Hogs end December without a cash hog low.

Livestock

Fed cattle futures ended the week with almost no price change from last Friday. Feeders posted a minor gain. Cash cattle pricing was better for a second week in a row. Part of this may have been the Northern Plains snows. Cash beef fell however.

USDA estimated this week's cattle kill at 508,000 head. This was -5.0% from last year in the same week.

Beef export sales were reported at 2,138 tonnes for 2023 delivery and 11,602 for 2024. YTD sales for 2023 are -17% from last year. USDA’s whole-year goal is -14%. Bookings for 2024 are positive so far at +15%.

We noted a little concern with yesterday's morning wholesale beef report. The -4.85 hit for choice was a surprise. That was later corrected to only -0.20. As of Thursday afternoon choice is only +3.27 from that low posted 12/8. Today's morning report was -2.41.

Cash cattle posted a second week of higher trade. Both the South and North moved live at $172. That was up $1 to $2. Dressed sales in the North, $273, were over last week's $270/$271.

Though many would suggest this slide in pricing is now over, futures are still quite a bit wary. We hit a cash cattle low of $169 two weeks ago in the South. Trade was active this week at $172. Futures are pricing in cash still falling to $167 by February, then $171/$172 for April through June.

Compared with last year dressed steers are now +14 lbs. Dressed heifers are +8. General cattle slaughter has recently run -5.0% from last year. Higher weights are returning back +1.3% of that.

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 171. 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 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 1.70.

Hogs

Hogs started the week with pressure from Hogs & Pigs/Cold Storage. The week ended with traders still not yet seeing a seasonal price low. The seasonal low has been a discussion for cash hog prices for a month now.

USDA estimated this week's hog kill at 2.233 million head. This was +1.6% from last year in the same week.

Pork export sales were reported at 23,825 tonnes for 2023 delivery and 24,037 for 2024. 2023 sales total +10% vs. last year. That is over USDA's +6% goal. For 2024 bookings are +30%.

Cash hogs on Thursday were +0.28. The two day Lean Hog Index, the measure of cash hog prices that futures are settled against, falls to a new low for this long seasonal downtrend of 65.35. Without a clear cash hog low February futures, a measure of the LHI as of February 14, is not wanting too much premium. Today's February settlement was 67.97.

Cash pork also continues to look for a seasonal low. Through Thursday wholesale values were only +1.26 from the current low posted on 11/21. Today's morning report was quite strong at +2.93. Normally we would caution on the morning reports but this time it was not the volatile pork belly segment that pushed prices higher.

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 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 narrative 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. We are also now monitoring a possibile 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 1.45.

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