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Cattle Cycle Insights · Professional Ag Marketing Podcast

• 0:02
  SPEAKER_00: Welcome to the Cattle Talk Podcast.
• 0:05
  SPEAKER_00: Your weekly breakdown of cattle market fundamentals, key news, and the insights shaping the industry.
• 0:12
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:20
  SPEAKER_02: Today is October 2nd.
• 0:22
  SPEAKER_02: I've got Jace with us today.
• 0:24
  SPEAKER_02: How's it going?
• 0:24
  SPEAKER_02: Pretty good.
• 0:25
  SPEAKER_02: How are you?
• 0:26
  SPEAKER_02: All pretty good.
• 0:26
  SPEAKER_02: We're going to talk about the cattle market.
• 0:28
  SPEAKER_02: Let's start off with the futures here.
• 0:30
  SPEAKER_02: Cash, just a quick update, kind of fundamentally, week over week.
• 0:34
  SPEAKER_02: But the bulk of today's talk is going to be about this cattle cycle.
• 0:39
  SPEAKER_02: So it should be a good one to catch overall big picture of where uh the cattle cycle's sitting and uh a broad update for everyone listening today.
• 0:49
  SPEAKER_01: Yeah, so I think on the I think on the future side of things this week, it's a little interesting that the close the close ended up being lower week over week.
• 0:59
  SPEAKER_01: Um little bit of a change there.
• 1:01
  SPEAKER_01: You know, we've seen it we've seen it the last the last couple, but we had we had trended lower after July or so, and it it just kind of seems like we're still probably we're still probably in that downtrend.
• 1:16
  SPEAKER_01: We had quite a wide spread on cash this week.
• 1:19
  SPEAKER_01: It was 218, 219 in the north and two twenty-six in the south.
• 1:24
  SPEAKER_01: So a really wide, really wide spread there, a wide enough spread that you start considering maybe taking a few cattle to the south.
• 1:31
  SPEAKER_01: But I do think it largely is around just beef demand as a whole at the moment.
• 1:37
  SPEAKER_02: Which beef demand showed pretty poor cutout last night, didn't it?
• 1:42
  SPEAKER_01: Pretty, pretty poor print.
• 1:43
  SPEAKER_01: And I don't just looking at the cutout, that doesn't tell the whole story with with cutout being with cutout being lower this time of year is normal, but to be as as much lower as we were yesterday on really small harvest numbers, that's that's just a little bit of a warning sign, I think.
• 2:03
  SPEAKER_02: Sure looks like it because overall demand, I know that consumers have had some concerns here.
• 2:07
  SPEAKER_02: Consumer sentiments low.
• 2:09
  SPEAKER_02: Uh percent of savings of the income is a record low at 2.7%.
• 2:15
  SPEAKER_02: Uh when you look at just overall consumer spending, you know, it's a weaker topic, but today that wasn't the case.
• 2:21
  SPEAKER_02: We we had some good news come out this morning.
• 2:23
  SPEAKER_02: Uh a poor jobs report kind of boosted the SP 500, had uh had a rise in the bond market.
• 2:30
  SPEAKER_02: Uh it doesn't make for a rise in uh interest rate hikes uh anytime soon here today's data.
• 2:36
  SPEAKER_02: So that uh gave more of a demand boost today in that news than than negative, anyways, Chase.
• 2:44
  SPEAKER_02: But let's talk about this cattle cycle just a little bit more.
• 2:47
  SPEAKER_02: I want to I want to get a nice broad picture to start off with here and uh swing away.
• 2:53
  SPEAKER_01: So I think the I think the broader picture is that we're the cattle cycle is a 10-year cycle for for oversimplifying it.
• 3:03
  SPEAKER_01: I mean it's you you have five years of lower markets followed by five years of higher markets after you're starting to shrink the cow herd a little bit.
• 3:14
  SPEAKER_01: And we've seen those, we've seen those years of higher markets now, but we are getting to a point, and we saw it, we saw it exaggerated by policy changes.
• 3:22
  SPEAKER_01: We saw it by the southern border being closed.
• 3:24
  SPEAKER_01: But just a few a few things there is we're starting to see some heifer attention, which matters.
• 3:31
  SPEAKER_01: Um that's kind of been the talking point this whole time is been the has been the heifer attention piece of it.
• 3:38
  SPEAKER_01: And we're definitely we're definitely on the on the back end of the of the cattle cycle at the moment, just kind of starting it would be, would be our opinion.
• 3:48
  SPEAKER_01: And it futures and cash maybe got higher than they should have, you could say, with the with the border being closed and liberation day and all the you know the tariffs put on Brazil at that time.
• 4:00
  SPEAKER_01: It you know, there's there's some pretty good visuals that we've seen lately of just showing the dollar change that those impacts had on things.
