Hogs reverse, four days ago new lows. Today, six week highs.

Livestock

Mixed trade was noted for the cattle complex, fats a little higher and feeders a little lower. Though the snows have provided psychological support the trade is wary of suggesting they are a game changer.

Snow storms are normally a bullish issue for cash and futures. During each winter we usually have two or three events which give the trade a quick rally. There are two impacts driving higher prices. The first is a bit fickle, marketing delays from feedlot to packing plant. The issue here is both road worthiness for transporting finished cattle and as employees getting to plants. Short term marketing issues give a small bounce. If it is a small storm, limited in geography and the rest of the week clears up this is normally a short term issue only. The real rally discussion is if it is severe enough to knock back finishing weights. Based on the fact we already had big weights over last year, this is a regional storm and the Plains are not forecast for a second round soon we're going to lightly minimize the importance of this week's activity. Though temperatures will fall sharply into Sunday we don't have a rain/heavy snow event in front of it to really make it a bull story.

The week before Christmas steers were dressing out +22 lbs. from last year, heifers +4.

Monday's 126,000 head cattle kill estimate from USDA was revised to 94,000 today. Today's slaughter estimate was seen at 104,000. Though we do recognize the snows, more of a Nebraska feedlot issue than Kansas, did impact slaughter numbers the fact that the remainder of the week clears up would suggest these shortfalls could be made up.

Wholesale beef pricing has been a problem for the cattle complex. While many of us are looking for a rebound of some type for cash cattle and live cattle futures, the continued declines in beef have reigned in bullish hopes. Last week's four day week was terrible with losses of -12.55. Monday's trade was +1.67 for choice. This morning was +1.96.

Last week Texas traded few cattle. Prices were $172/$173. Kansas traded mostly $174 with some $173's. Three weeks ago both were at $170. Last week Nebraska saw mostly $174 with some $173's on a live basis. Dressed traded at $295. Three weeks ago they were at $169/$270.

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.

Though the chart for February live cattle futures did show lower trade initially today we did not get to that downside intraday gap at the 12/29 close at 168.50. Today's trade came within 0.75 of it. We do not expect the much lower open gap, the 12/7 close at 162.52, to be filled. Bears still have a good chance at the first gap though. Monday's spike high start, which was a new high for this light uptrend, was rejected by the close. Bulls are slowly getting control of this market. They see 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.

Oklahoma City, which operates a closely followed Monday sale barn trade, restarted after two weeks of holiday related inactivity. Yesterday's trades were -$5 to -$8 for feeders and -$2 to -$5 for calves. We would suggest a good portion of this was likely a little buyer reluctance as many had an eye on the weather forecast. Though prices have dropped a bit more than normal since the seasonal peak weeks ago, let's point out cash feeders are still holding a 25% premium over last year in the same week. Calves are running 37% over last year.

The feeder cattle chart is in a light uptrend. Bears still have some valid short term arguments. There is the intraday gap at the 1/5 close at 224.15 then two others, the 12/13 close of 217.85 and the 12/7 close, 211.17. We would expect the first of those gaps to be filled. 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.

Summary: Though the snow has been a lightly positive story we don't have confidence in saying it changes much. If we had a second round directly ahead of this weekend's cold temperatures we would be more excited. That leaves us wondering if there is one last minor break to fill the intraday gap under our feet. We are bulls and suggest prices “should” be able to recover 50% of the big downtrend, 179.50 on the February live cattle contract. But this struggling wholesale beef trade is a valid counterpoint for now. 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 0.50.

Hogs

Futures soared today with better confidence that the worst of winter supplies may be behind us. Wholesale pork prices have stabilized. Cash hogs may have started to stabilize. Different than with cattle, weather delays will continue through the week for hog processing.

We don't have a clear v-type bottom then rally for cash hogs to discuss. What we can say is that the current low for the Lean Hog Index was posted at 65.05 on Friday the 29th. We have light gains in cash hogs in three of the past five days. As of Monday's cash hog trade the LHI is 65.83. This is not really a “rally”. It is simply, “…we are not making new lows”.

Though we are a little surprised about recent strength in futures we do agree with it. A $65 winter low for cash hogs should change in prices by the time February futures come due on February 14. The market's $7 premium for futures over that cash hog low is very reasonable, maybe a little better than expected.

As with cash hogs the wholesale pork story is similar. We are not exactly rallying. But at least we are not making new lows. AS of Monday the pork composite cutout was +3.67 from the current low on 12/21. Today's morning trade was +0.62.

Monday's huge 492,000 head hog kill estimate from USDA was revised to 468,000 today. Today's slaughter estimate was seen at a sharp decline to 395,000. Snows still ahead for the Eastern Cornbelt could provide further slaughter restrictions for the week still ahead.

Within 10 days the market's interest will roll from the February to the April contract.

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.

The char perspective for lean hog futures has changed. Today's spike higher trade has broken the downtrend line drawn from November and December highs. Hogs are now a neutral market. However, let's also point out today's high was the best since 11/21. Today's close was the second best since 11/20. Bulls are also correct in noting that we not only broke the downtrend line, we also filled the first upside gap and closed above it (12/22 close at 71.35). New lows for the general downtrend were posted just four days ago. Now we're at the best trade in 1 ½ months. Bulls still have many upside targets to discuss. They are the intraday gaps 75.05 from the 11/20 close, 77.02 from 11/13, 78.60 from 9/28 and 80.90 from 9/20.

Summary: The downtrend is broken. The first upside intraday gap was filled. Today's close ended above that first gap. These are positive signs. This is still not exactly a solid market for bulls but prices have returned back to “economic value”. 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 0.42.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 0.42.