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Some Hog Market Headwinds · 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_02: All right, today is August 13th.
• 0:24
  SPEAKER_02: I've got Luke Wells with us here.
• 0:25
  SPEAKER_02: How's it going today, Luke?
• 0:26
  SPEAKER_01: It's going pretty good, Mike.
• 0:27
  SPEAKER_01: How are you today?
• 0:28
  SPEAKER_02: Very good.
• 0:29
  SPEAKER_02: We're going to talk about a few things.
• 0:30
  SPEAKER_02: We're probably going to call this one today headwinds going into 2027 for the hog market.
• 0:35
  SPEAKER_02: We've got uh let's start with just an event that we've done, talk about the WASD Airport a little bit in the input side yesterday, and then talk about a hog market update.
• 0:45
  SPEAKER_02: How's that sound?
• 0:46
  SPEAKER_01: Sounds like a plan, man.
• 0:47
  SPEAKER_02: All right.
• 0:47
  SPEAKER_02: So at professional egg marketing, a lot of us are producers.
• 0:50
  SPEAKER_02: We're involved in production agriculture.
• 0:52
  SPEAKER_02: So a lot of what we do is risk management on price, but with a lot of the networking and industry folks that we work with, uh, we'd like to think we can help on the value-added side.
• 1:03
  SPEAKER_02: And this last conference we did, Luke, I feel like we did a really good job of that.
• 1:06
  SPEAKER_01: Yeah, it was a it was a really good, uh, really good event.
• 1:09
  SPEAKER_01: So thank you, thank you for our customers uh that that came to the event.
• 1:13
  SPEAKER_01: Um we collaborated with CLA uh and Marsh McCulllen and Pro Ag.
• 1:17
  SPEAKER_01: We hosted an event at actually at CLA, they've got a wonderful connection center uh in in Minneapolis.
• 1:23
  SPEAKER_01: Happens to be right by right by TCO, the Vikings uh practice field, so we've got to see a little Vikings football too.
• 1:29
  SPEAKER_01: But uh we started off the conference.
• 1:31
  SPEAKER_01: Uh Food for Thought is kind of what the conference was called.
• 1:34
  SPEAKER_01: But you know, we did we did an update on the market.
• 1:36
  SPEAKER_01: Um, then we stepped into kind of the AI uh and and cyber risk world from an insurance and and and and risk management.
• 1:44
  SPEAKER_01: Um then you know, a big topic uh that if you've not looked at, you should across all of ag.
• 1:49
  SPEAKER_01: Other industries have used RD credits for years.
• 1:52
  SPEAKER_01: AG's been behind um some new precedents, some new case uh has opened up the ag sector for research and development credits.
• 1:58
  SPEAKER_01: So we spent a ton of time in the conference talking about that.
• 2:01
  SPEAKER_01: Uh something that uh all producers, cattle hogs, whatnot, can can look at some value in the in their operation.
• 2:08
  SPEAKER_01: Um then we featured some more technology, uh uh Pro Ag Power specifically, and some of the collaboration we've done and how you can drive systems into uh into your business.
• 2:18
  SPEAKER_01: And then the end of it, it really kind of hit home, especially a lot of our clients are are working through this just as business growth.
• 2:24
  SPEAKER_01: Uh, we had a session around advisory boards and the creation thereof, uh the values they can create, uh, and then secession planning uh and how you can walk through or different ways to approach that.
• 2:36
  SPEAKER_01: So, yeah, a little different agenda, you know, then then you know, a little wider topic, but uh hit well.
• 2:41
  SPEAKER_01: We got great feedback.
• 2:42
  SPEAKER_01: Thanks again to CLA and Marsh for the uh uh uh collaboration on that.
• 2:47
  SPEAKER_01: And it was it was a really good event, Mike.
• 2:49
  SPEAKER_02: Awesome.
• 2:50
  SPEAKER_02: Well, let's get into some markets here.
• 2:52
  SPEAKER_02: We had a pretty big trading day yesterday on the input side.
