Got a Beef with the Market? Buy Cattle.

By Brad Zigler

Grilling season's passed for most of the country, but America's taste for beef seems to be improving. That's what commercial users are thinking anyway. After scoring new life-of-contract lows last month, December futures found their legs at 87 cents a pound and have since sustained a rally to the 93-94 cent level.

We prodded the cattle market a couple of weeks ago as one of the few - the very few - commodity markets showing real fundamental strength (see "Beef On Sale").

Speculators, who built up long positions throughout the spring, started dealing their live cattle contracts in garage sales over the summer amid the general market malaise. As funds lightened up on bullish positions, commercials sniffed the air around the $1.06-$1.07 level and thought about hedging. Hedging on the long side, that is. Low cattle on feed placements signaled the potential for tight supplies going into 2009. Market insiders are jawboning a $1.30 target for market cattle by next summer.

Live Cattle (Dec. '08) 

 

Worries about the availability of working capital loans have eased, taking some overhanging weight off the market. The benchmark three-month TED spread has narrowed 86 basis points (.86%) since our last look at the cattle market on October 20, indicating improved credit prospects for ranchers.

Index traders' positions are also on the rebound, though still short of the level at which they began the year.

Year-To-Date Live Cattle Futures Participation

Investors in livestock-based securities have seen base-building as well. As of April 15, there are three livestock exchange-traded notes in the U.S. market: the ELEMENTS MLCX Livestock ETN (LSO), the iPath Dow Jones-AIG Livestock ETN (COW) and the E-TRACS Bloomberg CMCI Livestock ETN (UBC). Each of the notes track the performance of live cattle and lean hog futures, but the UBC note, at 70%, provides the heaviest exposure to cattle. That, together with its relative illiquidity, explains the ETNs' dramatic price rebound.

Livestock ETNs Since April 15

 

Comments

[willydo:]

There is a Pure cattle etf. It is ECYQF.

2008 Nov 09 05:49 PM

[Managing Ed...:]

Well, not technically. That's not an ETF. It's a UK-based trust, though like all ETFS products, this now-Pink Sheet-listed security is denominated in US dollars.


On Nov 09 05:49 PM willydo wrote:

> There is a Pure cattle etf. It is ECYQF.

2008 Nov 10 10:24 AM

[James Wilson:]

Wow the price of cattle is higher in the summer !

Such well informed people. One would think maybe they knew something about cattle and beef production.

Planning for summer sales has been the way of life for good cattle ranchers for years. The idle rich are the ones selling every winter and driving the price into the dirt.

2008 Dec 17 08:49 PM