COW: UPDATE

The USDA Food Safety and Inspection Service announced yesterday that JBS Swift has expanded a voluntary recall to approximately 380,000 pounds of beef products following 24 reported cases of E. coli in multiple states, 18 of which have been linked to products processed by the firm. Swift is the third largest US processor of beef and pork.

We went long the ETN COW in our portfolio on June 16 based on overlapping quantitative factors, seasonal inflections and macro events in South America. Since then a cull of dairy cows driven by milk prices has contributed to the perception that US Cattle headcount will shrink further.

Now, with several slaughter facilities destroying product due to E. coli concerns, the market anticipation is that the demand for beef will increase as producers fill outstanding orders. Obviously, whether this scare is enough to put a sizeable amount of US consumers off beef for a while is the wild card.

Yesterday's health scare is an unanticipated external event helping our position, and while the full impact of this outbreak on the market not yet clear, we remain confident in our thesis.

Andrew Barber

Director

COW: UPDATE - a1