Who Will Be Next to Party at the Commodity Rager?

| About: iPath DJ-UBS (COW)

Bull markets, like college fraternity parties, usually begin in relatively quiet fashion – with small participation, initial awkwardness, and some doubters. In both cases, things have a tendency to quickly kick into gear when they are driven by supply and demand fundamentals – be it alcohol, sorority women, tech stock IPOs, or soybeans. Soon enough, the unlucky party hosts have a real rager on their hands, with better judgment being tossed out the window with the empty beer cans.

Energy (most notably, oil) tapped the first keg and kicked off the current commodity bull market. True to form, the acting University Dean, our United States Government, stepped in with a plan to “do something” and quell the drunken party revelers. And in the process, not only did their bone-headed plan not make a dent in the original energy party, but it kicked off another megabash next door – this one in the agricultural markets.

The government’s wise idea to divert our food supply into the fuzzy science that is corn-based ethanol lit a fire under the grain markets like a Flaming Dr. Pepper. And so we have $6 corn, $13 soybeans, and a limit on the rice available to Costco shoppers.

The super seniors at this commodity bash realize it has some room to run. Historically, the average commodity bull market lasts 17 years – better make another beer run soon.

So who’s likely to crash the party next? Well, the softs, such as coffee, cotton, and sugar, still haven’t made much of a showing. And judging by their run-ups in previous bull markets, we know these guys can party. Keep an eye out for them.

But my money is on the meat heads. High grain prices must force cattle and hog prices higher. In fact, farmers are slaughtering their herds early and sending their meat to market now, rather than fattening up their herds on sky-high grain prices. This has temporarily pushed down prices, but is setting the stage for a dramatic upcoming shortfall in supply – Don Coxe alludes to this in an interview on BNN. Also check out the CEO of Tyson Foods on CNBC saying that their meat prices must rise, as 60% of the cost of raising an animal is feed.

How should you play this? As a consumer, you may want to load up your freezer with some cheap meat. As an investor, the most direct way to play this trend is by buying longer-dated futures in the meat markets. In lieu of a futures account, you could also consider the ETF COW, which holds a mixture of live cattle and lean hog contracts.

But you’d better act soon to lock-up your late night snack. Live cattle futures have broken out recently –and meat may be off to the races already.