Cash cattle wins for a second week. Boxed beef sharply weakens.

Livestock

Moderately lower trade was noted for fed cattle futures. Though the North did trade cash cattle higher, a second week of gains, boxed beef posted a significant decline on the morning report to a new seasonal low. Weekly data showed another increase in finishing weights.

Wholesale beef pricing has been one area of concern. Up through Monday, choice had only rallied +5.30/cwt. from the 12/8 low. But with -1.83 on Wednesday and this morning's big surprise of -4.85, we may be at new lows for this general downtrend in beef prices. Given that the morning and afternoon reports have been relatively consistent for beef, certainly not pork, we would expect the bulk of today's morning decline to remain on the afternoon update.

There was no cash cattle trades for this week through Wednesday. There was limited trade today in Iowa at $172 live. That would be a over last week's $170 average and would mark two weeks of wins. Over in Nebraska bids were posted at $172 live and $272 dressed during the CME futures session. After the futures close we did see a trade at $173.

Last week's cash cattle trades averaged $171 in the South. Last week's cash cattle gain stopped eight weeks which dropped $15. Nebraska sold live at $171 and dressed at $270/$271 last week.

2024 live cattle futures have a bit of concern priced in. With an appropriate basis applied for each timeframe futures imply Southern cash will not stop the general decline. They suggest $167/$168 in February and only a $171/$172 trade in April.

Weekly weight data released today showed another increase for cattle. From the first to the second week of December dressed steer weights increased by 2 lbs. from the prior week to 941. Heifer weights increased by 2 as well to now 854. Weights should have peaked one to three weeks prior on a seasonal basis. They should be showing light declines now. This small weekly increase looks large when compared to last year's falling weights. Compared with last year dressed steers increased from +11 lbs. to now +14. Dressed heifers increased from +1 lb. to now +8. General cattle slaughter has recently run -5.0% from last year. Higher weights are returning back +1.3% to beef production.

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. 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. Bears will note there are two open chart gaps 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...Rich Nelson

Working Trade:

(12/28) Sold February live cattle 164 put 1.45, risk 2.80, objective 0. Closed 1.50.

Hogs

Cash markets continue to show no clear seasonal bottom yet. Futures continue to cast doubt on future strength. February only holds a 2.87 premium to current cash hogs.

The struggle for a clear seasonal low in cash hog prices continues. Yesterday's trade was -0.79. That puts the Lean Hog Index to a new low of 65.57.

Cash pork also continues to look for a seasonal low. Yesterday's report showed we are only 1.17 over the current low posted on 12/21. Today's morning report was +0.25.

China's Ministry of Agriculture and Rural Affairs reported the nation had 41.6 million sows at the end of November. That would be -5.2% from last year. This would suggest a more active liquidation. End of October numbers were -2.8%. Back in July they were only -0.6%. Though we hesitate to say this means higher US prices we would note it is positive psychologically.

Weekly weight data showed nothing of interest for hogs. From the first to the second week of December dressed barrow/gilt weights were unchanged from the prior week at 214 lbs. Compared with last year they remained at -1 lb.

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%. The general narative for 2024 pork production is that light breeding herd liquidation has been offset by higher productivity.

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. The recent H&P report would not suggest a supply change ahead in 2024 that would be enough to correct the general production profitability problem. 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.

Bears could argue this two week break in prices, after we failed to take out 50% retracement at 71.80, could be a move to try to fill that one last downside gap. Left back at the 12/13 close, 66.72 on the February, this has been one small road bump for bulls looking for a chart sign to support a seasonal low. Though we hesitate to say this market can break back to that price it is a possibility. Bulls are not in control. But there are several areas on the chart for upside discussion. The recent intraday gap to the 12/22 close at 71.35 is a start. Then you've got current resistance, 50% retracement at 71.80. Then there are multiple upside intraday gaps still open. They are 75.05 from 11/20, 77.02 from 11/13, 78.60 from 9/28 and 80.90 from 9/20. Tonight we're also now monitoring another possibility on the charts, a general Head & Shoulders bottom formation. The current price break “could” be forming a Right Shoulder. Given the general seasonal for hogs, and many unfilled gaps at higher prices, we cannot discount this possibility. This formation would be active if we can rally to around 73. From that activation point it would suggest upside to 79. We would not trade this potential formation as valid yet though.

Summary: With cash hogs still declining there is a possibility for futures to make one last run at that 66.72 intraday gap. We doubt it will be successful but we'll monitor it. If we had firm lows posted for cash markets higher pricing for futures could be argued. Please use a risk order in place for all speculative trades...Rich Nelson

Working Trades:

(11/15) Sold February 66 hog put 1.90, risk 3.80, objective 0. Closed 1.42.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 1.42.