Second chart: Live cattle prices
Third chart: Lean hogs prices
It is getting hard to find good investment ideas. The stock market is up substantially from its March lows and valuations have rebounded significantly. This leads me to (1)not want to chase stocks higher and (2)try to be diligent about finding ideas that haven't experienced the March to May rebound.
One thing I have noticed is that the price of beef has come way down. At the end of 08 (when I first started cooking at home), filet mignon at Costco was $10.99/lb. A few months later it fell to $9.99/lb and most recently it's been at $8.99/lb. I have also noticed that at our neighborhood Whole Foods, beef is often on sale, with NY strip steak most recently around $7.99/lb (a good price in NYC at a Whole Foods!). These observations led me to take a look again at COW - a livestock ETF. The COW tracks the price of live cattle (65%) and lean hogs (35%).
Here is an interesting article on falling beef prices.
It seems to me that there has been an overall decline in beef demand due to the economy, but also a glut of beef slaughters leading to higher supply. This has obviously led to a big decline in the index. One can argue that as the economy stabilizes, we should see a stabilization and improvement in demand (and hence prices). We would add that buying the COW is also a derivative play on livestock feed, primarily soybean and corn. This is the primary reason for our position.
Below are some recent charts on soybean and corn futures. There is presently a shortfall of soybeans from Argentina (which accounts for 20% of global production) and a delay in Midwest corn plantings due to rain. Our thesis is for both livestock demand to improve and for supply to shrink (based on higher recent slaughters and higher input costs). We have built a roughly 6.5% position in COW at $30.
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