Cattle futures post the best close in over a month. Hogs post new downtrend lows.

Livestock

February futures rallied to their best close since 11/29. March feeders posted their best close since 11/22. Gains for cash cattle, two weeks now, have helped solidify futures. All is not clear though. Wholesale beef is not holding up.

Cash cattle was a second win last week. Mid-December lows in the South were $170. Last week's trade was $172. In the North the two week rally pushed live trade in Nebraska from $169 to $172 and dressed from $268 lows to $273.

Even with today's rally in futures the market is still implying lower cash ahead. February futures imply Q1 cash cattle trade at $170.

As of Friday choice beef was only +1.70 from the current 12/8 low. Today's morning report was surprisingly low at -4.99. IF that holds to the afternoon update it would be a new low for the downtrend. The trade questions further cash cattle gains until beef bottoms.

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 posted their best trade of this three week rebound. Today's trade broke the second downtrend line, the more important one. This is the best close since 11/29. We don't like how this market left another downside gap today, the 12/29 close at 168.50. We would also feel a little better if that 12/7 close way down to 162.52 were filled. We don't expect that one to get filled though. On the positive side today's trendline break now opens up a conversation about filling multiple upside gaps. 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 had already broken its two downtrend lines. Today's trade was the best close since 11/22. 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. They may feel a little better about discussing these due to recent positive trade. 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: Futures still imply lower trade for cash cattle into Q1. We disagree with that view. If we had wholesale beef on board with futures and cash then we would be more aggressive with long-type trades. We consider ourselves bulls here but only expect a limited rally to the 50% retracement mark, 179.50 on the February live cattle contract. 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 0.82.

Hogs

February - July lean hog futures all pushed to new contract lows. The market both pushed to new lows for the long term downtrend as well as posted new lowest closes. On the chart the market easily filled that prior intraday gap and closed far below it. Until cash markets establish seasonal lows, futures are removing premium.

Cash hogs on Friday were -0.71. The four day week ended -0.54 to a new low for the Lean Hog Index to 65.05. Cash hogs have a problem. The seasonal low, which occurs anywhere from late November - December usually, is not here. February futures, normally guessing how high cash hogs will be as of February 14, now have a minimal +0.25 premium. Futures have put the idea of higher cash hog prices on hold for six weeks out.

Cash pork ended on Friday +2.15. The week over four days was +2.55. That put wholesale pork +3.41 from the current 12/21 low. Today's afternoon report was +0.34.

Quarterly Hogs & Pigs was called negative last month. 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 narrative for 2024 pork production is that light breeding herd liquidation has been offset by higher productivity.

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.

Today's high confidence selling restarted the bear discussion. We expected a lower attempt after the failure to take out 50% retracement at 71.80 in early December. We did not expect the trade to find the trading interest in this lower price attempt though. Today's lower trade not only filled the 12/13 close downside gap, it also closed well below it. It posted a new low for the long term downtrend and new lowest close. Bulls are not in control. Unlike with cattle we have not seen a sustained lightly higher trade really hold. Bull points to monitor are currently on hold. They are the intraday gap to the 12/22 close at 71.35. 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. The discussion last week, where we discussed the possibility of this lower trade forming the Right Shoulder of a Head & Shoulders bottom, is not off the table.

Summary: The market finally said it was tired of waiting for cash hog low. It filled the last downside gap and did not stop. 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 2.40.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 2.40.