Wheeeere’s The Beef?

| January 17, 2014 | 0 Comments

cowsBelieve it or not, cattle are soaring to yet another record high… 

As you may know, both feeder and live cattle were solid performers in 2013.  Live cattle closed the year at $1.35 a pound while feeders ended at $1.67.  Those closing prints were at the top of the yearly range for live cattle and a record high for feeders.

And the strong performance is extending in 2014… 

Feeders continued their record-breaking price run this week jumping to $1.70.  And not to be outdone, live cattle surged to a whopping $1.40 a pound. 

Folks, those are all-time record highs for both commodities!

What’s sending cattle to the moon?

Poor economics have forced cattle producers to trim their herds in recent years.  Skyrocketing overhead costs, mixed with a long lasting, dismal cattle pricing, had most ranchers scrambling to make ends meet. 

It’s safe to say most hardworking ranchers haven’t been able to turn a consistent profit on their herds in decades. 

And that’s not all…

Extensive drought destroyed pastureland in many parts of the western US over the past few years.  Texas, New Mexico, Oklahoma, and a handful of other states are still stuck in the grasp of an exceptionally dry weather pattern.

Thanks to all these decidedly rotten factors, the US cattle herd is sitting at the lowest level since the early 1950s.

Read that again…

There are less cattle in the US than at any time in the past 60 years!

Obviously, this creates a supply/demand issue.  Even though beef demand isn’t as strong as it once was, supply has literally cratered.  As a result, there simply isn’t enough beef to go around.

Industry experts expect the cattle market to keep a decidedly bullish tone until producers rebuild their herds.

Folks, that will take years…

As a result, the price of cattle is expected to keep rising for the foreseeable future.

How can you profit on rising cattle prices?

Unfortunately, the iPath DJ-UBS Livestock ETN (COW) is one of the only options investors have outside of trading futures contracts (which I don’t recommend).  But be aware, COW tracks the DJ-UBS Livestock Subindex Total Return, which is weighted 41.5% in lean hogs.

In other words, COW isn’t a pure play on rising cattle prices.

So if you’d like to take advantage of the long-term bullish trend in cattle, COW is definitely worth a look.  Just keep in mind that you’ll be exposed to lean hog price fluctuations if you invest in it.

Until Next Time,

Justin Bennett

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Category: Feeder Cattle, Live Cattle

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.

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