Cash cattle stops eight week slide.

Livestock

After a lower open based on Friday's lightly bearish Cattle on Feed report fed cattle futures roared back to their best close of this two week rebound. An Outside Day higher was noted. Last week's cash cattle trade stopped eight sharp weeks of declines. After filling an open intra-day gap on the lower open, feeders posted their second best close of this recent rebound.

Last week's cash cattle trades averaged $171 in the South. That was up from the prior week's $170 average. This stopped eight weeks where cash dropped $15. Nebraska sold live at $171 and dressed at $270/$271. That was over the prior week's $168/$169 live and $267 dressed.

Wholesale beef is not rallying with 100% strength. But it is off the 12/8 low. As of Friday it was +4.92 from that major low. Today's morning trade was -0.48.

Friday's monthly Cattle on Feed report would be called moderately negative. The prior May - October placements, six months, were +0.8% year/year. This helped ease supply concerns for 1st half 2024. But now we are filling out the summer to early fall supply period. Today's report showed November placements -1.9%. The trade expectation was -3.8% from one year ago (ALDL -3.1%). This helps determine a part of the July - October slaughter period. Marketings of finished cattle in November were counted -7.4%. The trade estimate was -6.7% (ALDL -5.5%). Feedlots do have some numbers in them. Remember, December 1 On Feed is what will be worked through in the coming months. USDA reported this count at +2.7%. The trade expectation was +2.2% (ALDL +2.4%). This is the highest Dec 1 total in three years.

Also out Friday afternoon, monthly Cold Storage was neutral. USDA counted 454.7 million lbs. of beef in the nation's freezers at the end of November. That represented a normal 9 million lb. increase from the prior month. The five year average change for November is an increase of 10.

February Live Cattle Futures Seasonal: We monitor seasonal price trends but are not tied to them. The seasonal for fed cattle futures is a general long term rally to November 26 then a quick and very sharp price break to December 9. After that significant low there is a general rally into expiration. We will point out this year the peak was a bit early on September 19. If the seasonal would hold true then a major low would be directly behind us. The current low was made December 7. Given the extreme severity of the decline already seen we hesitate to suggest seasonals will be on target this year.

February fats officially remain in a downtrend from a general chart perspective. But the first immediate downtrend line has now been broken. Today's Outside Day that closed higher gave the trade its best close yet of this rebound. The main downtrend line will be tested around 172. Though bears can note there is an open intraday gap waiting at that main price low, the 12/7 close of 162.52, we don't expect that to be filled. Bulls have plenty to discuss for upside IF a low can be posted. You've got a minor upside intraday gap from the 11/22 close at 175.2, two daily chart gaps way up there at 184.70 - 184.90 then 186.65 - 187.52 and two intraday gaps at even higher prices. They are at the 10/18 close of 191.07 and the 10/2 close of 193.17.

The feeder cattle chart looks a little better than fats. The short term downtrend line and the main one have been broken. Today's lower trade filled the first nearby downside gap, the 12/15 close of 222.17. There are two others at lower prices but we are unsure if they will get filled. They are the 12/13 close of 217.85 and the 12/7 close, 211.17. Bulls have a few upside chart gaps to discuss. The daily chart shows one at 244.75 - 245.37. Intraday charts show unfilled closes from 11/22 at 230.12 and 10/18 at 253.60.

Summary: There is a change in belief recently. Employment is better than expected, the stock market is pushing to new highs, retail beef prices have not been hit as much as expected and we have a potential seasonal factor (higher). Let's reduce our expectations of a typical strong December rally to only the 50% retracement mark, 179.50 on the February live cattle contract. We would feel a lot better about this rally if wholesale beef can get on board. Please have a risk in place for all speculative trades. For the recommended trade noted going into today, selling a 162 Feb lc put at 1.50, today's high was 1.50. To be fair to all we do not consider orders filled until price goes through it. That order has been replaced to now sell a 164 put...Rich Nelson

Trade Recommendation:

(12/26) Sell February live cattle 164 put 1.40, risk 2.80, objective 0.

