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iPath Bloomberg Livestock SubTR ETN Message Board

  • smjacoby smjacoby May 7, 2009 10:16 AM Flag

    Long-Term Trend

    Why has COW been pretty going down since its inception? Is there something about this that guarantees this will continue. Certainly hog and cow prices haven't only been decreasing the past 2 years. Could be wrong but grocery bill says otherwise. Thanks.

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    • This is of dissapointing interest

    • I realize that this post is asking about the long term trend in COW which is basically down.

      There are issues with long term exposure to commodity based exchanged traded funds. This has to do differences in performance between what investors expect and what they might actually do.

      This index is designed to track lean hogs and live cattle with the following % allocation:
      Lean Hogs - 37.73%
      Live Cattle - 62.27%

      There is data supplied at the website for COW that shows the index value and the COW indicated value on a daily basis. I took this data and computed the ratio between the Index and the COW.IV and that ratio is pretty much constant. The COW security tracks this index well.

      Here is the link to the data:

      The question is what is this index?

      I don't know the precise method by which it is calculated. However, the investor might expect that it tracks something similar to the spot price for Lean Hogs and Live Cattle added together using the ratios above. This would be similar to taking a weighted postion in both Lean Hogs and Live Cattle with the appropriate % weightings.

      It does not track this metric very well at all. The CME has published historic settlement data for these contracts. This is the link:

      As an exercise I took the front month price for Lean Hogs and Live Cattle (for this months in 2008 and 2009 for which data for both are available) and added them according to the % ratios. I then computed the ratio between the closing price of COW for that month and this number. This ratio goes from a level of 1.90 on march 08 to about 2.32 on january of 09.

      I used the front month contracts because those are generally closest to the cash prices for the associated commodities.

      There are several factors at play here one is the fact that the index probably does not use the front month futures contract. The other factor at play is that over time the index rolls from one month to another month. This rolling process (in some kinds of markets) can lose money. This is negative roll yield.

      The bottom line for me is that this index simply does not do what the investor might think, and negative roll yield may also be taking a toll in net asset value.

    • I just bought some COW, as the commodity prices of steers and pork seem to be declining as the rest of the agricultural complex is rising. Is it the fact that it is an ETN, not an ETF, a factor here?
      Or is it just that the prices of these two commodities stink for some reason?
      Anyway, if there are any experts with ideas please let me know.

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