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This Hog Market is in a Grind · 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.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: Today is November 12th.
• 0:23
  SPEAKER_01: I've got Luke Wells with us here today.
• 0:24
  SPEAKER_01: How's it going, Luke?
• 0:25
  SPEAKER_01: It's going, Mike.
• 0:26
  SPEAKER_01: How are you doing on this fine morning?
• 0:28
  SPEAKER_01: Very good.
• 0:28
  SPEAKER_01: Well, let's give a uh let's give a look at this hog market here.
• 0:31
  SPEAKER_01: We're gonna talk about that today.
• 0:33
  SPEAKER_01: Uh just a broad overlook uh yet again here.
• 0:35
  SPEAKER_01: We had Yan last week too, but a few things have actually maybe changed, I should say, or at least you have some talking points.
• 0:42
  SPEAKER_02: Well, yeah, let's just, yeah, I'm gonna call it the grind.
• 0:45
  SPEAKER_02: I mean, we're you know, and and and maybe grind is even too modest.
• 0:50
  SPEAKER_02: The current spot fundamentals are they're really, really tough, Mike.
• 0:53
  SPEAKER_02: I mean, and we and we it's just we've talked about all these things that are kind of like stacking up global supply of pork, global supply of poetry, stung US consumer, energy inflation, so on and so forth, right?
• 1:05
  SPEAKER_02: And all these things, none of those have let up, right?
• 1:08
  SPEAKER_02: Yep.
• 1:08
  SPEAKER_02: Um, so we continue forward.
• 1:11
  SPEAKER_02: You know, the the the market, we're we're just getting to some prices that are there's gonna drive change.
• 1:16
  SPEAKER_02: And and I I've been tired of this saying like low prices cure low prices, because what low has been is we've I mean we've went back to pre-COVID or lower type levels.
• 1:26
  SPEAKER_01: Well, low prices cure low prices, but they keep getting lower.
• 1:29
  SPEAKER_02: That's the point, right?
• 1:30
  SPEAKER_02: But I'm gonna I'm gonna try to wrap around with some things to think forward because there is a lot of in this in the the current fundamentals, the current forward curve, there there's a lot of stress in the pork industry right now.
• 1:40
  SPEAKER_02: So I won't try to cut that any other way, right?
• 1:43
  SPEAKER_02: I mean, from a fundamental perspective, you know, the the we we're we've got the holidays, it's just the calendar is working against us, Mike.
• 1:50
  SPEAKER_02: We're just and that's every year, it's magnified this year.
• 1:53
  SPEAKER_02: We have Thanksgiving and we have Christmas and we have New Year's, right?
• 1:56
  SPEAKER_02: And the Packer, I mean, from a cash perspective, is absolutely in control.
• 2:00
  SPEAKER_02: Um,$32 pigs paid yesterday.
• 2:02
  SPEAKER_02: That's 32 carcass.
• 2:04
  SPEAKER_02: And that's I mean, that's that's that's that's just that number, just let it sit in.
• 2:08
  SPEAKER_02: Um, it's it's the Packer has all the leverage.
• 2:11
  SPEAKER_02: Producer weights are high, and we're not gonna regain leverage, in my opinion, to at least the middle of January, maybe February, just because now we've got the holidays.
• 2:19
  SPEAKER_02: We got to work through that, right?
• 2:21
  SPEAKER_02: Um, but look forward, we get into next year, we get through the holidays, we get that cleaned up, we'll get into some seasonally adjusted, lower production than current.
• 2:29
  SPEAKER_02: You know, those are those are good things to come, right?
• 2:31
  SPEAKER_02: But right now, the the cash hog market's tough.
• 2:34
  SPEAKER_02: I think it stays tough.
• 2:35
  SPEAKER_02: Um, you know, from a demand perspective, uh it's it's really about you know, can we stabilize here?
• 2:41
  SPEAKER_02: And we've been hovering a little above, a little below the$70 carcass has pretty much stayed there the last couple weeks, really.
• 2:48
  SPEAKER_01: Yeah, yeah, yeah.
• 2:49
  SPEAKER_01: Since end of October.
• 2:50
  SPEAKER_02: It's it's floating around that.
• 2:51
  SPEAKER_02: So can we find some some stabilization here?
• 2:55
  SPEAKER_02: I I hope so.
• 2:56
  SPEAKER_02: I I'm not completely confident, right?
• 2:58
  SPEAKER_02: But that's that's kind of the question of how we look forward here, right?
• 3:01
  SPEAKER_02: But as as we stand today, you know, packer all the leverage, cash flow, product.
• 3:06
  SPEAKER_02: I mean, these kind of I mean, we're just so ridiculously cheap right now.