• 2:54
  SPEAKER_01: We had a little price movement, huh?
• 2:56
  SPEAKER_02: It was a little price movement.
• 2:57
  SPEAKER_02: Yesterday was one of the key reports of the year for the input side, the WASDA report in August.
• 3:02
  SPEAKER_02: This report is substantial because it's uh put on by NAS.
• 3:06
  SPEAKER_02: So uh different people put on this report than what we've got in prior WASDA reports and in May, June, July, for example, for the new crop marketing year.
• 3:15
  SPEAKER_02: One of the things we noticed right away going into this was obviously this the trend of corn yield has been trending a little bit lower.
• 3:23
  SPEAKER_02: Uh we've had dryness picking up in the Western Corn Belt, uh questionable uh yield samples out in the fields, things like that.
• 3:31
  SPEAKER_02: So the question was yield.
• 3:32
  SPEAKER_02: It was a pretty wide range.
• 3:34
  SPEAKER_02: Uh it was really tough to gauge is this going to be a bigger crop than normal or is it gonna be a smaller crop than trend line?
• 3:41
  SPEAKER_02: And the USDA came out with a pretty bold statement, which isn't irregular for August, and they said that we had a 180.7 yield.
• 3:48
  SPEAKER_02: It was on the low end of expectations, and uh it was a pretty substantial decrease.
• 3:54
  SPEAKER_02: They washed their hands of it a little bit by increasing acres, Luke.
• 3:57
  SPEAKER_02: So part of that was washed out.
• 4:00
  SPEAKER_02: The balance sheet came in at 1.6 billion bushels on ending stocks, which is pretty tight.
• 4:05
  SPEAKER_02: You're about a 10% stocks to use ratio, which normally would suggest let's find ourselves above$5 March corn futures, you know, by January's report.
• 4:14
  SPEAKER_02: Now, with that being the case, though, that got a little bit more extreme uh because of the old crop situation.
• 4:22
  SPEAKER_02: You know, exports have been running way ahead of pace.
• 4:25
  SPEAKER_02: Demand's good.
• 4:26
  SPEAKER_02: And the USDA's been trying to catch up through most of the marketing year, but at the end of the year here, they just kind of have to.
• 4:32
  SPEAKER_02: We have the new crop uh year starting September, so we've only got two reports here, August and Seth, that they can make up for it.
• 4:39
  SPEAKER_02: On the report in August here, they did increase old crop exports, so that did tighten up the old crop balance sheet just a wee bit.
• 4:46
  SPEAKER_02: Uh so that made new crop balance sheet look a little bit tighter than expected.
• 4:50
  SPEAKER_02: They didn't really change anything else on any demand categories.
• 4:54
  SPEAKER_02: Uh, those were the really main talking points.
• 4:56
  SPEAKER_02: Soybeans, they didn't change a whole lot.
• 4:58
  SPEAKER_02: They came in just above last month's ending stocks.
• 5:01
  SPEAKER_02: Uh, they lowered yield just a little bit, uh, but they did add a few acres there as well.
• 5:06
  SPEAKER_02: Not really a surprise, I guess, but it just in general, anytime you get over 180 million acres of both corn and soybeans in the same year, you planted the heck out of the corners.
• 5:18
  SPEAKER_02: It's a lot of principal acres between those two, and that's what we saw this year.
• 5:21
  SPEAKER_02: So even though there was a lot of coffee shop talk about corn acres switching away because of fertilizer this spring didn't seem to happen.
• 5:29
  SPEAKER_02: Right.
• 5:30
  SPEAKER_02: So on the input side, we saw a crazy day yesterday.
• 5:32
  SPEAKER_02: Deese corn found some life again.
• 5:34
  SPEAKER_02: Uh the soybean market was up as well.
• 5:37
  SPEAKER_02: It all kicked off the day, though.
• 5:38
  SPEAKER_02: Uh, we really didn't change much after the Wazir port because in the morning we were up almost 30 cents on the wheat market.
