Commodity ETF Alert November 2010 Issue

| November 8, 2010 | 0 Comments


Commodities come in many shapes and sizes.

Most people are familiar with mainstream commodities like gold and oil.  And in recent months, agricultural products such as corn, sugar, and cotton have been getting a fair amount of press.

But sometimes it’s the overlooked products which provide the best opportunities…

Take livestock for example.  You may not realize it, but livestock futures are very active and popular contracts.

Even better, they’re going to provide us with a great opportunity for profits.

So what’s the deal with livestock?

There are actually four actively traded future contracts related to livestock.  These include live cattle, feeder cattle, lean hogs, and pork bellies.

There are specific reasons to trade each of these contracts.  But for our purposes, I’m going to focus on the overall cattle and hog markets in my analysis.

Let’s take a closer look at what impacts these markets…

Livestock is a fairly complex group of commodities.  There are several factors significantly impacting both supply and demand.

Similar to the grain markets, cattle and hog supplies are heavily influenced by disease and drought.  A bad drought or spreading disease can be disastrous for livestock.

And even the grain market itself can impact livestock supply.

Corn is a major component of livestock feed.  When the price of corn goes up, the price of feed goes up.  And ranchers have to either pass along the higher price of feed to the consumer… or cut down on the number of animals they raise.

And that’s not all…

Demand is also a major driver of livestock prices.

First off, meat consumption increases with population growth.  It makes sense – more people means more mouths to feed.

What’s more, economic prosperity also leads to greater demand for meat.  People like to order a big, juicy steak when they can afford it!

Livestock demand is also seasonal. Normally, beef demand peaks in the summer during grilling season.  Meanwhile, demand for hogs typically peaks around the holidays as many holiday meals have ham on the menu.

Here’s what’s really interesting…

Right now, supply and demand are both lining up just right for livestock… and prices are poised to skyrocket.

In a nutshell, supplies of both cattle and hogs are tightening right now and demand is actually growing.  That’s always a recipe for higher prices!

So what’s the deal?

First off, livestock herds are at historically low numbers.  According to the U.S. Department of Agriculture, cattle herds are at their smallest levels since 1963. Meanwhile, in the pork industry, the number of breeding sows is at their lowest levels in a century.

And then there’s the rapidly growing demand…

Developing countries are seeing the spending power of their populace grow by leaps and bounds.  You know what that means… more meat!

Demand for meat is shooting higher in places like Brazil and China.  In fact, according to the International Food Policy Research Institute, by 2050 meat consumption in developing countries is expected to increase by 65%.  That’s a huge increase.

What’s more, demand for hogs should increase in a hurry as the holidays approach.  As I mentioned earlier, hogs generally see a seasonal increase in prices about this time of year.

And, unlike years in the past, beef prices haven’t yet peaked even though summer has already passed.  The shortage in supply is putting a floor on beef prices.  And surging global demand could mean beef has a lot higher to climb.

Here’s the bottom line…

There are really good reasons on both the supply side and the demand side to be bullish on livestock.  And I expect both hogs and cattle prices to increase in the coming weeks.

Now is a great time to invest in livestock.

There’s a supply shortage of cattle and hogs and it isn’t going to fix itself anytime soon.  It takes years to rebuild livestock herds.

Meanwhile, demand is skyrocketing.  The economy is improving all around the world… particularly in countries such as China and Brazil.  And people everywhere are demanding meat – especially with the holidays approaching.

Finally, corn prices are on a tear.  That means higher feedstock prices, which means even higher livestock prices.

And the best part… Demand is high enough to support those higher livestock prices.

It’s clear to me… Livestock prices have the potential to soar.

It’s time to take advantage of these extremely bullish conditions coming together in the livestock markets.  Grab your shares of iPath Dow Jones-UBS Livestock Index ETN(COW) to ride prices higher.


We’re in great position to profit from rising prices in the iPath Dow Jones-UBS Livestock Index ETN (COW).  COW is an exchange traded note (ETN).  The goal of this ETN is to track the movement of live cattle and lean hog prices using futures. COW is invested in roughly 60% live cattle futures and 40% lean hog futures.


