Hog Talk – June 11, 2024

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00;00;00;10 – 00;00;08;26
VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.

00;00;08;28 – 00;00;28;08
MIKE
Hello and welcome to HARDtalk. Brought to you by Ever Again Insight. Each week we talk with subject matter experts on news and topics affecting the hog market. I’m your host, Mike McGuinness, and today is Tuesday, June 11th, 2024. We take a look at the markets and then we’ll introduce you to our guests. The market action right now, the July lean hog futures contract.

00;00;28;08 – 00;00;49;07
MIKE
It’s been falling about $17 per 100 weight since around April 24th. Analysts see the market is oversold at this point and we’ll talk about it. Turning to our guest now this week we have David Delaney ever Egg’s director of marketing of Live Animals. Also Thomas Titus, ever AG’s livestock specialist and consult. First off welcome guys to the program.

00;00;49;07 – 00;00;49;20
MIKE
We appreciate.

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DAVE
It Mike. Thank you for having us on. It’s always a pleasure.

00;00;52;17 – 00;00;54;17
THOMAS
Thank you. Mike, it’s certainly an honor to be on here today.

00;00;54;23 – 00;01;07;11
MIKE
You bet. And Thomas, we’re going to start with you. You heard me say that the hog market has been falling since around April 24th. What’s your reaction to this? From what I’m finding, analysts believe that market is a bit oversold and has been for quite a while.

00;01;07;18 – 00;01;28;02
THOMAS
And you bring up a very good point here, Mike. So as we begin to look on the technical charts here, I mean, you kind of exceeded a and surpassed the number of those moving averages or it’s June through that December 24th timeframe. And specifically speaking to the July contract, I mean, you hit the nail on the head. I mean, we’ve eroded more out of there to the tune of about $22 a head from where they were at back in the early to mid April.

00;01;28;02 – 00;02;00;07
THOMAS
And we’ve kind of entered into this oversold territory. We’ve been there for probably about two weeks. But the challenges we continue to kick in this oversold territory for an extended period of time. And there’s this managed money short position continues to grow. And you know our most recent commitment of traders report we saw around 12,000 contracts added I would say I mean since the last Tuesday, that position and through today’s trade is going to be relatively sizable as well, just with the price action that we’ve continued to see in these future markets as we’ve set new contract lows in August, October, December, and I believe February of 25 as well.

00;02;00;07 – 00;02;09;06
THOMAS
So that’s very concerning because when we had a relatively positive forward for year for the producing community, and a lot of that optimism has been bred out of this market here over the last eight weeks.

00;02;09;13 – 00;02;27;01
MIKE
And we’re going to talk about supply and demand and some of those factors here in just a minute. But first off, the pork industry came together recently for the World Pork Expo. And when I was growing up, I used to go to concerts. And after the concert, the radio station that we like to listen to used to have a concert echo.

00;02;27;01 – 00;02;42;26
MIKE
And so I’m going to call this the World Pork Expo Echo, and we’re going to talk about what the topics were at the World Pork Expo, you know, what was the sentiment. And usually you get some theme that comes out of these shows. So let’s start with Thomas. First off, what three topics floated to the top at the World Pork Expo this year?

00;02;42;27 – 00;03;01;10
THOMAS
So this year’s World Pork Expo, I mean, I’d say it’s been probably one of the more well attended exposes we’ve had in recent years, but some key themes kind of floated to the top the conversations with producers, processors and other industry folks as well. And so, I mean, overall general herd health across the United States is still continued to be a topic of consideration there.

00;03;01;11 – 00;03;20;20
THOMAS
We’re certainly in a position where, I mean, Ferguson has not been quite as impactful as is what it’s been in prior years. And if you look at some of the data out of South Dakota, that mean that monitoring system there, I mean, that trend line for per feed instances is continuing to be relatively low, even though in the last two weeks, I mean, we have picked up on some additional counter seasonal perch transmission.

00;03;20;20 – 00;03;41;28
THOMAS
General overall health of the industry has been very, very good. And I mean, you talked about growth, efficiency and things like that. We’ve had ideal growing conditions for these hogs nearly all year up until what’s going to be a little bit warmer temperatures the back end of this week. And so hogs are performing extremely well. And so I mean, they’re continuing to move ahead of that growth curve or typical marketing frame due to that health and weather impacts as well.

