How to Invest in Livestock
Livestock are a key source of food for the world, making them a coveted investing product for some. The term “livestock” includes domesticated animals that are raised to produce various commodities. That list includes, but its not limited to pigs, cattle, chicken, and farmed fish among many others. The futures market for livestock is primarily utilized by producers attempting to hedge their exposure but it still carries enough volume for regular traders to interact. Lean hogs and lean cattle futures are among the most popular options for investors.
Ways to Invest in Livestock
There are 3 ways to invest in Livestock: ETFs, Futures, and Stocks. Click on the tabs below to learn more about each alternative.
What are Livestock ETFs?
ETPs represent an easy and efficient way to gain exposure to livestock prices, and U.S. investors have multiple options to choose from. The iPath Dow Jones-UBS Livestock Total Reutrn ETN (COW) is the most popular option; this ETN offers exposure to an index comprised of futures on live cattle and lean hogs. The exposure offered by the E-TRACS UBS Bloomberg CMCI Livestock ETN (UBC) is substantially similar, though UBC is slightly cheaper from an expense perspective.
Investors should be aware that both UBC and COW are linked to indexes comprised of futures contracts, and as such will not necessarily replicate the performance of spot livestock prices. Moreover, both options are ETNs, meaning that investors are exposed to the credit risk of the issuing institution.
International investors seeking livestock exposure may have more options available; ETF Securities offers leveraged and inverse livestock ETPs in European markets.
What are Livestock Futures?
Livestock futures can be an effective way for more sophisticated investors to gain exposure to this corner of the commodity market. Whereas livestock ETPs offer exposure to multiple commodities, futures contracts are generally more targeted in nature.
Live cattle futures trade on the Chicago Mercantile Exchange, with each contract representing 40,000 pounds of 55% Choice / 45% Select Yield Grade 3 live steers. Priced in center per pound, contracts are available for February, April, June, August, October, and December. Live cattle futures trade under the symbol LE on the CME Globex and LC in open outcry trading.
Lean hog futures are also available on the CME, with contracts representing 40,000 pounds (18 metric tons) of hog carcasses (barrow and gilt). Contract months also include February, April, June, August, October, and December, with the last trade occurring on the 10th business day of the contract month.
Other livestock futures available include feeder cattle and frozen pork bellies.
How to Buy Livestock Stocks
For some commodities, such as precious metals, it is possible to gain indirect exposure through an investment in companies that are engaged in production or extraction. This is challenging in the case of livestock because there are few publicly traded companies engaged exclusively on growing and slaughtering cattle and hogs.
There are, however, some options available. Many agribusiness firms provide products and services to farmers, and the profitability of these companies often shows a correlation to agricultural spot prices. Some of the largest agribusiness firms include Potash (POT), Monsanto (MON), and The Mosaic Company (MOS). These stocks will seldom move in lock step with livestock prices, but may be an interesting option for certain investors.
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