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Hog Talk: Recovery · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Public Market Talk Podcast with Professional Egg Marketing.
• 0:05
  SPEAKER_00: We come here to get fresh updates on what's happening week to week within the public.
• 0:10
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:16
  SPEAKER_00: And remember to visit swineweb.com, an excellent resource for information in the pork industry, where you can also find this podcast.
• 0:24
  SPEAKER_00: This is your host, Mike Miner.
• 0:26
  SPEAKER_00: Let's cross.
• 0:27
  SPEAKER_00: Today is December 4th.
• 0:28
  SPEAKER_00: I've got Luke Wells with us here today.
• 0:30
  SPEAKER_00: We're going to talk about the hog market.
• 0:32
  SPEAKER_00: How's it going, Luke?
• 0:33
  SPEAKER_00: It's going good, Mike.
• 0:33
  SPEAKER_01: How are you doing today?
• 0:34
  SPEAKER_00: We're doing really good.
• 0:36
  SPEAKER_00: Well, what can you tell us about some of the things going on in this industry right now?
• 0:40
  SPEAKER_01: Well, Mike, we have uh we've found plenty of pigs here recently.
• 0:45
  SPEAKER_01: Uh, with with without a doubt.
• 0:46
  SPEAKER_01: And that's that's been part of the reason we've seen you know this sell-off in the especially the the February and the April contracts.
• 0:55
  SPEAKER_01: You know, we started going above a year ago, uh, kills in early November, you know, this week.
• 1:01
  SPEAKER_01: We'll see where we finally come in, but probably close to 2.7.
• 1:04
  SPEAKER_01: So these are these are big numbers, right?
• 1:06
  SPEAKER_01: And so that's that's that's the bad guy.
• 1:09
  SPEAKER_01: And they're they're definitely well ahead of what the USDA Hogan Pig reported said we're supposed to have 2% less.
• 1:14
  SPEAKER_01: And that's that's definitely not been the case as of here of recent.
• 1:19
  SPEAKER_01: The cash market, which matters not as much in today's industry because the industry is so heavily based off of cutout pricing, right?
• 1:26
  SPEAKER_01: Yep.
• 1:26
  SPEAKER_01: You know, the cash market's gotten soft, the cash market's gotten down to low 70s.
• 1:30
  SPEAKER_01: And that's something we're talking about because some people get hyper-fixated on the cash market.
• 1:34
  SPEAKER_01: Yep.
• 1:35
  SPEAKER_01: But you got to remember the cutout is what drives the complex here.
• 1:38
  SPEAKER_01: And that's you know, that that's the good guy in this.
• 1:41
  SPEAKER_01: Now, now now weights also are heavy, right?
• 1:43
  SPEAKER_01: I say that's purposeful, though.
• 1:45
  SPEAKER_01: People, people I think did a much better job in getting their shackle space right to make sure they have enough Q4 shackle versus a little too less.
• 1:54
  SPEAKER_01: How I know that, right, is we're heavy.
• 1:56
  SPEAKER_01: Corn's cheaper, margin overfeed's been good.
• 2:00
  SPEAKER_01: And we're not flooding the market with cash hogs.
• 2:02
  SPEAKER_01: We're not having to puke pigs out.
• 2:04
  SPEAKER_01: Most people are getting their pigs in on their contracts, right?
• 2:06
  SPEAKER_01: So definitely when we got a very narrow decent feb spread, right?
• 2:10
  SPEAKER_01: That's just reflecting the market seeing these numbers.
• 2:13
  SPEAKER_01: And typically, uh, you know, a de stafeb spread would be four or five dollars feb over the deck, and they're very narrow today, like 70 cents.
• 2:21
  SPEAKER_01: In fact, they were inverse two days ago, right?
• 2:24
  SPEAKER_01: So the market's got some concern that these pigs stick around a little bit.
• 2:27
  SPEAKER_01: Yeah, and to me, I'm a little bit concerned about that too.
• 2:30
  SPEAKER_01: At least for the next 90 days, it seems like there's plenty of production out there.
• 2:34
  SPEAKER_01: Now, the good news in all this is demand's been really good.
• 2:38
  SPEAKER_01: Um, we've been able to have these bigger production runs, Mike, and we've been having cutouts just continue to perform really well.
• 2:45
  SPEAKER_01: Cutouts in this 93, 94 area, above a year ago, above two years ago, above three-year average, right?
• 2:52
  SPEAKER_01: I mean,$94,$93 cutout on December 4th, getting two six, two side production runs.
• 2:58
  SPEAKER_01: Demand's good.
• 2:59
  SPEAKER_01: We're moving lots of product, demand's good, and it's keeping the index.
• 3:03
  SPEAKER_01: I mean, D expires next Friday, so just you know, the end of this week, you know, next.
• 3:07
  SPEAKER_01: And you know, we're around an eighty, eighty-one dollar index here today, and and that's been kind of our saving grace.
• 3:13
  SPEAKER_01: Also, you know, even though I mentioned the February and April futures have have been depressed, a very flat curve.
• 3:20
  SPEAKER_01: Um, the deferred, the deferred are getting a little bit more than a little bit.
• 3:22
  SPEAKER_01: They're holding in good.
• 3:23
  SPEAKER_01: Yeah.
• 3:24
  SPEAKER_00: Yeah, we're holding in some pretty I mean the next summer market, high 90s, uh the next December for crying out loud is hanging in the high 70s yet.
• 3:34
  SPEAKER_00: So we'll take that.
• 3:35
  SPEAKER_01: Yeah, yeah, absolutely.
• 3:36
  SPEAKER_01: And that's just you know, a little bit of perspective, right?