• 3:10
  SPEAKER_02: I mean, like cutout is the lowest it's been since I think it was 2013 when we went to mandatory, changed the cutout reporting.
• 3:16
  SPEAKER_02: I mean, that's lower than COVID, lower than Prop 12.
• 3:19
  SPEAKER_02: Um, we've just got some some some really, really low prices, and just a few things I'll maybe stack on.
• 3:24
  SPEAKER_02: We talked a lot about global pork production and the oversupply of it.
• 3:28
  SPEAKER_02: We talked a lot about global poultry production, did that last week, right?
• 3:32
  SPEAKER_02: But I mean, I'm gonna kind of go a step forward and I'm gonna hopefully gonna give we're starting to maybe see a little changes on the demand side because this is this is a demand thing, right?
• 3:41
  SPEAKER_02: So um uh one breakfast, okay.
• 3:44
  SPEAKER_02: Uh we we we all know we've got a pinch consumer, right?
• 3:48
  SPEAKER_02: Um uh not only from energy inflation, I mean food stamps, snap benefits, I mean, just all this in there, and right.
• 3:55
  SPEAKER_02: And so what you know what what a consumer, you know, one of the easiest things for them to cut back on, it's just your quick serve food service breakfast, right?
• 4:04
  SPEAKER_02: And this isn't a new thing I'm talking about.
• 4:06
  SPEAKER_02: I'm just bringing up different things.
• 4:07
  SPEAKER_02: You can you can skip breakfast, you can still get your two squares in in lunch and dinner, right?
• 4:12
  SPEAKER_02: Pork over indexes and breakfast, right?
• 4:14
  SPEAKER_02: That is our best meal.
• 4:16
  SPEAKER_02: I mean, so so food service continues to be lackluster, right?
• 4:19
  SPEAKER_02: Um, you know, then then also just on this chicken thing, right?
• 4:23
  SPEAKER_02: Um, a lot of chicken and more specifically, um, we've had a lot of chicken fingers and chicken nuggets featured, okay?
• 4:32
  SPEAKER_02: And you know, those two things, those aren't like a bacon cheeseburger or even a chicken sandwich with bacon on it.
• 4:37
  SPEAKER_02: They don't get bacon on those, right?
• 4:39
  SPEAKER_02: So we've had a lot of a lot of things going against us in food service.
• 4:42
  SPEAKER_02: And we still have a little bit of a tough road in food service, but I'm gonna I'm gonna switch over to the retail side here a little bit, Mike.
• 4:49
  SPEAKER_02: And we, you know, one, if you look at USDA featuring, which you know, you have to take that a little, that's a broad proxy rate.
• 4:55
  SPEAKER_02: But I think last week we had a 98% feature rate, which is one of the highest on record.
• 4:58
  SPEAKER_02: It's hard to go above 98%, right?
• 5:01
  SPEAKER_02: Um, but some of our contacts and people we visit with that have some really good talks into the retailers.
• 5:06
  SPEAKER_02: Um, they're they're because the retailer's not necessarily been super helpful to this point.
• 5:12
  SPEAKER_02: I mean, like$8 bacon on sale is that's not on sale, right?
• 5:16
  SPEAKER_02: But we're starting to get at these kind of price levels, we're we're starting to get some feelings, some talks, um, some some forward looks that the the the retailer might really get a little more aggressive in featuring pork, especially at these price points.
• 5:29
  SPEAKER_02: You know, that's a good guy.
• 5:31
  SPEAKER_02: You know, also we haven't been putting any pork in cold storage um because there's a lot of supply ahead of us.
• 5:36
  SPEAKER_02: We start we we started to hear some loins hit cold storage this week.
• 5:40
  SPEAKER_02: We're just you know, we're getting to and and we're the point is is we when we clear this extra meat, we're having to do it in the spot market at a low price, and that's what's challenging us, right?
• 5:49
  SPEAKER_02: So starting to to to kind of to kind of look forward.
• 5:53
  SPEAKER_02: You know, also um we are now um our our hams are actually lower priced than Brazilian hams into Mexico, and that's been one little bright spot.
• 6:02
  SPEAKER_02: We've seen some really good export sales the last few weeks.
• 6:04
  SPEAKER_02: I mean, so we're you know, price really matters on the export side, right?
• 6:08
  SPEAKER_02: So, you know, you circle all this together, you know, there's gonna be some global pain.
• 6:12
  SPEAKER_02: We're gonna and we've already started global liquidation.
• 6:15
  SPEAKER_02: Um, China is liquidating, um, European Union, I think, is gonna continue to liquidate.
