maybe I do think maybe a few more hogs are coming in the interim.
• 3:04
  SPEAKER_01: You always got to pay Peter to rob Paul or however that saying goes, right?
• 3:08
  SPEAKER_01: Neither, let's just say, let's just draw out a number for some what ifs.
• 3:11
  SPEAKER_01: Let's say 2% less hogs the rest of the year.
• 3:13
  SPEAKER_01: Okay, right or wrong, we'll find out.
• 3:15
  SPEAKER_01: I think it's a reasonable projection.
• 3:17
  SPEAKER_01: And you know, you can't take everything in a vacuum because you've got demand, you've got this, you've got that, right?
• 3:22
  SPEAKER_01: But you know, the old rule, 1% in supply is three percent in price.
• 3:26
  SPEAKER_01: So, you know, if we're two percent less supply, six percent on top of that 84.
• 3:31
  SPEAKER_01: I mean, maybe that uh maybe that makes it an 88 or 89 dollar index, right?
• 3:35
  SPEAKER_01: If that would all play, which is exactly kind of where the board rallied to and stopped, right?
• 3:41
  SPEAKER_01: Also, just to kind of take that a step further, I mean, we probably need at least eight up on the cutout, maybe ten.
• 3:47
  SPEAKER_01: So that's a 97, 10 up, 99 cutout at de sexpiration.
• 3:52
  SPEAKER_01: I mean, it hasn't happened before.
• 3:54
  SPEAKER_01: So, my whole point is is like we got a lot of really awesome stuff going on in the pork complex, right?
• 3:59
  SPEAKER_01: Um, but the board is is pricing that in.
• 4:02
  SPEAKER_01: So, you know, these have been levels that have made a lot of sense.
• 4:05
  SPEAKER_01: I, you know, I think you know, the other thing to throw out, you know, is this forward curve is amazing every month all the way out till next October is above target margins, you know, and also it's the uniqueness of this, you know, if we take a look at lean hog percentiles and you take a look at June, June of next summer is showing$50 tight margins, Mike.
• 4:26
  SPEAKER_01: Corn, even though it's at a little run, maybe rejected that a little bit now.
• 4:29
  SPEAKER_01: Meal's still pretty low, you know, just cost of production is competitive.
• 4:33
  SPEAKER_01: Well, you know, you can you can have a crack.
• 4:35
  SPEAKER_01: This summer we had a crack at$50,$60 summer margins.
• 4:38
  SPEAKER_01: Not a crack, we got those in reality.
• 4:40
  SPEAKER_01: But typically, if you look at percentiles, Mike, you got to wait until spring, maybe March, to hedge those.
• 4:46
  SPEAKER_01: And if you're an aggressive risk manager, if you're waiting until March to sell your summer hogs, you're you're really not being very aggressive in risk.
• 4:52
  SPEAKER_01: So my point is you go back and you look at all the way back to 21.
• 4:55
  SPEAKER_01: We have never had this high of next summer crush at this time frame on the first of September in history.
• 5:01
  SPEAKER_01: You know, typically next summer's crush, you know, if you look at the years, is there somewhere around 20 bucks ahead, right?
• 5:07
  SPEAKER_02: So anyway, well, even December.
• 5:09
  SPEAKER_02: I mean, December in 2014 came off at 87 and a half, but that'd be that'd be it.
• 5:14
  SPEAKER_01: That yeah, that would be the record, right?
• 5:15
  SPEAKER_02: And today we're over 87 at the club, even after taking off today's setback.
• 5:21
  SPEAKER_01: So yeah, and that's my setback with all this this week.
• 5:23
  SPEAKER_01: So today, I mean, we're talking on on on Wednesday, and this is the first down day we've had, and we were we were down pretty good.
• 5:29
  SPEAKER_01: October was down a dollar seventy, dece was down a dollar, next summer June down about 70 cents, and a little bit of a turn too.
• 5:37
  SPEAKER_01: I mean, again, everybody's you know, cutouts been defying trend, right?
• 5:41
  SPEAKER_01: It's been super, it's been really good.
• 5:43
  SPEAKER_01: It's just hard to get better than really good, right?
• 5:46
  SPEAKER_01: Also, the cash market's been hanging in there pretty well.
