Livestock-related exchange traded notes have been among the worst performing commodity investments this year, but after a recent steep sell-off, some traders see a buying opportunity.
On Wednesday, the iPath Bloomberg Livestock Subindex Total Return ETN (NYSEArca: COW) was up 3.3 and UBS E-TRACS CMCI Livestock Total Return ETN (NYSEArca: UBC) rose 2.0%.
The livestock-related ETNs have been underperforming in 2016, with COW down 17.3% and UBC 14.4% lower year-to-date. Over the past week, COW fell 7.1% and UBC declined 5.8%, which sent both ETNs trading into oversold territory as indicated by the relative strength index – a technical momentum indicator that compares the magnitude of recent gains and losses over time.
The livestock category has been selling off on signs that supply continued to outpace consumer demand, with cattle futures breaking below the psychological $1 per pound for the first time since November 2010 in response to the steep decline in boxed beef prices, which also fell to its lowest since December 2015.
“It’s all falling apart,” Tim Hackbarth, analyst at brokerage the Zaner Group, told The Western Producer. “Technically oversold or not, (live cattle) probably have a little work to do to the downside.”
[related_stories]Livestock futures, though, rebounded Wednesday on what could be a technical trade. Live cattle futures gained 2.7% with price now hovering around $1.027 per pound, feeder cattle futures rose 2.5% and lean hog futures advanced 2.8%.
The livestock ETNs include large weights in these futures markets. For instance, COW includes 59.3% live cattle and 40.7% lean hogs. UBC tracks 55.8% live cattle and 44.2% lean hogs.
Looking ahead, the livestock market may continue to struggle as beef struggles at the retail level, losing market share to poultry in recent years, while pork production is expected to hit records this year.
“There’s still a ton of competition from cheaper protein, and that’s not going away any time soon,” Hackbarth said of beef.
For more information on the commodities market, visit our commodity ETFs category.
iPath Bloomberg Livestock Subindex Total Return ETN