00;03;41;28 – 00;03;58;18
THOMAS
I mean, another thing that we talked about, I mean, was seem like it was well discussed amongst attendees there, the general economics of the pork industry. So, I mean, we’re in a lot different place from the input side of the equation from where we were at last year. Feeding 450 corn or 460 corn is much more favorable than feeding $6 and 50 cent corn.

00;03;58;21 – 00;04;11;18
THOMAS
Been quite a bit of a pull back as well. So I mean, from an input cost, I mean that is seen a sizable drop there. So I mean we’re looking at cost of production in those low to mid 80s. And I mean some of your best producers in the country, I mean are in those high 70s, the very low 80s price ranges.

00;04;11;18 – 00;04;29;23
THOMAS
But the challenges I mean, we’ve seen as we talked about earlier, I mean, the amount of margin that’s eroded out of this forward curve in what these futures markets for what the remainder of 2024 looks like. And it’s a little bit more bleak than what it once was. You’re looking at a profitable price levels through the summer. But I mean, you get into that October contract and beyond, we start to infer some losses again here.

00;04;29;23 – 00;04;45;20
THOMAS
So I mean, it’s going to be extremely challenging for the producing community, especially after we went through 18 months of losses there through late 22 and 23. And so we’d like to see some optimism built back into this hog market. But right now, I mean, it just hasn’t been able to find that spark. You know, supply is relatively ample.

00;04;45;20 – 00;05;01;23
THOMAS
The product side of things is even though we still maintain a cut out over a dollar at this point in time, which is certainly positive, we’re not able to get that additional meat moved to really spark off this summer rally and whatever that might look like. As we continue to hear some of the further processing and food service issues that are out there.

00;05;01;23 – 00;05;21;22
THOMAS
And so, I mean, the demand for bellies does not seem like it was quite what it was. And so that’s going to be challenging to really spark this summer rally until we can get that moving in the right direction. There is another bright spot within the pork industry has been our export. If you follow the non North American export report, which is the peak 640, you’re seeing sizable loan volumes continue to trade on that on a relatively consistent basis.

00;05;21;22 – 00;05;40;12
THOMAS
And so you’ve got trading partners like Mexico, Japan, South Korea China always stepped in buys a chunk. And consistently I mean you’ve got Canada as a great trading partner as well. So when you begin to think about exports, I mean, they’re currently running right around 9% over a year ago. And that’s a projection for the Brett Stewart Global Agritourism Standard talked about there in late 23.

00;05;40;12 – 00;06;01;26
THOMAS
And we’re certainly seeing that come to fruition. But the one thing that when you do need to take into consideration, whether it’s a high level of concern or not, is just the devaluation of the peso here since their recent political elections over the last two weeks. And so, I mean, the purchasing power of Mexico to purchase a hamlet from, say, if it was 94 today, it’s going to be $86, $84 just with that devaluation of the peso.

00;06;01;27 – 00;06;16;10
THOMAS
But at the same time, those folks, they’re I mean, they’re not going to stop eating pork. And so they’re still going to continue to be some demand in Mexico. I mean, they consume I mean, 44% of our global exports. And so they are a very, very important trading partner for us here through the remainder of 24 and beyond.

00;06;16;16 – 00;06;28;05
MIKE
Also, Dave, I understand that World Pork Expo was well attended. What was the farmer and agribusiness sentiment that you picked up as you talked to folks, and did you get a feel from them on the state of the industry? So to me.

00;06;28;09 – 00;06;47;16
DAVE
Yeah, I would agree. I think part of, you know, the attendance situation was we narrowed down from three days to two Wednesday, Thursday this year. And I think, you know, I would agree with Thomas and yourself that it was very, very well attended, I think the sentiment. So let’s go with the farmer pork producer sentiments first, Mike, and somewhat of what you and Thomas had already talked about.

00;06;47;16 – 00;07;15;15
DAVE
We had premiums in this market prior to World Pork Expo coming together. We’re seeing them deflate and costs so higher because of inputs. I think the pork producer sentiment was one of very, you know, kind of deer in the headlights and shot that we put premium in the market and we took it out here pretty quickly. So I think from pork producers sentiment, that was the number one talking point or concern from the agribusiness side of the business.