Hogs

Bearish Hogs & Pigs, Cold Storage and new lows for cash hogs pressured futures.

Cash hogs fell again on Friday, -0.18. The Lean Hog Index drops to 65.59, the lowest of this seasonal drive lower so far. There is no sign yet of a cash hog low.

Cash pork pushed to a new low for the seasonal downtrend on Thursday, 81.35. It was +0.86 on Friday from that low. Today's +1.69 morning report should be revised lower on the afternoon update.

Quarterly Hogs & Pigs this afternoon was called negative. USDA reported December 1 All Hogs, both the marketing herd and breeding herd, at even with last year. The trade expectation was -0.5% (ALDL -0.6%). This is a light decline from the prior September 1 number at -0.3%.

Kept for Marketings as of December 1 were counted +0.3% year/year. The trade expectation was -0.5% (ALDL -0.5%). This grouping of numbers gives us one path to projecting future supplies. They do a generally good job of describing slaughter numbers over the next six months, December 1 - May 28. The weight breakdowns, the shape of those numbers, were +2.4% for +180 lbs., +0.7% for 120 - 179 lbs, -0.5% for 50 - 119 lbs. and -0.5% for under 50 lbs. This range of estimates would suggest an optimistic change for the current hog slaughter.

Kept for Breeding as of December 1 were counted -3.3%. The trade estimated -1.2% (ALDL -1.3%). This is a decline from the prior September 1 pace of -1.2%. Our number was made with the assumption September - November sow culling was up +2.5% from last year. However, we assumed new gilts added were +2.0%. The breeding herd is monitored according to reported activity this past September - November quarter as well intentions ahead for December - February and March - May. For these three farrowing periods USDA reported -4.0% -1.8% and -1.2%. There is light breeding herd liquidation and an expectation for further light declines ahead. But we are not out of the woods here. Pigs per litter gains were quite large on the prior two quarters, +3.3% and +3.6% year/year. USDA posted the September - November ppl at +3.9%. The narrative for this report is light liquidation offset by increasing productivity.

Also out Friday afternoon, monthly Cold Storage was bearish for pork. USDA counted 416.1 million lbs. in the nation's freezers at the end of November. November is usually a big month of storage drawdowns for Thankgiving. The five year average change is a 45 million lb. drawdown. This year's November drawdown was only 22. That is the smallest November drawdown in 10 years.

At the 12/7 recent installment of the AgLeaders Conference series we calculated hog and feed hedges applied at that time for 2024 production would result in -$23 per head losses. 2023 will pencil out with -$26 per head.

February Lean Hog Seasonal: We monitor seasonal price trends but are not tied to them. The seasonal for hog futures, not cash hogs, is for a rally from November 6 to November 25 then sharp break into December 17. That becomes the final major low. After a minor rally to January 5 then minor break to January 11 this contract then rallies into expiration. If you are looking at this year's price action our moderate October 25 to November 7 rally would be the first step. We would therefore be on the second step to major lows right now if this seasonal holds.

The general trend on the hog futures chart is down. But things may be changing. The current major low was posted 11/28. After a quick rally from those lows this market is having trouble taking out the 50% retracement at 71.80 on the February. This marks resistance. Bears can also point out there is an open intraday gap at much lower prices still there, the 12/13 close at 66.72. We don't expect that gap to be filled but let's monitor it. Today's lower open left a gap from the 12/22 close of 71.35. That's fine for an objective a few days from now. A break over 50% retracement would open the chart up to upside attempts at those three higher gaps. They are 75.05 from 11/20, 78.60 from 9/28 and 80.90 from 9/20.

Summary: Though we are not happy about leaving an open gap at much lower prices we do agree with the idea futures, specifically 2024 futures have been undervalued. If we had firm lows posted for cash markets higher pricing for futures could be argued. Please use a risk order in place if you are trading this market from any direction...Rich Nelson

Working Trades:

(11/15) Sold February 66 hog put 1.90, risk 3.80, objective 0. Closed 1.27.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 1.27.