The week's livestock slaughter ends smaller than expected.

Livestock

Mixed trade was noted for cattle futures. USDA's revised 2024 beef numbers were disappointing. Additionally, the lack of any real Saturday make up kill was a surprise. The bullish part of the snow impact was muted a little as we already had very high finishing weights. It is now up to the weekend cold snap to reinvigorate bulls.

USDA's monthly report also includes livestock balance sheets. It held a little negative news for beef. USDA upped their 2024 beef production view by 120 million lbs. today, now 26.110 billion. They still have a decline from 2023 but it has been reduced to -3%. You may remember months ago USDA was suggesting -6%. For the four quarters they see -1.4% for Q1, -1.0% for Q2, -2.7% for Q3 and -7.6% for Q4. The first half of the year was set for more muted production declines from prior months of placements. They are suggesting muted declines will remain through summer and into early fall. The return back to severe declines may not be seen until Q4. For much of the prior two years we have had moderate disagreements with USDA's production view. This looks mostly reasonable. We would suggest Q3 just a little lower at perhaps -4% but it is not major. Along with raised 2024 production USDA also raised imports by 70 million and lowered exports by 60. They now see exports -7.6% from 2023. US beef and cattle prices are not really determined by production levels alone, but by the amount left for the US consumer. That view was raised from 56.0 lbs. per capita to 56.5. This view of “tightness of supply” is -2.7% from last year. Allendale still holds the belief the 2023 - 2026 beef production decline story is set in stone. The next 6 - 8 months of more muted production declines are a short term issue in this general multi-year supportive market.

USDA's Friday afternoon weekly kill estimate was only 549,000 head. That was much under our 596,000 morning estimate. Today's run was seen at a reduced 103,000. There was almost no Saturday makeup kill implied, only 20,000. We'll end the week with a processing shortfall of about 100,000 head.

Thursday's wholesale beef trade was +2.82. That brought the gain over the 1/4 general price low to +9.99. Today's morning report was quite positive at +3.69.

Cash cattle sales of $175 live and $272 - $275 dressed were noted in Nebraska this week. Last week this area saw mostly $174 with some $173's on a live basis. Dressed traded at $275. Three weeks ago they were at $169/$270. Limited sales in the South were reported at $172 today. Last week's pricing was $172 - $174. Three weeks ago the South bottomed at $170.

Allendale released estimates for next Friday's monthly Cattle on Feed report. As you know, May - October placements were a problem at +0.6% vs. prior year. That stopped the prior trend of clear year over year declines. We have the first half of 2024 beef supply set from those prior lightly higher placements. The trade is now wondering if/when the next change will be seen. Last month's report showed November placements -1.9% from last year. We estimate next week's report will show December at -2.5%. So we are not fully in the transition yet back to clear year over year declines. December inflows help determine a part of July - October fed cattle supplies. We expect marketings of finished cattle in December at +0.7%. With this in mind we see the prior December 1 count of all Cattle on Feed, +2.7%, declining lightly to +2.2%.

April is now the lead contract for live cattle. Open interest has rolled from the February.

The February live cattle chart shows a light uptrend. There is still a gap open down to the 12/29 close, 168.50. That is still a reasonable short term target. We do not expect the much lower open gap, the 12/7 close at 162.52, to be filled. 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.

The feeder cattle chart is in a light uptrend. Different than live cattle, today's trade pushed above the prior two weeks of sideways action. It was the highest trade since 11/24. We are also facing that first chart gap directly ahead on the upside. Upside gaps are intraday to the 11/22 close at 230.12, daily gap at 244.75 - 245.37 then intraday to the 10/18 at 253.60. We would like to fill at least the first downside gap on this chart before the bull pattern is established, the 1/5 close at 224.15. We don't expect the others to get filled, the 12/13 close of 217.85 and the 12/7 close, 211.17.

Summary: We would feel better about the bull argument if the first gap at lower prices was filled then a reversal. So far, we are still stuck within the recent range. We are general bulls and suggest prices “should” be able to recover 50% of the big downtrend, 179.50 on the February live cattle contract. 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 0.25.

Hogs

Considering USDA's view of 2024 pork production levels today, and a bigger than expected weather impact to end of week kills, today's moderate futures declines were not bad.

USDA's monthly report also includes livestock balance sheets. This is the first update on the monthly reports since USDA's quarterly Hogs & Pigs report on 12/22. As you may remember, that report confirmed light breeding herd liquidation but offset that with views of continued pigs per litter efficiency gains. In today's report USDA added 240 million bushels to their prior 2024 pork production view, now 27.970 billion. USDA is currently +2.4% vs. 2023. Allendale is slightly more muted with its production view, +1.5%. There were no changes to their 2024 import view. Exports were raised by 20 million. They now see exports +1.5% from 2023. The amount of pork offered to the US consumer was raised from 50.9 lbs. to now 51.4. This is +2.0% from 2023 and the largest supply offered, per capita, in four years. These numbers are not a big surprise after the H&P report. But it is not positive seeing them on the official long term report.

We expected hits to the hog kill this week, both from Western and Eastern Cornbelt weather, but USDA's Friday afternoon estimate of 2.279 million was a surprise. We sharply reduced our views of Friday and Saturday runs and that was nowhere near enough. USDA estimated the Friday kill at 332,000 head and Saturday of 149,000. Allendale's Friday run was estimated at only 380,000 head (normal 485,000). We will point out these Friday/Saturday numbers are estimates from USDA. They will be revised on Tuesday. For general impact this week's kill was about 400,000 head short of where it should have been due to weather.

Cash hogs were -0.27 on Thursday. The 66.48 Lean Hog Index is lightly over the current 65.05 low.

Wholesale pork was -2.12 on Thursday. That day's price was lightly, over the current 12/21 low, +3.19. Today's morning report was +2.97.

April is now the lead contract for speculative trading. Open interest has rolled over from the February.

The chart perspective for lean hog futures has changed after this week. 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 and prices have recovered back to prices last seen in November. This is still not exactly a solid market for bulls. Prices have simply returned back to economic value/where they should be. 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 0.32.

(11/30) Sold February 66 hog put 1.45, risk 3.80, objective 0. Closed 0.32.