Pasture to Pen – September 19, 2023

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VOICEOVER
Future trading involves risk and it’s not suitable for all. Investor contact provided in the strike is meant for educational purposes and is not a solicitation to buy or sell commodities.

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MT
Hello and welcome to pass through to pin a new series from the ever EG Insights team. Each episode.

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MT
We bring you.

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News and updates on the markets with the intention of helping.

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Cattle producers manage their risk. I am your host, Michael Todd, and.

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MT
Coming to you live from my home office. Before we get rolling, let me timestamp this episode. Today is Tuesday, September 19th, 2023, at

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MT
1007 in the morning. Today, the newlywed man of Montana, Mr. Dan Johnson, will be my guest and co-host. We will do. A deeper dive.
Into.

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Weather.

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Pasture conditions, markets and tools. Dan, congratulations and welcome to the show.

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DAN
Yeah, thank you. Happily married, I think we’re nine days in now. It was a crazy experience having a ranch wedding. Lots of work, but we’re so happy. And thanks for having me on. I’m excited to get back to work and talk about markets and pasture range and forage insurance.

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MT
Absolutely. We’re. We are happy for you.

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And happy to have you on the.

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Weather front.

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We have a lot of condition swapping going on places that are used to being.

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Dry or seeing.

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Rains, places that are used to.

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Seeing rains are dry.

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And some places that receive.

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Decent rains in the spring have completely turned around for the worst. To start, the.

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Oklahoma Panhandle and parts of the Texas panhandle, parts of southwest Kansas and pretty much all of.

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Eastern Colorado have had relatively good rains.

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Most drought conditions have lessened.

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Or have fully cleared, especially in eastern Colorado, the.

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Places that.

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Are used.

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To getting rain but are struggling, such as.

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Parts of central and eastern Nebraska.

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They’re experiencing very intense drought.

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As are parts of central and eastern Kansas.

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Again, places that are used to seeing.

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Moisture but are very, very dry.

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Northeast Iowa, southeast Minnesota and southwest Wisconsin are.

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Also terribly dry. Same for parts of northern and western Missouri.

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Moving to the Pacific.

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Northwest, Washington, Oregon and parts of Idaho are really missing. Their rain showers on a better, more wetter note.

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The eastern Corn belt states such as Illinois, Indiana, Ohio and Michigan.

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Are much improved, especially from the start of this year.

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But on the other hand, central Texas, seemingly all of Louisiana and Mississippi saw excellent rainfall early in the year. But have since seen the spigots shut off.

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And are experiencing.

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Very.

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Severe drought.

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Conditions. Untimely lack of rainfall has also plagued pasture conditions. Texas continues to see tough conditions as 71.

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Percent of their pasture is rated poor to very poor.

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Minnesota and Louisiana are not.

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Far.

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Behind, with 68.

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Percent of their pasture conditions rated poor to very poor.

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Washington is also struggling with 65%.

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Of their pasture rated poor to very poor.

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On the good side of that equation, Wyoming continues to.

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Impress.

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With 78.

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Percent of their pasture rated.

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Good to excellent. Colorado is at.

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63.

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Percent. New Mexico a much improved 60%, and Utah at 57%. Good to excellent. Speaking of dry weather conditions, Dan is actually joining us today and has.

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Some good information about a tool that producers can use to manage their risk during low rainfall years.

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MT
Deb, please tell us a little bit.

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MT
About pasture range and forage land insurance.

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DAN
Yeah, So this has been a really useful program to people in the West and the Midwest. What people like about it is, you know, these guys that have grazing and hang operations, there hasn’t been much in terms of risk management tools for when it doesn’t rain. So that’s where pasture range and forage comes in. It’s been around for about ten years.

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DAN
It was a pilot, USDA pilot for a while. Now it’s a full blown insurance product. And like I said, a lot of customers have really enjoyed being able to have some kind of hedge for when it doesn’t rain and you might have lower hay crops and it helps to financially make the gap between those things. So when we talk about pasture range and forage insurance, what it does is you set up your land in a grid so there’s grids all over the U.S. depending where you’re at, they’re usually 12 by 12 miles or 14 by 14 miles.

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DAN
And what they do is they take that data from the four nearest know all rainfall stations and they make an index out of it. And if your rainfall comes in below 90% of that, that’s how you potentially get a payout. So, again, super useful to ranchers, cattlemen, anyone that runs cattle and is on perennial forage like alfalfa, hay ground and even just grazing.

