Hogs discuss 2024 production profitability.

Livestock

New lows for this significant downtrend were reported yet again for live cattle. The day's close, near the low, suggests high confidence. January feeders were within 10 cents of its prior lows from two days ago. March and remaining deferreds pushed to new downtrend lows. We cannot suggest a seasonal low, normally seen on December 9, is in hand yet.

Light cash cattle sales were noted in the South yesterday at $171. The prior week's trade was $174/$175. Nebraska saw a setback today. Morning bids of $272 were posted on a dressed basis. However, by mid-morning actual sales of $270/$271 were reported. Last week's Nebraska live trade was $174/$175 live and $274/$275 dressed.

CME Group live cattle futures have readjusted their view of how low this break in cash will be. With a normal basis applied futures are suggesting Southern cash will run $163 later this month, $162 in Q1 and $164 - $167 in Q2.

Yesterday's AM beef report showing +0.27 was revised back to -0.97 on the PM update. Today's morning report was posted at -2.31. The 291.44 price is the lowest yet of this seasonal break from summer highs. We are right now in the seasonal slump in prices that is seen as we fill orders for post-holiday needs. The seasonal rebound in wholesale beef, normally seen in the coming days as we transition into mid-January procurement, has yet to be seen.

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 generally 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 in two weeks. Given the extreme severity of the decline already seen we hesitate to suggest seasonals will be on target this year.

February fats remain in a downtrend on the chart. New lows were made for this downtrend today. The day's close near the lows suggests confidence. February 2024 live cattle futures have cleared out all gains made during 2023. They are at their lowest point since 10/18/22. Bulls have plenty to discuss for upside IF a low can be posted. So far, that's not in the cards. You've got a minor upside intraday gap from the 11/22 close at 175.27. Two daily chart gaps are way up there at 184.70 - 184.90 then 186.65 - 187.52. Higher than that are two intraday gaps, 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. We did not mention in yesterday's comment on the seasonal that 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. IF/WHEN we do hit a low in the coming days/weeks you want to be onboard the May or August contracts.

The feeder cattle chart still remains in a significant downtrend. January came within 10 cents of its prior low. It did post a new lowest close. Deferreds pushed to new downtrend lows. Bulls would like to have a discussion about upside gaps on the chart. For now that is not in the cards. The daily shows one at 242.37 - 242.65. Intraday charts show unfilled closes from 10/18 at 250.90 and contract high's 9/15 close at 268.32.

Summary: Catching a falling knife, buying a runaway bear market, is generally not a good plan. New lows for this general downtrend were noted again in fats and deferred feeder futures. It would be valid to suggest the first part of this downtrend was made from revised views of first half 2024 beef production. Much of this second half is from concerns over demand via a recession. How much of this is the normal seasonal bear market in early December is a question. We would hesitate to suggest the seasonal of a bull market 12/9 to 1/1 with come with normal extreme strength. For now, bears remain firmly in control. We would expect that to remain this week. We'll see if the seasonal bottom shows up on time late this week/early next. As discussed before, it is the random extreme moves that clean out accounts. Please have a risk in place for all speculative trades...Rich Nelson

Trade Recommendation:

(11/27) Stand aside.

Hogs

Hog futures are exploring lower prices but not finding much volume. Given we are not yet seeing a clear bottom for the seasonal cash market break we cannot say futures have to rally just yet.

Late yesterday the nation's largest hog producer and largest hog processor, Smithfield Foods, announced it would end relationships with 26 hog farms in Utah. These grow-out facilities generally supplied their closed California hog plant. However, given their prior announcement of Missouri breeding herd liquidation this is simply a state of the industry issue.

Tonight's chart shows hog production margins assuming all 2024 lean hog futures, corn futures and soymeal futures are all hedged out at current prices. A $23 per head loss would be next to the $26 per head loss for 2023. The two years of 2023 and 2024 combined would have a per head loss of $24.56 on average. This is next to the 2008/2009 loss of $24.84 head and over the 1998/199 loss of $21.98 per head. Considering the current situation, which we admit is a bit pressured given we are at seasonal price lows, the current state of breeding herd liquidation is quite small.

Cash hogs were -0.03 Monday and -0.29 Tuesday. The Lean Hog Index is 69.43. LHZ expires in seven days. At today's 67.55 settlement it is pricing in -1.88 in further losses ahead, -0.27 per day. We don't have a seasonal cash hog low for the year yet. Futures are suggesting it is nearing.

Cash pork was up Monday and Tuesday by +0.88 and +0.24.  Today's morning report was +0.63. We are not calling a seasonal low in pork yet but the lack of consistent declines in recent days is one positive point.

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.

Lean hog futures filled the upside gap last week and tested the 50% retracement mark at 71.80 via the February. It failed to break that 50% point though and is now trying to see if there is interest at lower prices, 68 - 70. For now, this lower price range is not showing much volume (interest). There are now four open upside gaps on the intraday chart. We see 70.80 from the 12/4 close, 75.05 from 11/20, 78.60 from 9/28 and 80.90 from 9/20.

Summary: The Smithfield news is positive for the long term but these are not breeding facilities, only grow-outs from our understanding. But it is a positive sign for an industry that has seen light breeding herd liquidation offset by gains in pigs per litter. There is no positive news that we can hold onto and suggest the bear move is over. Seasonal pressure is still ahead for cash markets. The only argument is that futures are simply too low. February is holding a discount to last year's unnaturally low February. It is also a sharp -23% from the last normal February trade from 2022. We still estimate a $72 expiration for the December but that is not a high confidence claim. 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 1.80.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 1.80.