• 5:46
  SPEAKER_02: So that gave support to a lot of the other grains as well.
• 5:49
  SPEAKER_02: One thing I've noticed is that wheat has a very good underlying story, pretty good support.
• 5:54
  SPEAKER_02: The grains now with the balance sheets should have pretty good support as well.
• 5:58
  SPEAKER_02: It's gonna be tough, I personally think, to get below 450 on D scorn the rest of the year.
• 6:04
  SPEAKER_02: Just good support that's gonna kick in every time we try to break this market down a little bit.
• 6:08
  SPEAKER_02: You've got things like harvest pressure coming, some other things.
• 6:11
  SPEAKER_02: Maybe the funds don't want to stay long going into harvest.
• 6:13
  SPEAKER_02: Who knows what'll happen there?
• 6:15
  SPEAKER_02: But nonetheless, these breaks probably will be supported long term.
• 6:19
  SPEAKER_02: The wheat market, though, I will say, every time it seems like we get a 30 cent pop or a big day in the wheat market, uh, you normally try to take a good chunk of it back here recently.
• 6:29
  SPEAKER_02: It's not sustainable.
• 6:30
  SPEAKER_02: So, with that being the case, it'll be interesting to see if the wheat market tries to pull back the next upcoming days here, kind of as the report day settles out.
• 6:41
  SPEAKER_01: Absolutely.
• 6:42
  SPEAKER_01: Absolutely.
• 6:43
  SPEAKER_02: All right.
• 6:43
  SPEAKER_02: So looking into 27, part of the headwinds aren't just for the hog market and it's fundamentals as well.
• 6:50
  SPEAKER_02: It's the fact that we do recently have some input prices going up here a little bit, squeezing your margins.
• 6:55
  SPEAKER_02: But I do want to hear your take on the hog market fundamentals, just see what you're seeing here as we've kind of steadied off at the bottom end of this trend.
• 7:03
  SPEAKER_01: Yeah, absolutely.
• 7:04
  SPEAKER_01: And and yeah, on the inputs from an user end user perspective is just, I mean, it w reinforces and not that it was never a focus, but why we need to crush margin, right?
• 7:13
  SPEAKER_01: And we'll continue to do that.
• 7:14
  SPEAKER_01: And and and we can we can make cost of production work.
• 7:17
  SPEAKER_01: I think we the we yes, we demand's great on the inputs, right?
• 7:21
  SPEAKER_01: We needed it to bushel up, bushel down a little.
• 7:23
  SPEAKER_01: We'll see where finals come in.
• 7:25
  SPEAKER_01: Um, but keep a keep a close eye on that.
• 7:27
  SPEAKER_01: We're also at the time of year where, you know, from a basis perspective on meal and corn is start working those those those next year, next new crop basis positions.
• 7:35
  SPEAKER_01: But you know, swinging back into the hogs.
• 7:37
  SPEAKER_01: And I um still optimistic.
• 7:40
  SPEAKER_01: Uh, still think we've got a lot of great things, still think the protein market has a lot of great things coming at it.
• 7:44
  SPEAKER_01: But you know, I think that the message is is because the hog markets, it's it's it's it's been some major retreat uh retraction.
• 7:52
  SPEAKER_01: We've got we've got some major price pressure on us.
• 7:55
  SPEAKER_01: And I just want to scope up and I want a long-term margin chart.
• 7:58
  SPEAKER_01: And this is the point, and I'm gonna be a little higher level on this podcast.
• 8:02
  SPEAKER_01: Uh but we we we had a you know, we've got an excellent 25 and 26.
• 8:06
  SPEAKER_01: These have been great years, right?
• 8:08
  SPEAKER_01: Not and and not just domestically, you know, around the globe.
• 8:12
  SPEAKER_01: And we're we're seeing some pressures, and and so into 27, I think that's if you can remember one thing.
