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BUYING LIVESTOCK

BUYING LIVESTOCK

 

Position: We are long livestock via the etf COW in the Hedgeye Virtual Portfolio.

 

This morning Keith went long the etf COW at $31.02 as “cattle correlations and supplies look better than most things in the commodities complex.”

 

SUPPLY

 

The largest (63%) component of COW is live cattle futures.  Cattle futures and wholesale beef prices have launched higher in recent months as a combination of drought and high feed costs has led to the smallest calf crop in more than fifty years, with a smaller crop expected in 2012 (Cattle Network).  This result has had an obvious impact on beef production: the USDA reported that production in November was 25,070 MM lbs – down 2% YoY and the lowest since 2004.

 

BUYING LIVESTOCK - beef prod

 

DEMAND

 

While domestic consumption comprises 80% of total demand for US-produced beef (Cattle Network), strength in the export market has been a tailwind to price, which shows no sign of abating as emerging market economies increase their per capita beef consumption.  The US exported 2,775 MM lbs of beef in November, +22% YoY.

 

BUYING LIVESTOCK - beef ex

 

PRICE

 

The minority component (37%) in the COW etf is lean hog futures; both cattle and hogs are flashing positive correlations with the US Dollar on the immediate-term TRADE and intermediate-term TREND durations.  With the USD in a Bullish Formation we are encouraged by the positive relationship developing between the dollar and livestock.

 

Correlations with USD Index

BUYING LIVESTOCK - chart3

 

From a quantitative view, COW is bullish on the TREND duration with support at $30.22; and the underlying live cattle futures contract is entering a seasonally bullish season.

 

BUYING LIVESTOCK - live cattle 1130

 

Daryl Jones

 

Kevin Kaiser



Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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