Take a look at the chart…


COW is currently trading just under $29.  The last time livestock prices took off in 2007-2008, it traded almost $50!  That’s a stellar 70% increase from current levels.  With all the positive developments in the livestock market, we could be poised for that kind of upside or more.


The iPath Dow Jones-UBS Livestock Index ETN (COW) is trading at $28.80.
Buy COW up to $30.00 per share.
Our profit target is $40.00 or more.
Don’t forget your position sizing.

Commodity Review

Energy JJE $22.09 $21.38   3.3%
Grains JJG $50.22 $47.00    6.9%
Industrial Metals JJM $44.32 $42.91   3.3%
Precious Metals JJP $78.62 $72.56   8.4%
Softs JJS $77.79 $62.54    24.4%
Livestock COW $28.80 $29.66   -2.9%
All Commodities DJP $46.61 $43.78    6.5%


Crude oil is finally taking part in the commodities rally.

Over the last six weeks, oil has jumped nearly 17%.  That’s a big move for such a short period of time.

Part of the increase is due to an improving economy, particularly in developing countries.  What’s more, quantitative easing from central banks means more money is flowing into commodities… and oil has been a huge beneficiary.

I don’t see the fundamentals changing anytime soon.  We might see some profit taking in oil in the short-term… but long-term, oil is still a great bet to move higher.  And of course, there’s very little downside in oil.

Let’s hang on to our OIL shares.


Supply concerns are continuing to drive grain prices higher.

I’ve talked before about the shortage of corn we’re seeing right now.  It’s been driving corn prices to historically high levels.

Now, wheat and soybeans have joined the party.  A major shortage of corn means people will start relying on other grains to meet their needs.  And we’re already seeing an increase in buying of soybeans and wheat.

In fact, JJG, which holds soybeans, wheat, and corn, is on a tear.  Our position in JJG is up nearly 16%.  Not bad!

The dwindling grain supply isn’t going to be resolved anytime soon.  So keep holding your JJG shares for further gains.


Industrial metals have slowed their gains somewhat recently, but the group as a whole was still up over 3% last month.

That 3% gain doesn’t include platinum.

As you know, platinum serves as an industrial and precious metal.  And I normally discuss our platinum position in this section.  Lately, platinum has been trading more like a precious metal – so from now on I’ll discuss it in the precious metals section.

Some of the most commonly traded industrial metals include copper, nickel, aluminum, tin, and lead.  These metals tend to do well when economic conditions are strong or improving.  That’s because they’re used in construction and automobiles.

We don’t have any industrial metals in our portfolio right now, but I’ll keep an eye out for any opportunities in this space.


Yet another fantastic month for precious metals!

Gold has hit new record highs over $1,400 an ounce.  And silver continues to outperform gold on a percentage basis.

We recently sold our positions in gold and silver to lock in big profits.  But I’ll be keeping a close eye on both metals.  We may jump right back in to either one of these.  And I still expect to see some profit taking to occur before the end of the year.

In the meantime, we still have our platinum position… and it’s been on a nice run.

Our position in PGM is up a solid 14%.  And I think it still has a lot more room to rise. Precious metals have been soaring… and now the economy is looking healthier as well. Both are bullish for platinum.

Let’s continue holding our shares in PGM.


It’s been a crazy run higher in softs…  In fact, I’d go so far as to say it’s irrational.

Cotton and sugar are seeing historic moves to the upside.  The fundamentals are bullish in both, particularly in cotton, but not to the extent we’re seeing in the prices. Don’t be surprised if either of those come crashing back to Earth in the near future.

For our portfolio, cocoa has been holding its own.

The good news for cocoa is the holidays are almost here.  Chocolate purchases are about to shoot up in a big way.  And we should see a bump in the price of cocoa with the surge in demand.

Buy your shares in NIB below $45.50 if you haven’t yet done so.


Livestock is primed for a big run.

As I mentioned above, now’s a great time to get into COW, which holds both live cattle and lean hogs.  See above for all the trade details.

Portfolio Changes

  • This month we’re adding Livestock (COW) to the portfolio.  See above for all the details.
  • We recently sold our position in Gold (IAU) for a 44% profit.
  • We recently sold our position in Silver (SLV) for a 48% profit.

Category: Commodity Trading

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.