Hogs recover well from new contract lows. Cash market still need stability.

Livestock

Fed cattle futures have done quite well this week considering choice beef is -12.74 over just 2 ½ days.

Weekly weight data covering the third week of December, through 12/23, was released today. Dressed steer weights increased by 1 lb. in this week to 942. Heifers fell 6 lbs. from the prior week to 848. Our focus given the seasonal nature of finishing weights is not the week to week change but the comparison to last year. By that metric, given that weights should be sharply falling at this time, this data is bearish. Steers increased from +14 lbs. from last year in the second week of December to now +22. Heifers only fell from +8 lbs. to now +4. On a percentage vs. last year basis weights overall increased from +1.3% to now +1.7%. As a small heads up this weight data is for the period directly before Nebraska's moderate snow storm. Having said that, we don't expect a major drop in US weights from that system. Weights are only a minor factor is this general bear market.

The prior three days of wholesale beef trading have been a problem for the cattle market. -1.57, then -5.37 then -6.31 have pushed choice beef prices to a new low for this downtrend in place since June. For those of us who expect to see stability and higher prices for cash cattle this is a thorn in our side. Today's morning report was another -1.06.

Can cash cattle trade higher when wholesale beef is falling like a rock? Yes. We have seen this numerous times through the years. However, it certainly is not the best sign. For now, we'll say cash cattle will gain. We've seen the North move at $175 live and $275 dressed. Last week traded $172 live and $273 dressed. The South is still quiet. Last week saw trades at $172.

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.

The chart for February fats is lightly positive. The main downtrend line in this market has been broken. Futures are now neutral. Bears may have a small argument here as we still have an intraday gap open to the 12/29 close at 168.50. That may need to be filled before higher trade is accepted. We do not expect the much lower open gap, the 12/7 close at 162.52, to be filled. Bulls note a minor upside intraday gap from the 11/22 close at 175.27, 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 had already broken its downtrend lines and is considered neutral. 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. They may feel a little better about discussing these due to recent positive trade. 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.

Sumary: The good news is futures, cash cattle, are so far not panicking about this terrible boxed beef action recently. The negative news is it keeps us from getting bullish in thins highly discounted market. We consider ourselves bulls here but only expect a limited rally to the 50% retracement mark, 179.50 on the February live cattle contract. 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 0.77.

Hogs

There was no real change in fundamentals reported from Wednesday to today to justify a $2 to $4 in futures today. Cash hogs only have two days of gains under their belt. This market is trying to recover from new downtrend lows posted yesterday.

Dressed barrow/gilt weights fell 1 lb. in this week to 213. Compared with last year weights increased from -1 to now even with last year.

Cash hogs were +0.18 on Wednesday. Tuesday's trade was +0.99. The LHI lightly improves to 65.86.

If we are going to speculate about a potential cash hog low around $65 then a reasonable six week rally to February 14 would suggest something in the $68 - $71 range for February futures.

Cash pork on Wednesday was only off the current 12/21 lows by 1.43. Today's morning report was +2.15.

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.

Charts on futures remain bearish. New lows for this long term downtrend were made again yesterday. Today rally, back to last week's pricing, was good to see. Bulls can point out that all needed downside chart points have now been filled. Bears could argue though that this multi-month downtrend has been nothing but new lows then a mild rebound rinse and repeat. Is this THE low or another false start? Bull points to monitor are currently on hold. They are the intraday gap to the 12/22 close at 71.35. 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.

Summary: We won't complain about higher futures but will note it did not come with any solid backing. Cash hogs only have two days of gains. Cash pork is still near the recent lows. Yes, this seasonally is a time when a low "should" be made. 2024 futures prices are at levels that “should” be considered a value. But those are not reasons to buy futures with both hands. We're still waiting for a seasonal low in cash markets which should have been weeks ago. Please use a risk order for all speculative trades...Rich Nelson

Working Trades:

(11/15) Sold February 66 hog put 1.90, risk 3.80, objective 0. Closed 1.10.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 1.10.