• 5:49
  SPEAKER_01: Um, but and and yesterday just just yesterday was a there was a good cash market, but it really dried up quick this week.
• 5:58
  SPEAKER_01: Aggressive, but they filled up their needs.
• 5:59
  SPEAKER_01: And in today's cash trade, Mike, I mean, most of the majors pulled out no bid full, right?
• 6:04
  SPEAKER_01: And just kind of all that kind of going together.
• 6:07
  SPEAKER_01: Um, Goldman roll for you technical traders.
• 6:09
  SPEAKER_01: I mean, that starts what I think next Monday.
• 6:11
  SPEAKER_01: You know, obviously a lot of October positions that are gonna be be rolled out.
• 6:15
  SPEAKER_01: So a lot of stuff going on, a lot of volatility.
• 6:18
  SPEAKER_01: So I guess you've got something for the bulls and the bears in the room, but big pictures taking a step back, you know, a wonderful opportunity, you know, for the pork complex, not only to enjoy some some some great margins here, some some really nice near-term, you know, just strong basis opportunities, but still a tremendous forward curve that can be locked in on crush, Mike.
• 6:37
  SPEAKER_02: I'm gonna take a few steps back.
• 6:39
  SPEAKER_02: Are you worried at all about backing up supply right now or not too bad?
• 6:42
  SPEAKER_01: Yeah, I I I do think we've backed up.
• 6:44
  SPEAKER_01: I think we've I think we've we've got some some some I I know I have several clients that have production out there and they they just they got really current through August.
• 6:52
  SPEAKER_01: The market, you know, told them to, and you know, we're just we're still working through the tail end of some some some health issues, right?
• 6:58
  SPEAKER_01: And so, you know, I get some clients that you know they're 265, they're just a little light.
• 7:02
  SPEAKER_01: So the pigs are there, you know.
• 7:04
  SPEAKER_01: Index is still 105, it still tells you to take them bigger.
• 7:07
  SPEAKER_01: So those hogs, they didn't disappear, they're still there.
• 7:10
  SPEAKER_01: Now, what about the next break?
• 7:12
  SPEAKER_01: There's some major systems like you know that had been short all summer, kind of led by some of the major packers, really that that that's that those systems provided, leading the cash market.
• 7:22
  SPEAKER_01: They've some numbers have come back.
• 7:24
  SPEAKER_01: Some other major packers, maybe their health breaks were a little later yet to come.
• 7:28
  SPEAKER_01: And again, that's right.
• 7:29
  SPEAKER_01: Come back with a you know, three, four percent less supply, amazing, right?
• 7:33
  SPEAKER_01: Probably doesn't stay that way.
• 7:35
  SPEAKER_01: But can we have a percent or two, two percent less pigs rest of the year?
• 7:39
  SPEAKER_01: Probably.
• 7:40
  SPEAKER_01: Then that's why I went through the math of you know, a lot of this good news, that's what futures do, right?
• 7:44
  SPEAKER_01: And they get excited, they price it in.
• 7:46
  SPEAKER_01: You know, when you go new contract ties, D Son out, I mean, it's a lot of good stuff priced in.
• 7:52
  SPEAKER_01: And backed up with should be able to make a pig sub 80, right?
• 7:55
  SPEAKER_01: I mean, cost of production, you know, we got very reasonable corn costs.
• 7:58
  SPEAKER_01: We you know, we can argue uh, you know, how big is this crop, you know, but it's it's it's it's it's big.
• 8:04
  SPEAKER_01: It's it's gonna be record, just how much bigger than record, right?
• 8:07
  SPEAKER_01: And so just some really good opportunities out there.
• 8:09
  SPEAKER_02: And other good opportunities on the competing proteins.
• 8:12
  SPEAKER_02: If you look at the beef market, you talked about that being over 410 kind of in this area right now.
• 8:17
  SPEAKER_02: Um that market as well has had a lot of strength lately.
• 8:21
  SPEAKER_02: What you did was you put tariffs on Brazil, you're still not importing Mexican feeder cattle, and uh people are still paying for really expensive uh meat prices, and you're still shrinking the supply, or at least it hasn't expanded by any means.
• 8:35
  SPEAKER_02: It's a small supply.
• 8:36
  SPEAKER_02: So competing protein-wise from the beef side, probably not hurting pork by any means at this point, that's for sure.
