A Roaring Bull Market In This Commodity?

| November 1, 2013 | 0 Comments

cattleIt’s unfortunate.  You really don’t hear a whole lot about the livestock market in the mainstream financial media.  Most business channels focus solely on gold, oil, and other major commodities.

Too bad…

While investors are scraping for profits in those widely watched assets, cattle market investors are the ones having all the fun.  In case you haven’t noticed, the live and feeder cattle markets are experiencing history making rallies.

In fact, feeder cattle futures recently set an all-time record high…

But before I tell you what’s sending the price of cattle over the moon, let me back up for a minute. 

The summers of 2011 and 2012 were utter (pun intended) disasters for ranchers in many parts of the Western US.  A brutal drought baked the plains of Texas, Oklahoma, New Mexico, and Kansas. 

As a result, cattle went starving as the grass withered beneath their feet.

It was a tough situation.  Ranchers responded the only way they could.  Many liquidated their herds, as they simply couldn’t afford to feed them.  After all, the price of hay had skyrocketed due to the dry conditions enveloping the Western US.

And that brings us back to today…

The massive culling from years past is finally catching up with the cattle market.  US feedlot numbers are exceptionally weak thanks to the lack of cattle running through Midwest feeding operations.

Numbers are so low that industry experts see this year’s US calf crop as the smallest in the past 60 years. 

Of course, the law of supply and demand states that when supplies diminish while demand remains strong- prices must go up.

But low supply isn’t the only thing herding cattle to record highs…

This year’s enormous downdraft in corn prices is having a beneficial effect as well.  As you many know, corn is the cattle feed of choice in US feedlots.  And with this overhead cost dropping quickly, it allows for feedlot owners to purchase more cattle- thus increasing demand.

The problem is, there aren’t enough cattle to go around.  Which is precisely why prices are rising so quickly.

And listen to this…

The supply shortage is expected to get worse before it gets better.  In fact, many Ag industry experts suggest the US cattle market won’t reach its tightest point until sometime in 2015. 

That means we’re likely on the verge of an extended run-up in the price of live and feeder cattle.

How can you capitalize on this situation?

Unfortunately, few options exist when it comes to investing in livestock ETFs. 

The only products currently available are the E-Tracs UBS Bloomberg CMCI Livestock ETN (UBC) and the iPath Pure Beta Livestock ETN (LSTK).   And keep in mind, both these ETNs are partially weighted in lean hog futures.  In other words, they’re not a pure play on rising cattle prices.

And most importantly, be aware that both these ETNs are thinly traded.  As a result, extreme caution must be used when buying and selling.

Until Next Time,

Justin Bennett

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Category: Feeder Cattle, Livestock

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.