• 6:20
  SPEAKER_02: And, you know, this like the the the US hurt is there's there's the the call sound market got tough, it's hard to get low, just like market hogs, right?
• 6:27
  SPEAKER_02: Um, we're gonna have some liquidation coming.
• 6:30
  SPEAKER_02: Um, but as you know, as we look forward uh, you know, and put all this together, and you know, if you show a managed money chart, Kate, I don't know if you want to jump that.
• 6:38
  SPEAKER_02: I told you I didn't need charts, but we're like 50,000 contracts short, Mike.
• 6:42
  SPEAKER_02: I mean, that is a that is a huge managed money short.
• 6:46
  SPEAKER_02: And um, you know, managed money, they don't really care if the market's up or down, you know, they're gonna ride winners and cut losers, right?
• 6:52
  SPEAKER_02: And at current time, cash flow, cutout low.
• 6:56
  SPEAKER_02: Um, it just we just we've had no reason for them to change their position.
• 7:00
  SPEAKER_02: And that's a little bit of what we've been seeing, Mike, in this dece and these forward spreads, okay?
• 7:05
  SPEAKER_02: And so December doesn't have that much time left on it.
• 7:08
  SPEAKER_02: Um, I think I think about 50,000 contracts have moved out of December in the last week.
• 7:13
  SPEAKER_02: There's a uh and what what they're doing, the managed money's short, they're buying their short contracts, so that's giving a kind of a lift to the dece contract, in spite of fundamentals being softer.
• 7:23
  SPEAKER_02: Um and uh and then they're just selling the deferred, and they just want to stay short this market for this time.
• 7:29
  SPEAKER_01: Mainly like August, yeah, where that spreads at too.
• 7:32
  SPEAKER_01: They've really got to be able to do it.
• 7:33
  SPEAKER_02: But all the way.
• 7:34
  SPEAKER_02: I mean, just you've seen February, April.
• 7:36
  SPEAKER_02: I mean, basically they're buying their short in D's and they're just reselling it in the forward strip, and that's moved our forward strip down to like minus$20 and you know for the year and all that stuff.
• 7:45
  SPEAKER_02: So my point is they're gonna they need a reason to change that trend.
• 7:48
  SPEAKER_02: I'm just average, I do think we're in for a tough the rest of this year and the first part of 27.
• 7:54
  SPEAKER_02: We just we we we're kind of so far behind now.
• 7:57
  SPEAKER_02: I mean, I we're it's gonna be tough.
• 7:59
  SPEAKER_01: When's it usually get better when you have the wintertime blues here?
• 8:02
  SPEAKER_02: It's it's uh you can start to see some things in January once you get through the holidays.
• 8:07
  SPEAKER_02: I mean, it it it it it it kind of depends.
• 8:09
  SPEAKER_02: There's this old adage.
• 8:10
  SPEAKER_02: I mean, like, let's talk about the April market.
• 8:13
  SPEAKER_02: Is is April gonna be like a winter contract or a summer contract?
• 8:16
  SPEAKER_01: That contract historically, it's like that can really move.
• 8:20
  SPEAKER_01: You can either be really right on April contract or really wrong on April.
• 8:24
  SPEAKER_01: That has a mind of its own.
• 8:25
  SPEAKER_02: No doubt, no doubt, no doubt.
• 8:27
  SPEAKER_02: So, what I'm suggesting here and trying to say is we are in a tough spot.
• 8:31
  SPEAKER_02: I called this the grind.
• 8:32
  SPEAKER_02: We're still in the grind stage and we're gonna grind for a while.
• 8:35
  SPEAKER_02: It's about being defensive up front here.
• 8:37
  SPEAKER_02: But looking forward, you know, a lot of people are saying, what am I gonna do in 27?
• 8:40
  SPEAKER_02: And you know, stay protected, stay hedged.
• 8:42
  SPEAKER_02: There is carry in the market, you know, protect that, right?
• 8:46
  SPEAKER_02: But also just just taking a step back.
• 8:48
  SPEAKER_02: I mean, we have you know, we have we have$70,$69 cutout, we have$59 index, we have you know$39, 37 yesterday weighted average cash hogs.
• 8:59
  SPEAKER_02: I I mean that just we're we're really low prices.
• 9:02
  SPEAKER_02: Um and and for us to think that the next year, this this current, all these uh things working against energy and energy, like I went through all that, like that that's gonna persist for a year.
• 9:14
  SPEAKER_02: Yeah, and and I mean that that is hard for us to see, right?
• 9:18
  SPEAKER_02: So um, you know, the grind is here.
• 9:21
  SPEAKER_02: If you know, stay protected up front.