• 4:08
  SPEAKER_01: You know, the the tariffs on Brazilian beef maybe being ten dollars a hundred, the feeder cattle deal from Mexico maybe being thirty dollars a hundred.
• 4:16
  SPEAKER_01: I mean, those are just generalizations of those uh of that observation.
• 4:22
  SPEAKER_01: But I I think it those were very important, but it just made higher highs than what we probably would have seen.
• 4:29
  SPEAKER_01: But we do feel like we're on the we're on the back end of this thing now with heifer retention being at, you know, our heifers are 34% of our fed cattle harvest, and that's quite a bit lower than it has been for the past few years.
• 4:42
  SPEAKER_01: So that would that would signal that pretty strongly.
• 4:45
  SPEAKER_01: You're starting to see you're starting to see some cheaper bred heifers available.
• 4:50
  SPEAKER_01: So that would that would all point to heifer retention.
• 4:53
  SPEAKER_01: I heifer retention is happening.
• 4:55
  SPEAKER_01: I mean, we talked about it last week, and it hef retention's real.
• 4:59
  SPEAKER_02: It's been happening.
• 5:00
  SPEAKER_02: How recent would this be?
• 5:03
  SPEAKER_01: I would think it it started last fall, would be when I when I think it started, and I think that played into your higher prices this year too, with just less fed cattle available.
• 5:15
  SPEAKER_02: Well, to get a little bit of a trend, it takes a little time, so it makes sense.
• 5:18
  SPEAKER_02: It's it's taken a while to really can try to confirm it anyways.
• 5:21
  SPEAKER_02: And now talk to me about the impact that the Mexican feeder cattle imports really have on that cycle and how it's lining up with that retention.
• 5:30
  SPEAKER_01: Yeah, so I I think that's a I think that's a big piece that's not normal for the for the cattle cycle, just where it's happening.
• 5:38
  SPEAKER_01: Usually, usually when you start retaining heifers, the next eight months or so are your tightest supplies, your your highest prices on the cash side of things.
• 5:48
  SPEAKER_01: And we kind of feel like that could be different this time because right as we're starting to see the impacts of the heifer retention, we're opening the southern border.
• 5:57
  SPEAKER_01: So by our estimation, the the opening of the border will outpace with Santa Teresa being open now, the border opening will outpace the heifer retention.
• 6:08
  SPEAKER_01: So we think we think actual production will start going up now, even though we're retaining heifers because of the feeder cattle imports.
• 6:17
  SPEAKER_02: And that chart right there helps just show that feeder cattle import uh number rising, especially really recent here since you saw uh the Santa Teresa one open up on the 24th of September.
• 6:29
  SPEAKER_01: Yep, and we we think that it'll be maybe a couple hundred thousand this year, which 2024 was our biggest year with 1.2 million.
• 6:38
  SPEAKER_01: Um, and then we think we think 27 will probably get close to normal.
• 6:43
  SPEAKER_01: It won't start out that way, but maybe it's hard to throw a number on it, but you could be 80-90% of that if you really if you really got after things.
• 6:51
  SPEAKER_01: And the incentive is there for the Mexican rancher to send to send cattle this way.
• 6:57
  SPEAKER_01: They're getting half the price of of what they're getting to send them across the border.
• 7:02
  SPEAKER_01: So it's it's a big difference.
• 7:04
  SPEAKER_01: Let's break it down a little bit more.
• 7:06
  SPEAKER_02: Talk to me about specifically beef imports on actual beef, not cattle.
• 7:11
  SPEAKER_02: So talk to me about how that's impacting our overall production, or should I say, meat available to consumers.
• 7:18
  SPEAKER_01: Yeah, so that is gonna play a part going forward too, because we've we've been importing about 17% of our production, which is quite a bit higher than the you know, the post-COVID levels normal has been 7%, 8%, 9%, somewhere in that area, sub-10%.
• 7:35
  SPEAKER_01: So it's offsetting our it's offsetting our domestic reduction by almost perfectly.
• 7:43
  SPEAKER_01: You know, the beef available to the consumers almost the same.
• 7:46
  SPEAKER_01: So either either that number comes down or or our domestic consumption has to go up to match our our rise in our production that we're probably gonna see because of the cyclical nature.
• 8:00
  SPEAKER_02: And that does not appear to be happening, right?
• 8:02
  SPEAKER_02: When you talk about consumption per capita, beef, pork sideways, if not even a little lower, where chicken, poultry just skyrocketing right now, pounds per capita of consumption in the US here.
• 8:16
  SPEAKER_02: Anything else on production with how we're sitting before we kind of bounce over to more of a demand category specifically?
• 8:23
  SPEAKER_01: Yeah, I think I think the production being lower right now has to has to be a little bit ignored just from the fact that we've had these we've had these lower harvest numbers, um, we've got the higher imports.
• 8:38
  SPEAKER_01: Like I I think that's being largely offset.
