Then as grill masters supplement steaks and burgers with pork ribs, chicken and other delicacies, beef consumption starts to decline in the hot weather. But beef supplies also begin to dwindle as feed lots are short on inventory.
Live Cattle prices typically hit a seasonal low in mid- to late June and then begin to rise before the school season begins as federal government subsidies for school lunch programs kick in for beef purchases. Consumption continues to increase through the winter and holiday season, generally keeping cattle futures prices higher through mid-February.
In the Commodity Trader’s Almanac 2013, produced in collaboration with our co-author John Person, our top longer-term seasonal play for live cattle is to go long the April contract near the usual June low on or about June 20 and hold it for 160 days until about February 7. Over the past 43 years this trade has been positive 29 times for a success rate of 67.4%. The last three years have been stellar. 2010 registered the largest gain in this trade’s 43-year history and the past three years combined account for half the historic gains.
The weekly chart below depicts the Live Cattle continuous futures contract with iPath DJ-UBS Livestock Sub-Index ETN (COW) overlaid in the solid black line to illustrate how the two instruments trade in tandem. Traders may want to look at futures and options strategies, but other investors may find the COW an adequate trading vehicle. COW is a bit thinly traded, but it seems to be the only well-correlated equity vehicle to Live Cattle.
The underlying index that COW tracks is comprised of about 65% Live Cattle and 35% Lean Hogs. Caution should be taken with COW. This Exchange Traded Note, like other unsecured debt securities with no principal protection, carries inherent risk and the risks with COW may be greater. PLEASE READ THE PROSPECTUS, CONSULT YOUR FINANCIAL ADVISOR AND CONDUCT YOUR OWN DUE DILIGENCE.
In any event, beef is poised for its typical seasonal move up from an early summer low to a mid-winter peak. Burger King Worldwide (BKW) is overlaid in the solid blue line to illustrate its inverse correlation to Live Cattle price trends.
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By Jeffrey A Hirsch
- Commodity Markets