• 8:17
  SPEAKER_01: I think 27, uh, and looking in forward into you know, down into 28, we can we saw opportunities, but it's we're gonna have a little more pressure on us.
• 8:25
  SPEAKER_01: And I'm gonna give you kind of the reasons why.
• 8:27
  SPEAKER_01: So, you know, when you look at uh uh the forward month, which would be in the red up there in Cade Street, now there's still a positive margin.
• 8:33
  SPEAKER_01: We're not in a negative margin situation, but it's compressed from the margins we saw in you know, specifically in in 26 and 25.
• 8:41
  SPEAKER_01: So, you know, what what's going on with that?
• 8:43
  SPEAKER_01: Um, you know, first this consumer in inflation.
• 8:46
  SPEAKER_01: Um we we still have a we have a stung, not quite right consumer.
• 8:49
  SPEAKER_01: Dollars are hard to kind of spread out, right?
• 8:52
  SPEAKER_01: Um, and uh that that pressure's there, especially on the protein side.
• 8:57
  SPEAKER_01: And we just pork pork demand's been off.
• 9:00
  SPEAKER_01: You know, it's it started to get off basically the beginning of Q2, you know, last spring, right?
• 9:05
  SPEAKER_01: It's been off all summer, not disaster, but off.
• 9:08
  SPEAKER_01: And you know, just continue to hear from uh the the meat trade that just hard to get kind of you know, just pork struggling, right?
• 9:14
  SPEAKER_01: We're seeing overall pressures on pork, and you know, some of the majors like Smith Field came out with a major article yesterday adjusting some forecasts and just saying seeing some some challenges with demand, and it's it's gonna hurt on price, right?
• 9:26
  SPEAKER_01: So, you know, kind of kind of why is all that happening?
• 9:29
  SPEAKER_01: And you know, one big thing, and I'm gonna get on my soapbox just a little bit, right?
• 9:33
  SPEAKER_01: And anybody that spends much time with me knows I'm I'm super passionate about this.
• 9:37
  SPEAKER_01: I I'm I'm envious of the poultry, the chicken market, because they are amazing.
• 9:42
  SPEAKER_01: Um, you know, in this protein opportunity we're all living in, we we knew they were gonna come after it, uh, and you know, from a production price and marketing perspective, and and they absolutely have.
• 9:54
  SPEAKER_01: I think that's you know, we've got some short-term things like the ham issue.
• 9:57
  SPEAKER_01: I think we talked about that last week.
• 9:59
  SPEAKER_01: Ham's still strung a little bit, right?
• 10:01
  SPEAKER_01: But but broader term, I think just putting pressure on our complex, uh, poultry production.
• 10:05
  SPEAKER_01: I don't think we have a slide on it.
• 10:06
  SPEAKER_01: Maybe we do, but it's up like 2.6, so a short 3% year over year.
• 10:11
  SPEAKER_01: We're making we're just we're making more of it.
• 10:13
  SPEAKER_01: And and breast meat, it's like 30, 34% lower year over year, right?
• 10:18
  SPEAKER_01: So my case in point is chicken already from a marketing perspective, from a packaging perspective, you know, from uh not only a food service, uh, but but but but a retail level.
• 10:28
  SPEAKER_01: I mean, chicken has uh huge market share.
• 10:30
  SPEAKER_01: It's the highest consumed protein between the three we work with beef, pork, and chicken, right?
• 10:35
  SPEAKER_01: And there's there's so it's got a little more consumer preference, um, there's more of it, and it's cheap, right?
• 10:42
  SPEAKER_01: And so you kind of got all that going.
• 10:43
  SPEAKER_01: We have a lot of chicken kind of flooding this market, available at the level, a lot of retailing.
• 10:48
  SPEAKER_01: And that that headwind, it's it's again, it's kind of putting some overall softness.
• 10:52
  SPEAKER_01: You can see it in the loins, you can see it in the ribs, right?
• 10:55
  SPEAKER_01: So that this increase in chicken meat, that's a that's something we're gonna have to work through with the pork industry, and it's gonna be a challenge.