• 8:41
  SPEAKER_01: I think a bigger a bigger the bigger deal is right now because of that, because of that low production, we've got really high like ribs.
• 8:50
  SPEAKER_01: The middle cut meats, they're they're high.
• 8:53
  SPEAKER_01: Um, you're still seeing demand in this K-shaped economy for expensive cuts, but you're seeing you're seeing lower demand for ground beef and that sort of a thing.
• 9:02
  SPEAKER_01: So I I do think the impact of higher production is gonna have a negative impact on these prices.
• 9:08
  SPEAKER_02: So, what about on the demand side when you look at some specific cuts?
• 9:12
  SPEAKER_02: What are you noticing in some of the recent trends then?
• 9:15
  SPEAKER_01: If you're talking more about near-term stuff, the only one that really, really stands out is the ribs.
• 9:20
  SPEAKER_01: The ribs are higher than they were last year, and they're just trending higher.
• 9:25
  SPEAKER_01: So the the observation is there, we've got an industry, the cattle industry has focused largely on grid premiums, on better genetics, better quality beef, and that is really that's really shining in the in the rib space.
• 9:41
  SPEAKER_01: You're seeing that become less of a less of a commodity, and it's not at its current price point, it could almost be considered a luxury, but it's a staple.
• 9:52
  SPEAKER_01: I mean, that's the that's the simple way to say that one.
• 9:55
  SPEAKER_01: So I really impressed with how the ribs are handling this.
• 9:59
  SPEAKER_01: Our it's maybe a little bit of a biased approach, but we do produce the best beef in the world, and that shows in those cuts hamburgers cheaper.
• 10:10
  SPEAKER_01: We can blend anything to make hamburger.
• 10:13
  SPEAKER_01: So it's yeah, I I think I think demand for the middle cuts stays high even in even in tougher times because of the quality component there, but I think we do struggle on the other primals.
• 10:23
  SPEAKER_02: No, it's definitely a fact that we have the best beef in the world, especially like this part of the world, corn fed.
• 10:31
  SPEAKER_02: Yeah, that definitely tastes best.
• 10:33
  SPEAKER_02: Uh, talk to me a little bit about some strategy going forward and how you're going to one, in the near term, just anything you're seeing fundamentally, what to look at, but then as we talk about the cattle cycle, too, how are you approaching that?
• 10:46
  SPEAKER_01: So I think short term, we're seeing cash kind of stagnant here at the 220 area, little give or take 220.
• 10:54
  SPEAKER_01: Um, think that that could maybe fade a little bit here as the Packers, especially in the north, have got quite a few cattle bought out a ways.
• 11:01
  SPEAKER_01: I think that plays into it being a little lower here for the next few weeks or maybe even a couple months.
• 11:06
  SPEAKER_01: It we could be surprised uh at the numbers.
• 11:09
  SPEAKER_01: I mean, it's uh that's a little bit of a guessing game, but we do we are looking at the the bigger picture of the cattle cycle and where we are in it to make our observation there.
• 11:21
  SPEAKER_01: And our feeling is to be a little a little less afraid of those those short futures and a little less afraid of those sold calls, thinking that we're on the back end of this thing, heading a little lower, and we feel very strongly that rallies need to be sold.
• 11:39
  SPEAKER_02: All right.
• 11:40
  SPEAKER_02: Well, a good takeaway, I think, from this would just be one Mexican borders reopened, heifer retention is happening, you've got higher weights, you've got a lower shackle, and you've got uh good cow calf margin still for the time being.
• 11:54
  SPEAKER_02: And uh the uh I would be less afraid about my head getting ripped off in a rally by by any means there.
• 12:01
  SPEAKER_02: So uh take that all and uh run with it.
• 12:04
  SPEAKER_02: Please chat with folks like Jace or Jeff or Nick in our office or myself, and we can get you or Jordan and we can get you taken care of.
• 12:12
  SPEAKER_02: Uh any other final thoughts for today's podcast?
• 12:15
  SPEAKER_01: Yeah, I think I think on on placements here, placement of new calves, just being being very careful that you're you know, the spring, spring demand could be pretty good, our our supply could be a little lower in the spring, but making sure that we're keeping those calves protected is a a very important thing at this time in the market.
• 12:34
  SPEAKER_02: Running math between like 400 to 500 pounders and like 800 pounders, we've got some really interesting stuff right now going on with that dynamic.
• 12:43
  SPEAKER_02: So please, if you plan to pay place anything soon, you should call Jace and talk about that because it's fascinating uh for those opportunities.
• 12:50
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• 12:52
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• 12:56
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• 12:58
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• 13:05
  SPEAKER_02: Thank you, Jace.
• 13:06
  SPEAKER_02: Thank you, Cade.
• 13:07
  SPEAKER_02: Have a fantastic weekend.
• 13:09
  SPEAKER_01: Thanks, Mike.