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DAN
So one thing to keep in mind if you’re interested in this program is the deadline is December 1st. So we’re coming up to that quickly. And also, it is a very involved insurance when it comes to looking at the grids, looking at data, trying to have a successful insurance policy set up and mapping your land. So definitely reach out to us quickly if you want to learn about it.

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DAN
There’s a little bit of a learning curve and gives us plenty of time to get you set up with the policy that will hopefully be successful for you.

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MT
All right.

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MT
Thank you very much, Dan, for.

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Giving us some information on price insurance. Moving to.

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The futures market.

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Futures continue to.

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Show strength.

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Even though yesterday was a bit sluggish.

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Feeder futures have climbed higher in six.

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Of the last nine trading sessions.

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We are green on the board.

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MT
Today on a.

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Weekly chart. Feeder futures have climbed higher four weeks in a row.

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Since the week of 825. From a technical.

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Perspective, October features appear.

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To be establishing new.

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MT
Support around the two.

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MT
59 mark, even though yesterday was.

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MT
In the red across the board. October still settled higher than the moving average. Look for support to be tested as the longer term momentum indicators are indicating overbought territory.

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MT
On the live cattle side of the board, live cattle.

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Futures have also moved higher in six.

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MT
Of the last nine sessions on a.

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Weekly chart. Live cattle futures are higher in three of the last four.

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MT
Weeks since the week of 825. From a technical perspective, December live cattle have.

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Good support.

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Above 187 and a half December.

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Live cattle are still strongly above their moving average. Similar to feeder futures, December live cattle.

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Momentum.

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Indicators are in overbought territory. Meanwhile, December corn futures have slid lower.

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The last six of nine trading sessions on a weekly.

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Chart, Corn futures have only been lower two of the last four weeks, but the moves lower have been much stronger.

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Than the moves higher.

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From a technical.

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Perspective.

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Corn futures have strong.

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Resistance.

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Around the 483 and a half mark.

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With yesterday’s settlement still well below the moving average.

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MT
However, momentum indicators are in oversold territory for corn futures with this run.

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MT
Up in cattle futures. We have seen futures.

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Get higher than cash, paired with a very strong carry. So look for hedgers to re.

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Enter the market as we.

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Have more of a risk on approach.

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Switching to the.

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Cash market, the fall.

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MT
Run is shaping up, as one would expect during the height of tight supply, as volumes still remain light. Oklahoma National did have a 10,500 head sale last week, but that number was down to just 70.

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500 head. Just yesterday.

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Oklahoma West had 67.

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Hundred had run through the rain.

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Two weeks ago and 8700 head last week.

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Their sale.

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Is today. And this.

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Is just starting to take.

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Shape. Remember, these two sales can easily have 10,000 head each in a given week.

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Prices at.

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These sales have gotten.

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Stronger as we get deeper into the month. Last week, prices were 1 to $4 higher, while this week prices are already jumping 2 to $5 higher.

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MT
On the live cattle side.

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The spread between northern Fed prices and southern Fed prices is starting to narrow. Last week, sales in the north were.

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180.

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4 to 185.

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Live and 292 dressed. While prices in the south increased to one.

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83 live. Preference towards fed cattle will shift from the north to the south as we work our way through.

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Fall into.

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Winter. Harsh winters in the north.

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Will affect just the.

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Sheer.

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Availability of northern cattle. While cooler.

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Temperatures.

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In the south.

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Help improve grade.

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And obviously the south will not have as.

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Harsh of winter as our northern states, with a premium.

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MT
Now in.

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Futures and a strong cash.

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Market. It’s definitely.

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Worth.

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MT
It to get even a small.

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Percentage of operations covered.

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MT
Especially on the buy side.

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MT
Or if you are selling feeder.

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MT
Cattle on the cut out and demand front. Choice was down three nine since yesterday, settling at 305 32. Select actually moved higher, gaining $0.29, settling to 80.

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MT
340.

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MT
One. Moving back to my co-host, Mr. Dan Johnson, he will take us through some things to keep in mind as we look at the demand side of the market. T.J., take it away.

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DAN
Yeah. So if you get our Prime Cuts newsletter, which I’d recommend everyone sign up for, if you like, reading short little blips about the market. I talked this week about, you know, if someone you’re talking to in the cattle market says there’s no way it can go down. I think they’re only thinking about the supply side. Certainly cow inventories are very low and they continue to get lower as we see this drought move across the U.S..

