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Livestock
New downtrend lows were made for fats and feeders, and with confidence. We are still a few days away from a traditional seasonal low point though. Additional concern remains with consumer pushback from high food costs.
Last week's cash trade was $177 in the South and $176 in the North on a live basis. Dressed sales of $278/$279 were noted.
Futures imply a sharp drop to $168 cash for the South in three weeks time?
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 generally 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.
The live cattle futures chart remains bearish. New lows for this sharp and significant downtrend were made again today. On a chart basis we cannot call a low. Today's bear trade was done with confidence and a close near the day's low. We did fill the downside intraday gap to the 3/24 close of 168.92 today but cannot call a low. Upside targets on the charts are not in the discussion at this time. There are upside open chart gaps but those are off the table at this time.
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 a rally to January 1 the bear move restarts until lows in March. This year the significant peak was on September 15.
The feeder cattle chart still remains in a significant downtrend. New lows were made today, with clear confidence. We filled a few more open downside gaps today. Technically, to be fair, since there was little interest in trading far out extended futures back in February earlier this year there are many gaps that could be filled on the downside still ahead. For now a discussion about filling existing upside gaps or breaking out of this downtrend are off the table.
Summary: The consumer demand story is just fine for now but the size of the decline ahead implied by futures is a bit excessive. We cannot suggest it is time to buy live cattle futures though. The downtrend is strong and in-place. The feeder side, where there are clear supply declines that will show before fats in the coming months, look worse than fats. As discussed before, it is the random days like this that clean out accounts. Please have a risk in place for all speculative trades...Rich Nelson
Trade Recommendation:
(11/27) Stand aside.
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Hogs
New lows for the downtrend were made again today. A close near the day's low shows clear bearish confidence. The trade remains concerned about seasonal heavy supplies, Chinese prices, a swine flu transmission to a human in the UK and US consumer financial health.
Cash hogs are still in their seasonal downtrend. Friday's trade as -1.41 which helped push the Lean Hog Index to 72.33. December CME lean hog futures, which settle to the LHI on December 14, have 14 business days left. The current LHZ futures price, 67.87, implies a -6.03 trade over this time. Futures imply cash hogs will decline -0.40 per day to 12/14.
Cash pork was oddly higher, +4.58 on today's afternoon report. We would not suggest this represents a major winter low yet.
Chinese hog futures fell 5.9% in today's trade. The market is concerned that hog producers will step up liquidation efforts due to low prices. There has been a moderate tie between Chinese and US prices in recent months. Some of this is normal seasonal factors for both.
The UK reported a rare human transmission of swine flu. There were millions such cases back in the big swine flu year of 2009.
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.
On the chart lean hog futures remain in a sharp downtrend. New lows were posted today. We're stuck with a bear market that shows confidence. A large amount of upside gaps have been left on this ugly chart. For now, that discussion is off the table.
Summary: Much of this break is seasonal. You could argue it has been quite exaggerated though with a few heavy factors that are more psychological than anything. Though we feel this market is undervalued we cannot step in with high confidence at this time. Please use a risk order in place if you are trading this market...Rich Nelson
Closed Trade:
(10/24) Sold December 62 hog put 0.80, exited 11/27 on open at 0.12 for +$270.
Working Trade:
(11/15) Sold February 66 hog put 1.90, risk 3.80, objective 0. Closed 3.25.