00;07;15;15 – 00;07;37;16
DAVE
I would tell you that, again, it’s all based around economics, right? We need the pork producers to be profitable so that us as agribusiness people, whether we’re consultants or, you know, selling farrowing crates or genetics can be viable as well. So I think their concern is the viability of the industry. And how many pork producers are we going to have to deal with going forward?

00;07;37;17 – 00;07;45;04
MIKE
The industry and where it’s going had to have been a topic gathering like this one. Usually sparks those kinds of conversations. Thomas. Right.

00;07;45;06 – 00;08;07;22
THOMAS
It certainly does. And so, I mean, if you kind of look at where this industry is going and some of the conversations we had there, I mean, especially we have this forward curve is just changed through the remainder of 24. And if you look at going into 2025 as well with where cost of production line kind of where input costs are, you begin to expect and have conversations around further consolidation and kind of this state of the cow herd and size of the saddle.

00;08;07;28 – 00;08;28;13
THOMAS
And are we going to need to see additional liquidation to really see a type of pork in this hog market here? And I mean, it certainly feels like that as we supplies are extremely ample right now, mean one thing that is relatively notable that we’ve seen over the last few weeks, and I kind of referenced counter seasonal transmission earlier, is that the price of moving pigs and feeder pigs is probably held in there a little bit stronger than what one might have expected.

00;08;28;13 – 00;08;45;15
THOMAS
And so for a producer that’s stepping out and purchasing a wing pig and locking them, which is now probably close to a $20 loss on that animal, really kind of goes to tell me intentionally some of the challenges that are out there in certain isolated situations. But again, it’s not something that we have heard that’s been relatively broad spread across the industry.

00;08;45;15 – 00;08;58;04
THOMAS
So from an industry standpoint, I mean, just continued conversations around further consolidation. I know whenever I was in my youth and attending Royal Pork Expo, whenever I was 6 to 10 years old, it’s certainly a lot different picture, a lot different experience than what it once was ever.

00;08;58;04 – 00;09;14;23
MIKE
Eggs doctor Steve Meyer presented at the World Pork Expo, and Dave, he mentioned about plant closures preventing profits from being positive in 2024. Also talked about heavier weights pressuring the market. Is this a result of lower feed costs, the heavier weights pressuring the market?

00;09;14;24 – 00;09;35;02
DAVE
I think currently the heavier weight situation, Mike, is really a combination of two things. We’ve had producers that have looked at the forward curve previously, Pork Expo and Saw premium is in the market and said, hey, let’s keep our pigs every incremental pound we’re going to get paid for because the summer markets were in the, you know, they started with a dollar or better.

00;09;35;02 – 00;09;55;07
DAVE
I think we’ve seen that. And also the good weather has helped hogs get heavier. And I think we’ve pulled some hogs ahead. So I think those are two of the main factors for the here and now. As far as Doctor Meyer talking about the plant closures since I work with the Packers every day, Steve and I get to converse kind of what we see and what it looks like going forward.

00;09;55;07 – 00;10;22;12
DAVE
The Perry closure will be the end of this month. June 28th is the last day, I think Doctor Steve’s sentiments of more hogs, less shackle, specifically as we get into the fourth quarter is a concern that he has. And I would echo those concerns as we talk about bumping up against plant capacities. I think he’s 7 or 8 weeks out of the fourth quarter that we’re going to be, you know, flirting with more pigs than what we have the ability to harvest.

00;10;22;12 – 00;10;44;03
MIKE
So the other topic I found interesting as I read about the World Pork Expo this year is this idea of diversification. So you had one producer saying, I’m glad that we changed our operation from just a feral to finish operation to selling weaned pigs, and also adding kind of a South Farm addition. So I got the sense that it was diversification, like grain farmers used to add, maybe some livestock or something.

00;10;44;04 – 00;10;47;05
MIKE
Is this a trend in the industry, or is this just something that was mentioned?

00;10;47;05 – 00;11;06;22
THOMAS
I wouldn’t say this is necessarily diversification, Mike, but probably more specialization, especially with the labor challenges that we had within the pork industry. Becoming more specialized can sometimes allow you to be able to focus on what you do best and a little bit higher capacity. And personally, I mean, we were able to finish farm for the last 30 years, and we made the decision to liquidate our salad a year ago this last spring.

