Unheralded Commodities ETN is Mooooving Higher
February 28th, 2014 at 2:37pm by Tom Lydon
Broadly speaking, 2014 has been kind to commodities exchange traded funds and exchange traded notes (ETNs).
The SPDR Gold Shares (NYSEArca: GLD) has seen inflows this month, the first time it has been flow positive in 13 months. The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) is the best-performing non-leveraged exchange traded product of any type this year. Corn futures have closed high for six consecutive weeks, helping the Teucrium Corn Fund (NYSEArca: CORN) gain more than 5% this year. [Corn ETF Could Rally]
Those performances and others (think silver and until this week, natural gas) have obfuscated an impressive rally by the iPath Dow Jones-UBS Livestock Total Return Sub-Index ETN (NYSEArca: COW). Shares of COW are up 1.4% Friday on volume that is more than five times the daily average, extending the ETN’s 2014 gain to almost 11%. More upside could be in the cards.
“Wendy’s made the phrase ‘where’s the beef popular!’ Some could now say, ‘wheres the price of beef headed?’ Cattle prices have been moving higher over the past couple of years bumping up against the top of a 30-year rising channel,” writes Chris Kimble of Kimble Charting Solutions.
Beef futures rising to their highest levels in two years, breaking out of a 30-year rising channel as Kimble points out, highlights at least two points. First, the notion that there is no inflation in the U.S. can easily be debated. Second, COW’s run may just be getting started.
The ETN is finally acting in accordance with beef futures, which do not comprise all of the ETN’s underlying index. Beef futures have surged since late 2010, but COW has lost 4.6% over the past 36 months.
COW “reflects the returns that are potentially available through an unleveraged investment in the futures contracts on livestock commodities. The Index is currently composed of two livestock commodities contracts (lean hogs and live cattle) which are included in the Dow Jones-UBS Commodity Index Total Return,” according to iPath.
Looking at a typical cattle cycle, COW could have another year of upside ahead of it.
“Given that the average cattle cycle consists of five years of declining cattle followed by five years of an increase in cattle herds, a five year bull market will be followed by a five year bear market. As we are currently in the fourth straight year of increasing cattle prices and declining cattle herds, another year can be expected to complete the five-year cycle,” notes Lionfin Capital.
iPath Dow Jones-UBS Livestock Total Return Sub-Index ETN
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.