Last week’s Thanksgiving holiday put the poultry and turkey markets at the center of the stage. Meanwhile, with the 2022 holiday season underway, cattle and hog prices remain at the highest levels in years in November, with even higher prices on the horizon in 2023. The peak grilling season is over six months away, but beef and pork prices have ignored seasonality over the past months. 

Inflation has caused the price consumers pay for a basket of groceries to rise, including the proteins on the dinner table. 

The iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) tracks meat prices.

Feed prices remain at multi-year highs- Other costs have skyrocketed

One of the main inputs in raising animals for meat production is feed. Corn and soybean meal are the two grains that are the main ingredients in the feeds that producers use to fatten cattle and hogs. 

The chart highlights that CBOT corn futures for March 2023 delivery were at over $6.70 per bushel, the highest price since 2013. 

Processors crush soybeans into two products, oil, and meal. The meal is a source of protein for animals and a critical ingredient in feed. 

The chart shows that at over $400 per ton, soybean meal for delivery in January 2023 is also at a multi-year high. 

Aside from feed, rising inflation has caused energy, labor, financing, and other input costs to soar, making it more expensive to produce each pound of beef and pork.

Live cattle are in a bullish trend

Live cattle futures have been in a bullish trend since reaching a pandemic-inspired low of 81.45 cents per pound in April 2020. 

As the chart illustrates, the continuous live cattle futures contract has made higher lows and higher highs, reaching a peak of $1.54725 per pound in November 2022. At over $1.55 per pound on November 29, live cattle futures for February delivery were above the continuous contract high, the highest price since June 2015 at the beginning of the 2015 peak grilling season. 

Feeders follow a similar path

The continuous feeder cattle futures contract fell to $1.0395 per pound in April 2020. While the trajectory of gains in the live cattle has been more dramatic than in the feeders, the latter has also been in a bullish trend. 

The chart shows the bullish trend that reached a high of $1.8530 in September 2022, the highest price since November 2015. At the $1.77225 level on November 29, the feeders were not far below the recent high. 

Hogs are also trending higher

Lean hog futures are seasonal commodities that tend to be far more volatile than cattle. In April 2020, lean hog futures fell to a pandemic-inspired 37.0 cents per pound low, the lowest price since September 2002. 

The short-term chart illustrates lean hogs for February 2023 delivery began to rally after the 2022 grilling season ended, reaching a low of 76.4 cents per pound on October 4, 2022. After reaching a high of 91.80 cents in late October, hogs were at the 84.425 cents per pound level on November 29. At 84.425 cents, the hogs are at the highest price in November since 2014.

COW is the livestock ETN product that tracks meat prices 

In the latest November USDA World Agricultural Supply and Demand Estimates Report, the agency told the meat markets it increased the forecasts for cattle prices for 2022 and 2023 on stronger expected demand. The USDA also raised the forecast for 2022 hog prices but left the 2023 level unchanged from the October report. While the WASDE cited the demand, rising input prices are a critical factor for the path of least resistance of meat prices. Corn, soybeans, soybean products, energy, interest rates, and wages remain at the highest levels in years, putting upward pressure on meat prices as we move toward the end of 2022. 

In early 2023, the animal protein futures markets will shift their attention to the 2023 grilling season, where the demand and prices tend to peak. The grilling season begins in late May, but futures prices tend to move higher long before the first steak or rib goes on the sizzling grills at the start of the summer. 

The most direct route for a risk position in animal proteins is via the futures and futures options on the Chicago Mercantile Exchange (CME). The iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) provides an alternative for market participants seeking exposure to meat prices without venturing into the futures arena. 

At $39.18 per share on November 29, COW had $27.871 million in assets under management. COW trades an average of 3,151 shares daily and charges a 0.45% expense ratio. Meat futures and the COW ETN are not highly liquid trading assets, so the execution of buy and sell orders is a critical factor when considering trading or investing in the meat sector. The most liquid time for the ETF is when the cattle and hog markets are operating, and bid-offer spreads tend to widen when the futures markets settle for the day before the stock market closes. 

Meat futures prices have been trending higher since the 2020 lows. 

The chart shows COW rallied from $26.40 in April 2020 to a high of $41.81 per share in February 2022 as the futures markets began to reflect the 2022 grilling season prices. At $39.18 per share on November 29, COW remains a lot closer to the February 2022 high than the April 2020 low. 

The offseason for animal protein demand is an excellent time to consider meat exposure for the coming year. COW could be a product that moves higher with cattle and hog prices in the coming year. 

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