• 11:02
  SPEAKER_01: Uh gonna be a challenge for it.
• 11:03
  SPEAKER_01: Sounds like you got a question coming.
• 11:05
  SPEAKER_02: I was gonna say to add two things to it.
• 11:07
  SPEAKER_02: Also, ground beef is struggling lately as well.
• 11:10
  SPEAKER_02: So I found that part interesting.
• 11:12
  SPEAKER_02: Like poultry, chicken really doing well.
• 11:14
  SPEAKER_02: Yeah, pork really isn't the only thing.
• 11:16
  SPEAKER_02: If you look at July numbers on ground beef, that struggled too.
• 11:19
  SPEAKER_02: And this would be the second thing would be this is probably one of the easiest first ways to notice how AI is influencing agricultural production in general, and that's on the chicken side.
• 11:33
  SPEAKER_02: They've done some things with AI cameras on the production side.
• 11:35
  SPEAKER_02: That's very, very interesting.
• 11:37
  SPEAKER_02: If you want, please look into it.
• 11:38
  SPEAKER_02: It's it's really cool how that's influencing that industry uh with uh with sexing.
• 11:44
  SPEAKER_02: So uh please go on, Luke.
• 11:45
  SPEAKER_02: But I just uh I found that part interesting on uh the production side of uh poultry.
• 11:50
  SPEAKER_01: Yeah, absolutely, absolutely.
• 11:51
  SPEAKER_01: So again, I said I was gonna get on my soapbox, I'm on it.
• 11:54
  SPEAKER_01: I mean, this is just again a call to action for the pork industry.
• 11:57
  SPEAKER_01: We have to innovate domestically, we have to uh get our product positioned, you know, more to what consumer needs are, a younger consumer, more cook ready, more air fryer type packages.
• 12:09
  SPEAKER_01: Again, chicken's done it, they're winning.
• 12:12
  SPEAKER_01: Um, we're you know, we've got some things going on in the pork industry that's that's good, directionally correct.
• 12:17
  SPEAKER_01: But you know, we have to focus on that domestic demand.
• 12:19
  SPEAKER_01: This is the opportunity, and and we're not, you know, we can't go fast enough, right?
• 12:24
  SPEAKER_01: So again, I'll get off my soapbox there, but uh chicken is a pressure.
• 12:28
  SPEAKER_01: Um, you know, also as you kind of move forward, uh globally, um, the global pork market, I can't spec that profitability chart I showed.
• 12:36
  SPEAKER_01: You don't have to go back to it, Cade, right?
• 12:38
  SPEAKER_01: But just there's there's been expansion.
• 12:39
  SPEAKER_01: And so China's got too much pork.
• 12:42
  SPEAKER_01: So China's producer is is is is underwater.
• 12:45
  SPEAKER_01: Also, China's importing less pork.
• 12:47
  SPEAKER_01: You go across as a slide, Cade showed that across the world, we actually have one of the better pig prices in in the world right now.
• 12:54
  SPEAKER_01: Um, some of the main competitors we uh face against Brazil, specifically European Union, Spain.
• 13:00
  SPEAKER_01: Um, their prices are low, their producers are underwater, they're not able to sell as much to China because they're not buying as much, and they're coming after more of our customers, right?
• 13:10
  SPEAKER_01: So again, export, we can still win an export market.
• 13:14
  SPEAKER_01: I'm not any of this like a complete uh bear on it, but a little more pressure on the export side.
• 13:20
  SPEAKER_01: I'd say second half of 26 into 27, just as we have more pork globally kind of coming at us, again, putting some pressure.
• 13:27
  SPEAKER_01: And then, you know, as you kind of roll the thing forward, you know, we had a lot of health challenges this year in the U.S.
• 13:33
  SPEAKER_01: swine industry.
• 13:34
  SPEAKER_01: Um, now we're finally with the last five weeks of lower production.
