Nice article here by Kevin Kerr on the basics of the meat markets and trading meat futures.
Everything sure is setup for higher meat prices. I think this is a temporary breather this week, as the live cattle charts were going parabolic for the last couple of weeks.
I have not checked my account since Sunday - I don't want to see the raw $$$ I'm off. Instead I'm just watching the charts and trying to keep perspective on things - by later next year and early next year, these prices are most likely higher, so I want to ride this through thick and thin.
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4 comments:
Brett - you have nailed this livestock play IMO - I have never been involved with this type of investment until this sumer, i'm loading up on the COW ETF each time it pulls back under 34-5. Really appreciate your input on this - will be interesting to see how high and how long it lasts. With shortages globally in food, water, and cheap energy not to likely to let up soon - I can't see beef/pork do anything but set all-time highs in the near future. It seems incredible that speculators aren't jumping on board yet.
The only possible risk I see:
Is the drop in disposable income by the US consumer (due to higher gas, lower real estate, debt, etc) going to drop the demand in meat before the increasing price of meat has a chance to drop the demand (?)
Even if this is the case we are getting in at a seasonal low for livestock vs 8-10 months ago - and with the herds thinning i can't see the price dropping when meat is already pretty cheap at the local grocery store...
Agree with you, I think we have much farther and higher to go. How far and how high - it'd be a pure guess on my part.
A few thoughts I have on risks and ways to play this:
1. My only concern w/ COW is that it buys the nearest month. Looking at the cattle and hog curves, the longer dated contracts are being bid up, even as the nearer term contracts don't do much (due to the excess supply on the market today).
I have not thoroughly researched COW, so would just encourage you to make sure you'll be rewarded for the higher cattle prices we likely see later this year/early next year.
2. Agree there could be a drop in demand if we fall into bad recession. Something to keep an eye on, but would not trade on that until there is proof in the pudding.
3. A final one is making sure that all supply has been pushed to market before buying - I'm watching the Oct Live Cattle contract closely. Not sure if it's out far enough. I feel better about the Dec and Feb 09 contracts I own.
Have noticed the nearest term contract is getting hammered (I tried not to use the word 'slaughtered' :) ) due to farmers pushing their herds out to market now, rather than fattening them up.
This is medium-long term bullish, but short term bearing.
Good stuff - Thanks
Thus fund tracks the DOW AIG livestock index:
http://finance.google.com/finance?q=INDEXDJX:.DJAIGLI
and it appears the the high-fuel/feed driven slaughter over the last few months has pushed this index to a lifetime (5+yr) low. This really seems to make sense for IRAs -or those that don't play commodities contracts. Seems hog prices will take a bit longer to bounce than beef (you seem to recognize that already) considering this is a monster year for hog production.
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