00;11;06;26 – 00;11;28;03
THOMAS
And so, I mean, we’ve made a transition as well and kind of within our own personal production model. And you see a number of folks across the Midwest and the pork producing landscape that certainly looked at different ways to continue to raise pigs. In some instances, that’s all we pigs and and others, it’s converting from a farrow to finish to a wing to finish with some shares and some sales centers, or potentially just purchasing pigs on the open market.

00;11;28;03 – 00;11;31;27
THOMAS
And so the pork industry is always evolving and changing at the same time.

00;11;31;29 – 00;11;54;26
DAVE
Yeah, Mike, I would just add to that, I think, you know, changes in the industry are driven by economics, and the state of the health of this industry may change a business’s mind in whether we fare or buy lean pigs just for kind of a rule of thumb, the old rule of thumb, if you had a 5000 South farm and you had to take it down because you broke with purse, that’s about $1 million bill that it cost you.

00;11;54;26 – 00;12;01;09
DAVE
So I think we’re making decisions and transitioning business decisions based off economics. Well, let’s.

00;12;01;09 – 00;12;12;18
MIKE
Talk about the so what segment I think will help the producers and processors, if we can lift up what insights that we have talked about here, that would really be some takeaways for them. And we’ll start with Thomas.

00;12;12;23 – 00;12;27;00
THOMAS
I think takeaways from the conversation today. I mean early part of the year through mid April, early part of May. And I mean we built a lot of optimism into this market. A lot of that was built on the back of the demand side of the equation there. I mean, is exports continue to be strong. We saw this forward curve.

00;12;27;00 – 00;12;44;05
THOMAS
Appreciate in the manage money long and can get to a 92,000 contract long position. I mean today we’re sitting in about 19,000 contractions. That is eroded significantly. And so our forward curve looks a little bit different. And so I mean whenever we do get into the midst of this summer rally, whatever that may look like, it may not get quite as early as we’d hoped.

00;12;44;05 – 00;13;12;02
THOMAS
But at the same time, I mean, as we begin to look at these deferred months October, December, February of 25 and really targeting some coverage for that fourth quarter in first quarter of 25, it may not be quite at the levels that you thought it once was, and so certainly would like to advise them in there and still be a little bit more aggressive approach whenever we begin to think about risk management, whether you’re working with a broker just with strike neutral position or taking in utilizing livestock risk protection or livestock gross margin insurance, which is a great tool that we have to help manage risk.

00;13;12;02 – 00;13;24;06
THOMAS
And so as we walk away from this, I mean, we talk about the supply side of the equation. They’ve talked about some of the macro capacity issues we may see in the fourth quarter, and they can be very prudent for any pork producer to manage their risk reporting.

00;13;24;08 – 00;13;25;17
MIKE
And Dave, your thoughts.

00;13;25;17 – 00;13;46;22
DAVE
From a producer standpoint? Mike, here’s the one thing about it. We are not just a domestic market. You and Thomas talked a little bit about exports. And I agree with Thomas. I mean Mexico taking that amount of pork from the US, you know, pork production community is going to continue. I think all in all that we can produce a pound of pork as cheap and as safely as anybody in the world.

00;13;46;22 – 00;14;10;28
DAVE
And from the packing side and the processing side, I truly believe that they are going to have supply, that they’re going to be able to sell not only domestically as well as internationally, again, versus what we’re seeing on the side of the business. We see a shrinking, you know, cowherd shrinking fat cattle supply. I think from a processing standpoint here, they’re going to have ample amount of pork that they’re going to be able to sell.

00;14;11;04 – 00;14;16;14
DAVE
And like I said, not only domestically but also in the international markets as well.

00;14;16;17 – 00;14;28;28
MIKE
Well, both of you have talked about how we’ll see what the summer brings while summer doesn’t start for another week, so we have plenty of time to turn this around and get some positivity in the hog market. Thanks, Dave, and thanks, Tom, both of you for joining us today.

00;14;28;28 – 00;14;29;21
DAVE
You’re welcome.

00;14;29;21 – 00;14;49;08
MIKE
Thanks, Mike. Dave Delaney, ever AG’s director of marketing of Live Animals, and Thomas Titus, every livestock specialist and consultant. Thanks to both of them. And thank you for joining us today. If you’ve enjoyed listening to Hog Talk, be sure to tell a friend or to and subscribe to us wherever you listen to your podcast. Thank you to the Ever AG Insights Crew for their work on today’s show.