Hogs & Pigs on Friday may not show much liquidation.

Livestock

Though the stock market made another new high for this uptrend the cattle market is noting wholesale beef continues to struggle. There is no real confirmation of stepped up retail interest yet for later January needs.

Wholesale beef prices continue to struggle. The current low for choice is 288.01 from 12/8. As of Monday afternoon's 288.93 price choice was only +0.92 off the current low. Today's morning report was +0.02. The trade would feel much better about this rebound if boxed beef were on board.

Last week's cash cattle trades averaged $170 in the South. Six weeks ago it was $185. In the North $168/$169 was noted on a live basis and $267/$268 dressed. Six weeks ago these prices were $185 and $292 respectively.

Futures currently imply Southern cash will fall to $168 this month, $167 in Q1 the lightly bounce to $172 in the spring.

The next monthly Cattle on Feed report will be out Friday afternoon. It should start a general changed pattern. Six recent months of placements were +0.7% year/year. In a period of continuous year over year declines in offered calf crops this means we'll revert back to below last year placements in the months ahead. This next placement wave determines 2nd half 2024 fed cattle supply. The Urner Barry poll of 10 analysts sees November placements -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 matched with offered fed cattle supply with a trade estimate -6.8% (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. That is seen rising from +1.7% as of November 1 to +2.2% (ALDL +2.4%) as of December 1.

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. There has been one day with a close over the top end amount.

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 to 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.

March Feeder Cattle Futures 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 looks a little better than fats. The short term downtrend line was broken last week. The general downtrend line was broken on Monday. This market may need a setback to fill the intraday gap to the 12/15 close, 222.17. There is also one at the 12/13 close of 217.85 then a third down there at the 12/7 close, 211.17. Though this market is breaking downtrend lines with higher trade it is not doing it cleanly. 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:

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

Hogs

This market has not seen a clear bottom for cash markets just yet. Futures have rebounded to the 50% retracement at 71.80 but no further. Friday's quarterly Hogs & Pigs report may not show the liquidation that is needed.

Cash hogs have not yet posted a solid seasonal low. Losses of -0.05 to -1.11 were noted Wed - Fri of last week. They were +0.25 on Monday. The Lean Hog Index falls to 66.37.

Cash pork has a low from 12/6 at 83.20 for the carcass composite cutout. It bounced around for a few days but as of Monday afternoon's 83.97 price it was only off the prior low of -0.77. Today's morning report, albeit unreliable, was -1.03. That would be a new low for the general downtrend if it holds to the afternoon revision.

Urner Barry, an information source for the meat industry, released results of its five analyst poll for Friday's 2 pm Hogs & Pigs report. There appears to be a general consensus for this report. December 1 All Hogs, both the marketing herd and breeding herd, was estimated at -0.4% from one year ago (ALDL -0.6%). This is a light decline from the prior September 1 number at -0.3%.

Kept for Marketings as of December 1 are estimated -0.4% from one year ago (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, is seek +0.9% for +180 lbs., +0.2% for 120 - 179 lbs, -0.8% for 50 - 119 lbs. and -1.2% for under 50 lbs. This range of estimates would suggest an optimistic change for the current hog slaughter. Over the most recent four weeks it has run +2.8% year/year.

Kept for Breeding as of December 1 are estimated -1.3% from one year ago (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 the expectation is -4.7% (ALDL -5.1%), -2.2% ALDL (-1.5%) and -1.4% (ALDL -2.1%). There is light breeding herd liquidation and an expectation for further light declines ahead. But we are not out of the woods here. You may remember the prior two quarters of pigs/litter showed big gains at +3.3% and +4.2%? The trade expectation for this reported September - November period is +3.1% (ALDL +2.8%). The narrative for this report is light liquidation offset by increasing 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. Prices 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. Two of the easily attainable upside gaps have now been filled. Bulls had two very strong days but are having trouble getting past 50% retracement at 71.80 the February. There is also one downside gap on the intraday chart, 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 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 1.17.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 1.17.