December hogs expire. February takes over with a limit up day.

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Livestock

Lightly higher fed cattle futures and a new high for feeders was noted. Wholesale beef is waffling and the trade would like to see more consistency before saying the long term low is in. The market is still not wholly convinced a December 9 seasonal low is in place.

Meat production statistics for the last week of November were released today. The trade monitors this report for information on weights. Dressed steer weights were unchanged from the prior week at 940 lbs. Heifer weights were also unchanged from the prior week at 854. Compared with last year, as this is now a time of year for declining weights, steers increased from +13 lbs. to +15. Heifer weights were unchanged at +4 lbs. from last year.

As a disclaimer, the weight chart shown tonight looks quite bearish. Let's point out weights are only +1% from last year. By itself that is not a major price hit. But when combined with slaughter numbers we are clearly transitioning from a very bullish supply story to more neutral. In the six weeks through the Thanksgiving week cattle kill was -6.0% from last year. But the two weeks after were -3.1% and -2.1%. This week will rebound to above last year.

Beef export sales of 10,563 tonnes were reported for 2023 delivery. This was -3% from last year. Year to date sales are -18% from last year. USDA’s whole-year goal is -14%. On a lightly positive note, the 2024 sales are doing well at +11% from last year. Pre-January 1 sales are not a good indicator of how well that year will go though.

Wholesale beef is not fixed yet. The last “new low” for this long term downtrend was on Friday. There were good jumps on Monday and Tuesday then -1.14 Tuesday. Today's morning report was -0.63.

Allendale released estimates for next Friday's monthly Cattle on Feed report today. For November we forecast placements, inflows into feedlots, at -3.1% year/year. This helps determine a part of the July - October slaughter period. As you know, the prior six months of May - October had been a changed story than previous. Those six months averaged +0.7% from last year. This had been one of the reasons for this recent sharp downtrend in prices. The trade incorrectly plugged in -6% kills for Q1 and Q2. More reasonable, these quarters will run -3% to +1%. But Allendale has long argued this recent placement bulge is nearing an end. We've put a bunch of remaining feeders and new calves into feedlots. That means we'll transition back to lower than last year placements likely November - April. We fully expect Q3 and Q4 next year to hold the prior tight supply story.

Yesterday's very light cash cattle trades in the North were $168 live and $268 dressed. The same was reported again today. Last week's sales in Nebraska were $270 dressed at $168/$169 live. There is no action to report in the South where $170/$171 sold last week.

February Live Cattle Decline Study: This current sharp decline in live cattle futures, from the 9/19 major high to the recent 12/7 low, was made with five separate stair-step declines. The first four averaged -5.9% each time. Our most recent break from 11/29 to 12/7 was -6.6%. In each of these prior four declines there was mild half-hearted rebound. The rebounds lasted only 2 to 10 days. The average of these half-hearted rallies was +3.1%. Off this recent 12/7 low of 162.40 that would imply up to 167.38. The max of these prior four rebounds was +4.0%. Applied to our recent low it would suggest 168.82. So, these two numbers are our measure of whether this current rebound is nothing unusual or something different. So far, we don't have a close over the max of those levels.

The stock market soared to new highs today. Given that there has been a moderately okay relationship between the stock market and cattle since 2020, correlation 0.64 and r2 of 0.41, you could also suggest this is a light passively positive influence for cattle.

February Live Cattle 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 chart perspective. We don't like the fact this current rebound has left an unfilled intraday gap to the 12/7 close of 162.52. There is something lightly positive on the chart though. The near term downtrend line was lightly broken with yesterday's close. The main downtrend line is still intact. 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.

March Feeder Cattle Seasonal: We monitor seasonal price trends but are not tied to them. The 15 year seasonal average price trend for feeder futures is for a significant peak for the year on August 1 then a good moderate low on December 9. After that low we get about 50% of the big downtrend back with a rally to January 1. Then the bear move restarts and lasts into Q1. The May and August contracts are different. They hit that same December 9 low as January and March. The May rallies up to remove the entire downtrend and posts new highs to a peak on 2/19. Then it posts a clear downtrend to new lows into expiration. The August is really different. It posts a MAJOR low on 12/9, rallies to new contract highs to a peak on 2/19. Though it does see weakness into the month of May it does not make a new contract low. From May to August is posts a second strong rally until the year's seasonal peak for the year in the month of August. As it stands right now the January's current low on December 4 and the March's current December 7 low fit the correct timeframe.

The feeder cattle chart still remains in a downtrend. Today's trade tested the main downtrend line. We don't like the fact this market still has an open downside intraday gap left from the 12/7 close, 211.17 on the March. We also don't like the fact another gap is now left from the 12/13 close of 217.85, If/when there is a low there are gaps at higher prices. 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: Positive recent developments are a lightly positive employment report on Friday, retail CPI data as expected, a still-high retail beef price for November and new highs for the stock market. While we are not sure if the December 9 major low and rally to January 1 trade will happen with the strength it normally does, new contract highs, can we get back 50% of this very strong recent price break? And while we are further grasping at bullish straws let's also remember that a rebound which can break well-established downtrend lines on the charts also open up the discussion of filling multiple chart gaps open at higher prices. Is this massive sharp price break wrapping up? Please have a risk in place for all speculative trades...Rich Nelson

Trade Recommendation:

(12/12) Sell February live cattle 160 put 2.20, risk 4.10, objective 0.

Hogs

A wild, and quite unexpected, rally was seen in lean hog futures. February gapped higher to start and closed up the 3.75 daily limit. December futures expired at noon and the trade is speculating the worst for cash hogs may be near over.

Meat production statistics for the last week of November were released today. The trade monitors this report for information on weights. Dressed barrow/gilt weights increased 1 lb. from the prior week to 215. Compared with last year there was no change. Weights are even with last year.

28,167 tonnes of pork was sold last week for export. This was +96% vs. last year's low number. Year to date sales are +12%. USDA’s goal for the year is +7%. On a lightly positive note, year to date sales for 2024 delivery are +79% from last year. Pre-January 1 sales are not a good indicator of that year's likely total sales.

Cash hogs were +0.40 on Monday, +0.33 on Tuesday but -1.11 on Wednesday. The Lean Hog Index drops to 67.75. Given this is a two day index, and Wednesday was -1.11, we should expect something around 67.10 - 67.40 for a final LHI as of today's cash hog trade.

December lean hog futures expired at noon today with a settlement price of 67.17.

With the expiration of December today the trade was forced to take a more serious look at February and its lack of premium over the December. Over the past 20 years February futures settled at prices over the prior December contract 14 times. The average of those increasing years was +9.00. There were six years with a decline during this time. Usually these were years with a winter supply bulge. The -6.26 decline earlier this year from Dec ‘22 to Feb ’23 this year was due to demand concerns from the looming July 1 Prop 12 implementation. Those six years with declines averaged -7.23.

The bull argument for wholesale pork is that we have not posted a new low for the downtrend in pork prices in five days. Today's morning report was +0.29.

Producers are still looking at a second year of hog production losses for 2024. Last week we calculated hog and feed hedges for the year would result in -$23 per head production 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. The current major low was posted 11/28. Today's gap higher start and limit up trade looks great. But as with our discussions on the cattle side we are not happy about an intraday gap waiting at lower prices. There is now a gap at 66.72 from the 12/13 close. We are not sure if this market will fill that downside gap. Bulls will instead point out we filled the first of the upside intraday gaps, the 12/12 close of 68.25. There are four other intraday gaps on this chart at higher prices. They are at 70.80 from the 12/4 close, 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 lower prices we do agree with the idea futures, specifically 2024 futures have been undervalued. 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 1.20.