Market Overview

Pink Slime Or Not, Livestock ETNs Disappoint (COW, LSTK, UBC)

Earlier this year, we compiled a list of commodities ETFs and ETNs that had the potential to be duds in 2012 and those forecasts have been accurate throw the first three months of the year.

One of the ETNs on that list was the iPath DJ-UBS Livestock TR Sub-Index ETN (NYSE: COW), which was down 1.2% year-to-date at the start of trading day. On the surface, it would appear that COW, which tracks an index that is currently comprised of 63.51% live cattle futures contracts and 36.49% lean hogs futures, would be a good play on themes ranging from rising livestock demand and prices to the pink slime imbroglio.

That's just not the case. For the sake of argument, let's work on the premise that the pink slime controversy started in earnest on February 2 when McDonald's (NYSE: MCD), the world's largest fast-food chain, said it would halt the usage of pink slime as filler ingredient.

Since February 2, COW has tumbled 4%. The iPath Pure Beta Livestock ETN (NYSE: LSTK), which we should tell you has all of 20,000 shares outstanding, a whopping $917,600 in assets under management and trades at a slight premium to its indicative value is down more than 4% since February 2. LSTK's allocation to live cattle and lean hogs is comparable to what is found with COW.

Then there is the UBS E-TRACS CMCI Livestock TR ETN (NYSE: UBC), which currently has an allocation of 58.34% to live cattle and 41.66% to lean hogs. Congratulations to that fund for plummeting more than 5% since pink slime became a household term.

Or one can decide to throw pink slime out the window to find out what a trio of turkeys COW, LSTK and UBC really are. Put it this way: 2011 was a record year for U.S. red meat exports. Feeder cattle futures provided the best returns of all commodities when adjusted for volatility in the second half of 2011, according to Bloomberg.

China, Japan and Mexico, key destinations for U.S. pork exports are upping their consumption. Citing the the U.S. Meat Export Federation, FarmProgress goes on to note January pork exports jumped 28% in volume and 43% in value, while beef exports were even in volume but rose 14% in value.

Russia is also expanding U.S. beef exports and there is speculation Japan plans to do the same. Still, livestock ETNs disappoint.

Here's a weekly chart of live cattle futures for June 2012 delivery. That screams big-time disappointment as it pertains to COW, LSTK and UBC. Lean hog futures for June delivery, which have slid in recent days, are still much higher than they were to start the year, but these ETNs don't reflect that.

Bottom line: Pigs get fat, but a trader's returns could be slaughtered by believing in these livestock ETNs. The statistics indicate as much.

Posted-In: Long Ideas News Short Ideas Specialty ETFs Futures Commodities Intraday Update Markets Best of Benzinga

 

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