Livestock hope for seasonal price lows soon.

Livestock

New downtrend lows were made this week. Today's rally, based on the jobs report, looks good on a quote machine but the week as a whole is still ending lower. Wholesale beef had a very tough week. Traders are eyeing this well-known seasonal set for next week.

USDA's monthly supply/demand report also holds meat tables. For beef they left their 26.932 billion lb. 2023 production estimate unchanged. This is -4.8% from last year. Their 2024 view was upped by 180 million to 25.990 billion. They are still calling for decline next year, but a more muted one of -3.5%. Allendale this week at the AgLeaders Conference update suggested 25.911, -3.8%.

USDA estimated the week's cattle kill at 635,000 head. That was near our morning 641,000 view. This week would be only -2.1% from last year. The prior six weeks ran -5.7%. US beef production will still decline in 2024. But the exciting -6% year over year kill reductions from prior weeks will begin to narrow a little. As a reminder, USDA has Q1 beef production -2.4% from Q1 2023. It won't be until the second half of 2024, as we process these recent placements, that production returns back to exciting declines.

The Department of Labor's employment report was released today. November non-farm payrolls grew by 199,000 in November. That was near the 180,000 trade expectation. Last month's October estimate was left unchanged at 150,000. Last month's September estimate, 297,000, was moderately lowered to 262,000. The general unemployment rate slipped from 3.9% in October to 3.7% in November. The trade expectation was no change at 3.9%. This report was positive for beef. The trade has been concerned about lower economic activity here in Q4 as well as the first two quarters of 2023. Along with that were concerns about jobs. So far, the job story is not as bad as feared. For beef, the premium priced protein, this is important.

Wholesale beef has not stopped its decline. From the June peak to Thursday afternoon choice is -53.25. Another -1.22 was posted this morning. That would put the week's loss at a stout -8.84.

This week's live trade is the South will run $171/$172. The prior week's trade was $174/$175. Nebraska has sold anywhere from $168 - $171 this week and mostly $270 dressed. Last week's Nebraska live trade was $174/$175 live and $274/$275 dressed.

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 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 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. Today's +$3 futures trade looks good for a quote but new lows for this downtrend were just made yesterday. In addition, we have the same concern from a chart perspective as the failed rally from 11/27. Fat cattle gapped higher today and left an intraday gap to the 12/7 close of 162.52. It would be considered unfinished business. For those looking for a sign of a bottome from a chart perspective, this is not it. Near term resistance from our current downtrend line is at 168.65 for Monday. 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 175.27. There are two daily chart gaps 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. As with the fat cattle chart, today left a gap to the 12/7 close on the January at 210.27. For those looking for a chart based sign of a bottom, this would be considered unfinished business. The near term downtrend line would suggest resistance on Monday at 219.25. If/when there is a low there are gaps at higher prices. The daily chart 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: Today's employment report was lightly positive. Also, we are all strongly focused (wishing) that the strong rally on the seasonal charts holds true. For both fats and feeders it runs December 9 - January 1. As end users are procuring beef a few weeks ahead we are now in the post-holiday low demand/paying bills seasonal slump. Normally, you get into mid-January procurement that starts next week you get a good rebound. Given this year's large demand questions this seasonal rally is viewed with a little skepticism. Let's monitor this tough wholesale beef market next week. 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

Between cattle and hogs we would rather bet on a general low for hogs first. Wholesale pork through Thursday was only -0.18. Today's morning report was oddly strong. Today's futures trade posted an Outside Day that closed higher.

USDA's monthly supply/demand report also holds meat tables. For pork they added a light 25 million lbs. to their 2023 production estimate. Now at 27.242 billion they have this year at a +0.9% increase over 2022. There was no change in their 2024 view at 27.730 billion. That estimate is +2.7% from 2023. This number is a bit controversial. There is light breeding herd liquidation but they suggest pigs/litter gains more than offset that. The coming 12/22 quarterly Hogs & Pigs report will clarify these numbers. By contrast Allendale's updated 2024 view, released in Thursday's AgLeaders Conference update, suggested +0.1% at 27.037.

This week's hog kill was estimated by USDA at 2.687. That was just over our 2.679 view from this morning. The week's kill will run +4.2% from last year. The prior six weeks are +2.6%. This is an interesting issue here. Kills Sept 1 to current are +2.2% from last year. That Kept for Marketing estimate on the Sep H&P report was +0.4%.

A producer hedging out hogs and feed this week, using appropriate futures and normal basis levels, would lock in a $23 per head loss for 2024. That 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 -0.39 yesterday. The Lean Hog Index is 68.76. LHZ expires in five days. At today's 68.42 settlement it is pricing in -0.34 in further losses ahead, -0.07 per day. We don't have a seasonal cash hog low for the year yet. Futures are suggesting it is nearing.

Cash pork pushed to new lows for this downtrend since summer on Wednesday. Thursday was +0.17. Today's morning report was a surprise at +3.03. What was interest was not just the gain but that it did not come from the erratic pork belly trade.

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. The current major low was posted 11/28. Today's light rebound was enough to fill the first of the minor upside gaps. That was to 69.30 on the February. A similar gap is at the 12/4 close at 70.80. There are four separate intraday gaps on this chart at higher prices. The others are 75.05 from 11/20, 78.60 from 9/28 and 80.90 from 9/20.

Summary: December futures are interesting. Cash hogs posted mild losses each day this week but futures say next week will only run -0.07 per day. Bulls don't have something solid to hold onto yet. The first short term positive news would come from some type of seasonal low established in the coming days. Past that the trade will look for hope in the coming 12/22 quarterly Hogs & Pigs report for signs of more serious liquidation or a letup in recent strong pigs/litter increases. 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 1.90.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 1.90.