New lowest close for cattle. Second lowest close for hogs

Livestock

New downtrend lows were made again for December and February live cattle and March and beyond feeders. New lowest closes were made for almost all fats and feeders. Weights are growing, beef exports are weak and a new low was made for wholesale beef.

Yesterday's -3.19 afternoon wholesale beef report showed a new low for this break since June. Today's morning report was -1.94 past that.

The Thursday morning Actual Slaughter report is monitored for weight data from two weeks ago. Dressed steer weights increased 4 lbs. from the prior week to now 940. Dressed heifers were unchanged from the prior week at 854. Compared with last year, as weights should begin a decrease, steer weights grew from +6 to +13. Heifer weights grew from +1 to +4 on a year over year basis. Higher than expected weights have zero to do with this long term slide. Slaugher is -6% from last year and weights are taking 1% of that back. This is simply another negative data point.

Weekly export sales were negative for beef. A minimal 154 tonnes of beef was sold to all countries last week. This was -90% from last year. Year to date sales are -18% from last year. USDA’s whole-year goal is -14%.

$171 cash trades in the South have been noted again. The prior week's trade was $174/$175. Nebraska $170/$171 trades live and $269/$270 dressed. Last week's Nebraska live trade was $174/$175 live and $274/$275 dressed.

CME Group live cattle futures suggest Southern cash will see $162 later this month, $161 in Q1 and $165 in Q2.

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.

February fats remain in a downtrend on the chart. New lows were made for this downtrend today. The day's close near the lows suggests confidence. February 2024 live cattle futures have cleared out all gains made during 2023. They are at their lowest point since 10/18/22. Bulls have plenty to discuss for upside IF a low can be posted. So far, that's not in the cards. You've got a minor upside intraday gap from the 11/22 close at 175.27. Two daily chart gaps are 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. January came within 10 cents of its prior low. It did post a new lowest close. Deferreds pushed to new downtrend lows. Bulls would like to have a discussion about upside gaps on the chart. For now that is not in the cards. The daily 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: This remains a runaway bear market. The two issues to stop this remain both timing (procurement past the two weeks of post-holiday demand slumps) and price. From a trading perspective catching a falling knife, buying a runaway bear market, is generally not a good plan. It would be valid to suggest the first part of this downtrend was made from revised views of first half 2024 beef production. Much of this second half is from concerns over demand via a recession. How much of this is the normal seasonal bear market in early December is a question. We would hesitate to suggest the seasonal of a bull market 12/9 to 1/1 with come with normal extreme strength. For now, bears remain firmly in control. We would expect that to remain this week. We'll see if the seasonal bottom shows up on time late this week/early next. 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

Another gap lower trade on futures was noted. Though it was not a new low for the long term downtrend it is back to the second lowest close. Cash markets have yet to see a long term bottom. Profitability concerns remain in place for producers.

Dressed barrow/gilt weights increased 2 lbs. from the prior week to now 214. Compared with last year they grew from -2 lbs. to now even.

Weekly pork exports were okay. 25,944 tonnes of pork was sold last week for export. This was over last year's net cancellation of -7,919. Year to date sales are +11%. USDA’s goal for the year is +7%.

On Tuesday the nation's largest hog producer and largest hog processor, Smithfield Foods, announced it would end relationships with 26 hog farms in Utah. These grow-out facilities generally supplied their closed California hog plant. However, given their prior announcement of Missouri breeding herd liquidation this is simply a state of the industry issue.

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 -0.33 yesterday. The Lean Hog Index is 69.43. LHZ expires in six days. At today's 67.55 settlement it is pricing in -1.57 in further losses ahead, -0.26 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 yesterday. Today's morning report was another -0.57.

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. After a failure minor rebound last week prices are back to the second lowest close of this downtrend. Bulls do not yet have a strong argument on chart. They do have a lot of what-ifs. Today's gap lower trade left yet another intraday open gap to yesterday's 12/6 close of 69.30 on the February. A similar gap was noted on the 12/4 close at 70.80 this week. There are now five separate intraday gaps on this chart at higher prices. The others, at higher prices, are 75.05 from 11/20, 78.60 from 9/28 and 80.90 from 9/20. If we see another spike low trade that gets rejected by the close you could argue for a move to fill the first two.

Summary: There are quite a view valid bearish stories that pushed prices here. 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 2.35.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 2.35.