• 3:39
  SPEAKER_01: I mean, we've and and we've had tremendous amounts of opportunity to get on some excellent hedges in in the February and April 26th markets, right?
• 3:47
  SPEAKER_01: And those are the ones that have got really beat up.
• 3:49
  SPEAKER_01: But as we look at, you know, the rolling 12 forward, you know, we got about, you know, our margins would say around a$19 bill in the next 12 months.
• 3:57
  SPEAKER_01: And you know, that's that's that's that's not the 30s that we saw when the thing was at its peak, right?
• 4:01
  SPEAKER_00: But above historical average.
• 4:03
  SPEAKER_01: Yeah,$15 is our target, which is a healthy target, right?
• 4:06
  SPEAKER_01: And yeah, really, I mean, we're underwater versus target through April.
• 4:09
  SPEAKER_01: May is a little bit dragging, June's about at target, but when you look at July on out, um at least through November, you know, we've got some nice margins out there.
• 4:18
  SPEAKER_01: So the deferred are giving us some opportunities.
• 4:21
  SPEAKER_01: Um, we just we're getting through the December, so we're losing a lot of hedges here.
• 4:26
  SPEAKER_01: It looks like we're gonna start into the Feb delivery period with some really nice basis, so we're gonna start peeling our feb hedges off, right?
• 4:32
  SPEAKER_01: So, you know, that's been something we've been looking at in the shop year is let's just in this margin environment, um, when we've got these good and uh nice forward opportunities, let's just keep kind of expand extending coverage out.
• 4:43
  SPEAKER_01: We've been doing a little more optionized, right?
• 4:45
  SPEAKER_01: Or using insurance products, right?
• 4:47
  SPEAKER_01: Put some floors on, but uh, you know, that's that's the bright side of the equation.
• 4:50
  SPEAKER_01: So if I had to if I had to sum up the hog market here short term today, plenty of pigs up front.
• 4:56
  SPEAKER_01: Demand is holding in really well, product values are good, right?
• 5:01
  SPEAKER_01: And still forward margins are showing us some some nice opportunities, Mike.
• 5:05
  SPEAKER_00: Nice.
• 5:05
  SPEAKER_00: What can you tell us about you last night?
• 5:07
  SPEAKER_00: We had a fantastic opportunity to see a lot of you uh out and about in Laverne here at our customer event, and uh and we had a fantastic speaker.
• 5:16
  SPEAKER_00: Can you tell us a little bit about some of his main points and and just what you saw last night?
• 5:21
  SPEAKER_01: Yeah, yeah, yeah.
• 5:22
  SPEAKER_01: For those, and first of all, we have we have we have the best customers in the world.
• 5:25
  SPEAKER_01: We thank you so much for letting us work with your businesses, with your families.
• 5:28
  SPEAKER_01: Thanks so much for coming out here.
• 5:30
  SPEAKER_01: We had an annual customer event last night in Laverne, Minnesota.
• 5:34
  SPEAKER_01: We had 120, 120 people come into it.
• 5:37
  SPEAKER_01: It was standing room only, filled the place up.
• 5:39
  SPEAKER_01: It was awesome.
• 5:40
  SPEAKER_01: So it was great to have some good uh good discussion, good camaraderie with our customers.
• 5:46
  SPEAKER_01: And we we did tune it up a little bit this year, too.
• 5:48
  SPEAKER_01: So Brett Stewart, uh, he's an economist, lives in Idaho, uh, has a global presence, very in tune with the cattle, the beef, and the grain markets, consults domestically, all over, like I said.
• 6:01
  SPEAKER_01: In fact, he was just telling us what two weeks ago he was in Chile or Argentina, one of the two, right?
• 6:06
  SPEAKER_01: But he gave us a very nice kind of macro overview of the broader economy.
• 6:10
  SPEAKER_01: He did have to talk a little politics.
• 6:12
  SPEAKER_01: You can't not talk about Trump just a little bit in this view, right?
• 6:15
  SPEAKER_01: And this environment we're in.
• 6:17
  SPEAKER_01: Gave us some nice perspectives in the beef market, which I mentioned, pork demand's good.
• 6:22
  SPEAKER_01: Well, beef demand's amazing, not just domestically, but globally.
• 6:25
  SPEAKER_01: We got some really great things going on there.
• 6:27
  SPEAKER_01: He also, you know, our friends, our winged friends, chicken.
• 6:30
  SPEAKER_01: I mean, chicken production, it's kind of a chicken breast to corn ratio, right?
• 6:34
  SPEAKER_01: And chicken is, you know, they last time we got really low in beef and hog supplies 2014-2015, last lowest beef inventory.
• 6:41
  SPEAKER_01: That was the PDV issues we had in the hog, like chicken, like progressive domestic uh consumption just skyrocketed.
• 6:48
  SPEAKER_01: And you know, chicken's gonna step in and gain some share here.
• 6:51
  SPEAKER_01: But uh yeah, gave us some nice overviews, gave us some good things to think about.
• 6:55
  SPEAKER_01: Um, always brings a great perspective.
• 6:57
  SPEAKER_01: And uh yeah, it was a really, really neat event, Mike.
• 7:00
  SPEAKER_01: We we feel real fortunate about it.
• 7:02
  SPEAKER_00: Always nice to take a step back and just look at everything from a very broad overhead view, and I think he did that in a fantastic way too.
• 7:11
  SPEAKER_00: Thank you for your time today, Luke.
• 7:12
  SPEAKER_00: Uh if you need anything, please reach out to us at Professional Ag Marketing and I hope you guys had a great Thanksgiving.