• 13:38
  SPEAKER_01: We're about even year over year.
• 13:40
  SPEAKER_01: You know, we've been running 1%, but we filled a lot of that gap with one.
• 13:44
  SPEAKER_01: Corn's been relatively cheap and manageable, price has been very good.
• 13:48
  SPEAKER_01: There's been margins.
• 13:49
  SPEAKER_01: We've made we've made our pigs big, just like we've made cattle big, just like chickens are making them big, right?
• 13:53
  SPEAKER_01: Um, we've also, you know, we've brought in a lot more Canadian pigs.
• 13:57
  SPEAKER_01: Uh that their production's there, it trades in, especially in the Eastern Corn Belt, those packers.
• 14:02
  SPEAKER_01: That's where there's in Ontario and whatnot, more market ready hog supply, more Canadian pigs.
• 14:07
  SPEAKER_01: But if we come through this year and we don't have as bad a health challenges in the domestic herd, not saying we will or won't, but if we don't, we could put one to three percent more production domestically on a stable sal base because our our sal base is relatively stable.
• 14:21
  SPEAKER_01: I maybe some modest growth.
• 14:23
  SPEAKER_01: I don't think it's uh declining, but relatively stable.
• 14:26
  SPEAKER_01: So you turn that around, you get a little more supply, a little more pressure uh on the global pork trade, on our exports.
• 14:32
  SPEAKER_01: You've still got a stung consumer, you've got chicken, you know, really pressing at us hard.
• 14:37
  SPEAKER_01: Um, a little tougher operating environment.
• 14:39
  SPEAKER_01: So that's our message to customers.
• 14:41
  SPEAKER_01: You know, currently, you know, kind of coming into I'd say, like, you know, now through April or now through the end of the year, right?
• 14:48
  SPEAKER_01: We didn't have a big summer rally, you know, 104, 105-ish, you know, uh stopped our cutout uh for the summer.
• 14:55
  SPEAKER_01: So I still don't think we have to have maybe as big as a seasonal decline as we do if we went to 110 or 120 on the cutout, right?
• 15:02
  SPEAKER_01: So um, you know, we we hold some optimism actually that we can gain back or not gain back, but just not drop as much.
• 15:09
  SPEAKER_01: So kind of as you go into Q4 and Q1.
• 15:11
  SPEAKER_01: So a little optimistic the October, December, February type, you know, markets.
• 15:15
  SPEAKER_01: And it's not that we don't think we can put some value on next summer.
• 15:18
  SPEAKER_01: There's good margins next summer, it's a good spot to put some floors in.
• 15:22
  SPEAKER_01: It it it it it it it's it's raises year over year next summer is a three, four dollar per hundred raise versus this year, on top of what I said, hits margin categories, right?
• 15:33
  SPEAKER_01: So, you know, that's the push.
• 15:34
  SPEAKER_01: Just again, uh a little tougher environment.
• 15:37
  SPEAKER_01: We can work through it, but uh, you know, might just be a little crisper on how we execute or where we pull the trigger on managing risk because uh some of these headwinds that are that are coming at us, Mike.
• 15:47
  SPEAKER_02: Are any other final thoughts to kind of look forward to here in the next week?
• 15:52
  SPEAKER_01: Uh, I think I've probably piled enough on for this week, don't you think?
• 15:55
  SPEAKER_02: That sounds good to me.
• 15:57
  SPEAKER_02: All right, thank you, everyone.
• 15:58
  SPEAKER_02: Please click the link on the description below.
• 16:00
  SPEAKER_02: It'll have some cool things like daily market commentary, other marketing research as well.
• 16:05
  SPEAKER_02: Uh, check out our recent crop tour results.
• 16:08
  SPEAKER_02: Uh, we've got a lot of fun things coming at you here right before harvest.
• 16:11
  SPEAKER_02: So thank you, Luke, for your time today, and we'll catch you next time.
• 16:14
  SPEAKER_01: Thanks, Mike.