• 8:43
  SPEAKER_01: Yeah, I I think it's a net gain.
• 8:44
  SPEAKER_01: And you know, I mean, a lot of times you take food service, you I mean you take some some some uh uh uh retail.
• 8:50
  SPEAKER_01: I mean, they some of that meat's bought on annual contracts, those things get renegotiated.
• 8:55
  SPEAKER_01: I you know, I I don't know if the if the full inflationary action in the beef market's truly been felt by the consumer yet, but I think that's coming.
• 9:04
  SPEAKER_01: I don't like you said, I don't see that market reversing.
• 9:07
  SPEAKER_01: Uh I think it stays tight and high.
• 9:09
  SPEAKER_01: And you know, a higher beef price, it's it's it's that's good for pork values.
• 9:13
  SPEAKER_01: Yeah, you know, again, some really good some things.
• 9:16
  SPEAKER_01: And and from a we have a hog and pig report coming up, I think it's September 25th, but towards the end of this month, and so we'll see the government's recent projection.
• 9:24
  SPEAKER_01: But from our standpoint, we're we're not shrieking the sour herd mic, but we're not rapidly expanding it, and you know, somewhat on you know forward supply.
• 9:32
  SPEAKER_01: We this last year we had a very rough uh purr season and and and and some health, and it was started early last year.
• 9:40
  SPEAKER_01: Some farms broke out of the belt in areas they typically wouldn't have, and it lasted way longer, right?
• 9:46
  SPEAKER_01: And so, what does this year's health season look like?
• 9:49
  SPEAKER_01: I mean, is it better because we built some immunity up the virus, all that, or is is it is it tough again?
• 9:54
  SPEAKER_01: I do know a lot of production systems.
• 9:56
  SPEAKER_01: Um, you know, there was a time you stick a style farm in South Dakota or Kansas, like you just can't get PERS, right?
• 10:02
  SPEAKER_01: I mean, that's oversimplifying, but you know, the some of those units broke.
• 10:06
  SPEAKER_01: I mean, so I know there's been a lot of things going on in production.
• 10:10
  SPEAKER_01: I mean, filters, I mean, we all run to you know schedules, and and a lot of filters were thought to have eight-year lifespans on them.
• 10:16
  SPEAKER_01: Cost for purr burst purse break is is immense, right?
• 10:20
  SPEAKER_01: So people aren't stretching that.
• 10:21
  SPEAKER_01: We're replacing filters.
• 10:23
  SPEAKER_01: We've had some profitability come back in to afford to place those filters, but getting those replaced.
• 10:27
  SPEAKER_01: I know barn audits, uh, air audits, tightening these barns up, making sure not for leaks.
• 10:32
  SPEAKER_01: Like I as an industry, we should be.
• 10:34
  SPEAKER_01: I'm not saying we weren't prepared last year, but we've upped our game.
• 10:38
  SPEAKER_01: So how does all that matter?
• 10:40
  SPEAKER_01: Um, I do know that you know there's not been a lot of net growth of sows, but definitely been is is some repositioning of sows.
• 10:47
  SPEAKER_01: I also mentioned and uh just a renewed discipline and vigor on really tightening these barns up.
• 10:52
  SPEAKER_01: Um, you know, so if you know next summer supply, you know, I think some of it's gonna depend.
• 10:57
  SPEAKER_01: I don't think we have significantly more sows, but what you know is the PERS effect as bad or not as bad, right?
• 11:02
  SPEAKER_01: Just just just a lot of variables and and a lot of stuff going on out there, Mike, but but good stuff and and well needed.
• 11:09
  SPEAKER_01: I mean, the pork complex needed needed some some nice profit, and and and we've we've got some now, and we've we've got an opportunity to really extend that out for a long time, Mike.
• 11:18
  SPEAKER_02: All right.
• 11:18
  SPEAKER_02: Well, thank you for your time.
• 11:19
  SPEAKER_02: And thank you to all our listeners.
• 11:21
  SPEAKER_02: Please reach out to us at professionaleggmarketing.com.
• 11:24
  SPEAKER_02: Check out our other podcast as well, Professional Egg Marketing.
• 11:28
  SPEAKER_02: That's released every Friday.
• 11:30
  SPEAKER_02: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 11:36
  SPEAKER_02: See you next time.