• 9:24
  SPEAKER_02: And I'm and and again, if we get rallies back up and and and and have some things that make sense in the forward curve, which we just did about 10 days ago, summer's around 90, October's around 80, which those are not here today.
• 9:36
  SPEAKER_02: They've went in the last 10 days or seven days, right?
• 9:39
  SPEAKER_02: But but but also get through, have I mean this has got a really bad uh picture dialed in.
• 9:48
  SPEAKER_02: And for us to think that we're gonna stay this suppressed for this long, all the way out through 27.
• 9:54
  SPEAKER_02: Um, I think we're gonna get to the first of the year.
• 9:56
  SPEAKER_02: I think we're gonna get the holidays behind us.
• 9:58
  SPEAKER_02: I think we're gonna get that backlogged a little bit.
• 10:01
  SPEAKER_02: You know, I think we're getting some spots we can start to pick up some featuring, some domestic demand.
• 10:05
  SPEAKER_02: I think we look pretty good in export.
• 10:07
  SPEAKER_02: I'm not saying there aren't challenges in export, but we, you know, I we've got kind of this like the futures market is somewhat saying like these really big challenges are just gonna stay in front of us for a long, long time.
• 10:20
  SPEAKER_02: We'll work some things out.
• 10:21
  SPEAKER_02: The industry always does, right?
• 10:22
  SPEAKER_02: So um, I guess stay tough out there.
• 10:25
  SPEAKER_02: We know we're in a tough environment.
• 10:27
  SPEAKER_02: We know this market has moved very violently against us, right?
• 10:31
  SPEAKER_02: But um, there will be another side of this.
• 10:33
  SPEAKER_02: Um, grind through it, stay protected, keep your businesses as efficient as they can.
• 10:39
  SPEAKER_02: Um, and uh, you know, look, look, look forward to that.
• 10:43
  SPEAKER_02: We get that managed money, we have to give them a reason.
• 10:45
  SPEAKER_02: I've mentioned a few that could, right?
• 10:47
  SPEAKER_02: And again, I I you know, I'm not saying this happens next week or the week after.
• 10:50
  SPEAKER_02: I think we got to get into early 27.
• 10:52
  SPEAKER_02: I think things can look a little bit different.
• 10:54
  SPEAKER_02: And we saw it with the corn market, you know, this summer when there was some market talk that like we had a 172 core, we hit record long on our corn position seasonally, even right, right?
• 11:05
  SPEAKER_02: And then when the crop became apparent that changed, I mean we took a dollar off that corn like right now, right?
• 11:10
  SPEAKER_02: And we shut about what 400, 450,000 contracts.
• 11:13
  SPEAKER_02: We can change the tune in the hog side too.
• 11:16
  SPEAKER_02: We've just got to, we, you know, you gotta feed a bull every day, and our bull is getting pretty skinny.
• 11:21
  SPEAKER_02: We just haven't given any good news for a long time.
• 11:23
  SPEAKER_01: So well, as of today, we're two weeks away today from Thanksgiving.
• 11:28
  SPEAKER_01: So we'll get some interesting statistics.
• 11:30
  SPEAKER_01: I always like watching Thanksgiving as a time frame of uh you talk about the biggest gas demand uh in the United States day for the entire year.
• 11:39
  SPEAKER_01: You talk about a holiday that Thanksgiving's important because one, pork is a big part of it, right?
• 11:44
  SPEAKER_01: But it's also a a holiday that everyone celebrates in the United States, basically.
• 11:50
  SPEAKER_01: So when you look at it that way, too, I think the statistics around Thanksgiving are really interesting for things like commodities, like gas, oil, um, food.
• 11:59
  SPEAKER_01: So uh, and then you're approaching uh other holidays like Christmas and uh spending.
• 12:04
  SPEAKER_01: Uh, how's that gonna look after midterms?
• 12:06
  SPEAKER_01: Stock markets taking a little bit of a of a whack this morning again with some Nvidia news.
• 12:11
  SPEAKER_01: So yeah, when you look at a few different things, I think over the next month we'll have quite a few headlines to get to trade out of uh these markets as well, Luke.
• 12:19
  SPEAKER_02: Absolutely, Mike.
• 12:20
  SPEAKER_02: Absolutely.
• 12:20
  SPEAKER_01: All right.
• 12:21
  SPEAKER_01: Well, thank you for joining today.
• 12:22
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• 12:24
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• 12:27
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• 12:29
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• 12:34
  SPEAKER_01: So thank you for joining me today, Luke.
• 12:36
  SPEAKER_01: We'll see you next time.
• 12:37
  SPEAKER_02: See you, Mike.