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December live cattle posted a new highest close for this uptrend. Beef continues to move higher. Packer kill cuts may be starting to change. GDP for Q3 is out on Thursday.
McDonald's on Sunday officially ruled out beef as a concern in its recent e-coli findings.
The Bureau of Economic Analysis will release its first estimate for the completed US Q3 Gross Domestic Product on Thursday. Q1 was estimated at +1.4% year over year. Q2 was better than expected at +3.0%. This will help influence planned interest rate cuts by the Fed as well as US dollar values.
Friday's monthly Cattle on Feed report was lightly bearish. The feedlot survey found September inflows, placements, -1.9% from one year ago. The trade estimate was -4.0% (ALDL -2.8%). These numbers determine a part of March - July offered fed cattle supplies. This lightly lower placement also fits in with prior months. January - September placements have so far run -1.9%. This group determines Q4 through a part of Q2 feedlot offerings. Essentially, we're set for a continued smooth and measured supply decline ahead.
Every three months the Cattle on Feed report also gives us a breakdown of the feedlot by class. Heifers were counted at 39.7% of the feedlot on October 1. That is the third largest percentage in over 15 years. There is no real heifer retention. The US breeding herd has stabilized for now.
There were two weeks of clear packer-led cutbacks to the kill, -5.0% from prior year then -4.7%. Last week may have marked a change, back to a more normal -1.8%.
Including today's +2.37 morning report, choice beef pushed to a new high for this 22 day uptrend. Beef is +6% vs. last year.
Cash cattle trade this week was a win last week. The South sold at $190. The prior week was $188. The South is now retesting the $190-$192 cash cattle high trades for the year in late June/early July. Nebraska sold at $190 live and $299 dressed. That was over last week's $188/$296. Nebraska still has a bit to go to retest its highs for the year, $198/$199 and $314. Cash cattle is priced +3% vs. last year.
Futures have removed much of their prior concerns over future declines in beef demand. They now suggest cash cattle will run $188/$189 through early next year. Those implied 2025 cash cattle prices would be +3% to +4% year/year.
USDA sees 2024 beef production at 27.000 billion. They now have 2024 production minimally over 2023. For this Q4 we are in now they see 6.900 billion, +1.3% year/year. The bullish 2025 has been reigned in a bit, but is still there. At 25.925 they are at -4.0%. Per capita supply offered that is the main price driver for beef and cattle prices. This measurement is now only -2.9% from 2024.
December live cattle futures are in an uptrend. A new highest close was made today. The next major test for bulls is to take out the highs from July, 189.47 from 7/29 and 190.07 from 7/5. Additionally, the next upside intraday gap is at the 3/21 close of 190.15. Bears do not have control of this market. However, in recent days we now have two open downside gaps that are within reach. The first is from the 10/21 close at 186.82. The second is near as well, the 10/17 close of 186.17. These could be filled without changing the trend. We hesitate to suggest the open downside gap on the intraday chart, the 9/11 close of 177.22, is realistic.
The November feeder cattle chart looks strong. The main thrust of this rally is accomplished, the obvious looking chart gaps. It must be pointed out the rally is still ongoing though. Whether it has enough strength to fill the next intraday gap, the 7/31 close of 255.12, is a question. Bears do not have pull in this market. They may be able to fill the small gap left last week at the 10/17 close of 245.75. That can be filled without changing the trend. There is another downside gap at the 9/18 close of 238.12. That may not be a realistic target…Rich Nelson
Another new high for this uptrend in futures. The trade is now expecting this week's kill to run low like the prior six. Though slaughter numbers are rising as they seasonally should, the expected year over year increase is not showing. We cannot call a top yet.
The prior six weeks saw a kill -0.7% from last year. The September Hogs & Pigs report suggested marketing numbers that will be slaughtered at this time at +3.5% year/year. USDA's current pork production estimate for Q4, +3.0%, would imply a projected kill +2.0% given current weights that are +1.0%.
With talk of a 200,000 head Saturday kill this week we're estimating the weekly total at 2.625 million That would be -1.5% from last year. We'll have seven weeks of confirmed smaller than expected supply.
Cash hogs have posted light gains for four weeks. Last week's trade was +1.14. The Lean Hog Index is 85.55.
December futures pushed to a new high today. With no break in cash hogs that is normally seen at this time, futures continue to reign in their normal belief of lower cash hogs into December. December futures are now holding an implied discount from current cash of only $5. The bull argument, which so far is valid right now, is that if cash is not falling then why not further reduce its discount?
Wholesale pork has posted gains for three weeks. Last week's trade was +2.35. Current prices are +15% year/year.
Sow culling has stepped back a bit, -12% year/year in the past four weeks. The two year light liquidation of the breeding herd is on pause.
USDA sees 2024 pork production at 27.948 billion lbs. This is +2.4% from 2023. For this Q4 they see 7.365 billion, +3.0% from 2023. For 2025 USDA is at 28.515 billion, +2.0%. The measurement that determines price, pork offered to the US consumer after net exports and stocks are removed, is +1.0% from 2024.
The seasonal for futures is different than cash markets. Futures spend their time pricing in the coming low price environment set for winter. However, they typically over-estimate the coming cash price decline. The seasonal low for October, December and February futures is August 24. October typically rallies into its expiration. December futures typically post a minor rally to September 15, break to October 3 then one last rally to peak on October 16. February posts a similar convoluted rally until November 20. We would suggest the current major low from July 10 for October, July 15 for December, is THE major low.
On the chart, December lean hog futures remain in an uptrend. A new high was noted. Bears have not had control of this market for three months. There one target for bears that we thought could be viable, the 9/17 close of 72.17. That is now in question. We do not see a chance at the last downside gap, the 7/15 close of 62.57...Rich Nelson