Disappointing livestock reports.

Livestock

A lower finish for the week was noted for cattle. The stock market ended higher for wholesale beef is not quite showing consistent gains.

This afternoon'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.

Cash cattle trades through Thursday in the North have run generally $170 live and $270 dressed.Today's trade saw trades to $271 and bids up to $272. Last week's trade was $168/$169 live and $267/$268 dressed in that area. The South is quiet so far with bids at $170 but no solid sales. Last week's price was $170.

Thursday's weekly export sales report looked good at +115% from last year but last year was a low number. Year to date sales are -17% from last year. USDA’s whole-year goal is -14%. On a lightly positive note, year to date sales for 2024 delivery are +8% from last year.

Wholesale beef struggled early-week but rebounded in the later days. As of Thursday choice was +3.12 off the current 12/8 low. Today's morning report was +1.05. The 4 ½ week has run +0.54. Choice is now +4.17 off the 12/8 low.

The weekly Actual Slaughter report on Thursday showed steer weights +11 lbs. from last year. Heifer weights are +1.

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 second will be tested up near 172. There is an open intraday gap still waiting at much lower prices, the 12/7 close of 162.52. We don't expect that gap to get 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 was broken last week. The general downtrend line was broken on Monday. Bears can still point to three gaps left below our feet at lower prices though. This rebound has not been clean. They are the 12/15 close of 222.17, the 12/13 close of 217.85 and a third one down there at the 12/7 close, 211.17. These would normally make bulls quite wary. 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

Trade Recommendation:

(12/20) Sell February live cattle 162 put 1.50, risk 3.00, objective 0.

Hogs

The week's end for hog futures was lightly lower than last. Weekly export sales were disappointing on Thursday. Cash hogs and pork have yet to post a clear seasonal low.

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.

Cash hogs posted light gains Monday - Wednesday but were -1.11 on Thursday. The Lean Hog Index falls to a new low for this long seasonal downtrend to 66.25.

Cash pork pushed to a new low for the seasonal downtrend yesterday. Today's morning trade was +0.32.

Thursday's weekly export sales report was disappointing for pork. Sales last week were -36% vs. last year. Year to date sales are +10%. USDA’s goal for the year is +7%. On a lightly positive note, year to date sales for 2024 delivery are +71% from last year.

Dressed barrow/gilt weights are -1 lb. from last year.

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. Let's see how well a downside test goes in these coming days. 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 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 0.87.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 0.87.