New highs for the stock market. Wholesale beef still waffles.

Livestock

A higher start off the open helped this seven day rebound continue. Feeders, not fats, have broken their downtrend lines. One last sticking issue for bulls is the lack of consistent gains for wholesale beef.

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, stay there through Q1 the lightly bounce to $173 in the spring.

The trade would like confirmation of this seasonal story. Wholesale beef prices currently have a low posted on 12/8. This would seem to support that seasonal story of better procurement for the mid-January period and beyond. Last week's +3.63 rally for choice beef was good and would also seem to support the story. Today's -2.56 trade on the morning report for choice brought right back to within 1.07 of that main 12/8 low.

The stock market posted another new high for this uptrend today. We consider this a light contributing factor.

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. Allendale sees November placements -3.1% year/year. This helps determine a part of the July - October slaughter period. Marketings of finished cattle in November matched with offered fed cattle supply at about -5.5%. Feedlots do have some numbers in them. Remember, December 1 On Feed is what will be worked through in the coming months. We see that number increasing from +1.7% as of November 1 to +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. Today's 169.62 close would be suggesting something different than the prior four minor rebounds.

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. Though Friday's futures trade was positive today's was mixed. There is an open intraday gap to the 12/15 close of 169.35. There is also that one way down 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.

The Oklahoma City auction, closely followed by the trade, saw $2 to $5 higher for feeder steers and steady to $4 better for heifers today. This would be a second week of higher trade after a $49 break in cash feeders.

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 today. Today's higher trade was made with an intraday gap higher. To the 12/15 close it is down to 222.17. There is also one at the 12/13 close of 217.85 then 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

Last week's later cash hog trades were disappointing. 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.

Last week's 2.689 million head hog kill was revised down to 2.682 on today's afternoon update. That gets us closer to our 2.678 view for that week. But this is still too large at +4.0% year/year. The prior two weeks were also too large at +3.1% and +3.8%. We are at the year's peak in offered supplies. That peak in supplies has been exaggerated by larger than expected numbers recently.

Cash hogs have not yet posted a solid seasonal low. Wed/Thu/Fri prices were -1.11/-0.05/-0.85. The Lean Hog Index falls to a new downtrend low of 66.59.

Cash pork is a little better story than cash hogs. There is a current low for the carcass composite cutout, 83.20 on 12/6. Fridya's trade was 84.33. Today's morning report was higher.

China's General Administration of Customs reported November pork imports from all countries at 90,000 tonnes. This is -48% from one year ago. Their 1.46 million tonnes of Jan - Nov imports is quite low. It is -6% from last year's low import level. It is -59% from the year to date number from two years ago.

We're not anticipating a bullish Hogs & Pigs report Friday afternoon. Our estimates would suggest light liquidation but not enough to really change the general 2024 story. As you may remember the last report in September was a disappointment. Though the breeding herd did fall from -0.6% year/year on June 1 to -1.2% year/year on September 1 it was countered by those pigs per litter numbers. Individual sow productivity has surpassed expectations. Dec ‘22-Feb ’23 pigs/litter was +0.7%, Mar-May +3.3% and Jun-Aug +4.2%. For the December 1 Kept for Breeding we estimates 6.024 million head, a light dip to -1.3% year/year. Though sow slaughter will have run +2% to +5% in the completed Sep-Nov quarter we estimate more active fresh gilt replacement than needed.

Before discussing December 1 - May 28 hog kills ahead, as well as second half 2024 let's note Q1 had +3.1% year/year gains in barrow/gilt kill, Q2 +0.4% and Q3 +0.7%. Kill rates began rising in October, November and here in December as we're working through those heavy Mar-May p/l numbers. The Dec-Feb kill ahead will still hold above last year given Jun-Aug farrowings -3.7% but p/l +4.2%. The question is whether lower numbers begin to show by spring. We estimate the -5.1% farrowings set for Sep-Nov will only be partially offset by +2.8% p/l. The next two quarters of farrowings, determining second half 2024 slaughter, are seen at -1.5% and -2.1% year/year. With assumed p/l gains still ahead we'll even out the kill in the second half. The net narrative is this, so far we have not seen severe enough breeding herd liquidation to bring sustained production profitability back.

So here's the numbers, December 1 All Hogs & Pigs -0.6% year/year. The prior September 1 number was +0.3%. We see Kept for Breeding at -1.3% but Kept for Marketing at -0.5%. That Kept for Marketing number has four weight categories which project out Dec 1 - May 28 hog slaughter. We have it at +1.0% for the heavy category down to -2.1% for the lightest. We'll have above last year hog slaughter ahead for Q1, below last year for Q2 then something close to last year for Q3 and Q4.

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. 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 would feel a little better about the chart if that one downside gap to the 12/13 close, 66.72, were filled first before a rally is attempted. And speaking of rally this market has rebounded to 71.80 50% retracement. A break over this level would open up gap filling moves. There are now three upside intraday gaps for bulls to monitor. 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 0.97.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 0.97.