3 Ways To Invest In The Best Commodity of 2013
Diane Alter: It’s been hog heaven for commodity traders who have pigged out on pork – the best commodity of 2013.
Indeed, the $12 billion hog-futures market has gained 19% year-to-date, making it the biggest gainer among commodities in the Dow Jones Commodity Index, which fell 9.9% in the period.
Robust consumer demand, tight supplies and favorable prices compared to beef – which hit record retail prices this spring – were behind pork’s healthy gains.
From January to April, pork sale volumes rose 4.3% from a year ago at 18,000 retail outlets tracked by market research firm Nielsen Co. In comparison, beef volumes dipped 1.9% and chicken volumes inched up a mere 0.2%.
Pork: Best Commodity of 2013′s First Half
Pork trading volumes have also notably risen.
For the first time ever in the hog contract’s 50-year history, the number of bets on lean-hog futures held by traders and investors were more than those for live cattle.
Last Thursday, hog futures finished at $1.01, just shy of their nearly two-year high of $1.20 a pound hit on June 14.
With a cache of commodities lagging, from gold – which has lost its luster to coffee and could use some perking up – money managers are poking around the hog market in a hunt for yield.
“Everybody’s happy and making money and having fun,” Dennis Smith, a Chicago-based broker for Archer Financial Services told The Wall Street Journal. “The U.S. consumer doesn’t want beef anymore.”
In the U.S., pork has long been regarded as a lesser quality alternative to beef. However, that’s not the case in the rest of the world where pork enjoys equal footing with beef.
Hog futures traders were as happy as a pig in mud last month when Smithfield Foods Inc. (NYSE: SFD), the world largest pork processor and hog producer, agreed to be taken over by China‘s Shuanghui International Holdings Ltd. If approved, the $4.7 billion takeover would be the biggest Chinese takeover of a U.S company.
It’s not just increased demand pushing prices higher…
Pork producers have been faced with high feed costs and a recent disease outbreak in many pork operations across the country. The epidemic has resulted in the loss of a plethora of small pigs to PED, or porcine epidemic diarrhea.
This, plus increased demand, has resulted in rapidly escalating pork prices. Thus, the sharply higher prices for pigs and pork products are apt to benefit beef.
And a great deal of the credit goes to bacon-the second-fastest growing category for pork at foodservice outlets. Each year in the U.S., more than 1.7 billion pounds of bacon are consumed from foodservice alone.
“Bacon is a big part of the pork business today, and it goes way beyond breakfast,” Paul Perfilio, national foodservice manager for the Pork Checkoff, said in a statement to The Meat Daily Trade News.
That’s why Burger King has had much success with its bacon sundae and Sonic Corp. (Nasdaq:SONC) with its bacon milkshake.
How to Invest in 2013′s Best Performing Commodity
For investors looking for beef to bring home the bacon, here are three options for how to invest in 2013′s hottest commodity:
iPath Dow Jones UBS Livestock Total Return Sub-Index ETN (NYSEARCA:COW). The fund, which debuted in 2007, is composed of two livestock contracts: lean hogs and live cattle. It currently boasts $61.6 million in assets. Over the last three months, its average daily volume is around 25,000. COW is one way to profit directly from both the cow and hog market.
PowerShares DB Agriculture Fund (NYSEARCA:DBA) is a more diversified play. Its largest holding is sugar, followed by live cattle, corn, soybean, cocoa, coffee, lean hogs and wheat futures. Net assets are some $1.7 billion, and average volume 680,000 shares, making it more active and liquid than COW.
Market Vectors Agribusiness ETF (NYSEARCA:MOO) has turned in the best performance year to date, returning 2.63%. Yet shares still trade at a modest P/E of 13. Holdings are not commodity futures, but common stock of agriculture equities. The fund’s top five holding include Monsanto Co. (NYSE: MON), Syngenta AG (NYSE: SYT), Deere & Co. (NYSE: DE), Potash Corp. (NYSE:POT) and Archer Daniels Midland Co (NYSE:ADM).
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