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DAN
But let’s not forget demand. We have an economy which to me personally, in my opinion, I wonder where it’s going to end up. I think 10% interest rates are set for the reason the falter the economy a little bit. So I feel like it’s coming. And then you look at just the overall price of beef. Demand has been so good for years that people in this space haven’t even talked much about demand.

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DAN
But we have to remember that may not last forever. And beef is the more expensive meat when you go to the grocery store. So also thinking about the U.S. dollar, the US dollars up, which makes it a lot easier to import beef from other countries. So we talked a little bit yesterday about how Australian beef right now is.

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DAN
When we look at them as a country, they are getting out of a drought and rebuilding their herd. They also are having some trade disputes with China and we are now seeing Australian beef get imported more to the U.S. and it’s still at a low level now, but it’s growing a lot and our higher dollars making it a better buy for U.S. consumers than US companies to import that beef compared to ours, especially when we’re at such a low in supply.

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DAN
So there’s a lot of things to watch. Don’t get complacent with this market. It’s very high right now in a lot of ways. But also think about what could go wrong and just watch it closely, you know, stay in contact with your agent or your broker. Watch that data when you get the chance. Maybe every morning, maybe every night, just to stay on top of it and be thinking about how quickly can I execute risk management strategy that’s well thought out.

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DAN
Once things start to move.

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MT
Excellent. Thank you very much, Dan. The demand side, especially like you said, in tight supply, is is easy to overlook. Data is sometimes is.

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MT
Harder.

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MT
To to quantify but you bring up excellent points. And as we kind of move into the last segment of the show, as we as we’ve titled Coffee shop talk, are you hearing a lot of producers in Montana talk about the demand side?

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MT
If they are, what are they saying? Or are they.

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MT
Simply just kind of looking at prices going higher? Because it always feels nice when prices go higher.

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DAN
I think people are very excited about where prices are. And when I say people, I mean specifically the cow calf producer who is getting the most of the benefit out of this. When we talk to more yearling stocker producers, they’re happy with how the year has gone and the marketing that they’ve done, but they’re looking to this fall buying more calves and you know, it’s very expensive.

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DAN
How do they make a good profit in the coming year? And the good news is there’s still a lot of carry in the market. Last time I looked at futures, there was almost a $0.28 carry between the nearby contract and the furthest out and feeder cattle. So there’s a lot of opportunity, but you’ve got to wait that with the 10% interest rate and make it all work for you.

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DAN
And that’s what we’re here to help with.

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MT
Absolutely. It’s it’s sometimes the buy side of the equation, especially in risk management. It seems to get get left out and get forgotten about. It is difficult at times to hedge hedge both, but layering in.

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MT
Coverage.

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MT
Especially on the sell side and even.

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MT
At a lower price.

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MT
Point, is often.

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MT
Very cost.

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MT
Effective. And then looking at the buy side of risk management as well, can can definitely help a cattleman save money.

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MT
As far as out here in.

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MT
The Texas panhandle.

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MT
Cattle feeders are talking.

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MT
About expensive.

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MT
Replacement.

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MT
Feeders to replace that.

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MT
Inventory as they turn these yards over. Feeder cattle are.

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MT
Just expensive, like you said that that helps the cow calf guy, the yearling.

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MT
Stocker operator.

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MT
That helps the sell side of their equation.

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MT
But for feed yards, they’ve.

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MT
Got to buy in these feeder cattle. And it is just very expensive as as we’ve said multiple times on the show.

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MT
However, there is a.

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MT
Nice.

00:13:59:18 – 00:14:00:08
MT
Break.

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MT
In input prices from feed inputs. Fuel is is is kind of a tossup, but mainly mainly.

00:14:08:00 – 00:14:11:14
MT
Feed input prices. There’s been a nice break, especially in corn.

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MT
And that’s always greeted with a finally they are finally starting to see.

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MT
These input prices break.

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MT
A little bit.

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MT
That is a wrap for this.

00:14:20:22 – 00:14:23:03
MT
Episode of Pasture Trippin. Thank you to.

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MT
All of our viewers.

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MT
For watching this episode. If you have not done it yet, hit the Like button, hit the subscribe button and click the bell to be notified of future episodes. Thank you once again to my guest co-host and teammate Dan Johnson. Thank you to Paige.

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MT
For always.

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MT
Making us look our best. A big thank you to Corey Hatty and the entire Insights team for making this show a reality. It’s our next time. Stay safe.

00:14:50:03 – 00:14:50:17
MT
Great, great.