For experienced traders familiar with the inherent risks of commodities, seasonal trading expert Jeffrey Hirsch, editor of Stock Traders Almanac, looks at a variety of opportunities from livestock to agriculture.
Beef prices tend to form a seasonal high in March as packers have purchased inventory ahead of the summer grilling season. Then beef consumption starts to decline in the hot weather.
Live Cattle prices typically hit a seasonal low in mid-to late June and then begin to rise before the school season begins as federal government subsidies for school lunch programs kick in for beef purchases.
Consumption continues to increase through the winter and holiday season, generally keeping cattle futures prices higher through mid-February.
For futures traders, our top longer-term seasonal play for live cattle is to go long the April 2017 contract near the usual June low on or about June 20 and hold it for 160 days.
Traders may want to look at futures and options strategies, but others may find the iPath Bloomberg Livestock Sub-TR ETN (COW) an adequate trading vehicle. Live Cattle continuous futures contracts trade nearly in tandem with COW.
Caution should be taken with COW. This thinly-traded Exchange-Traded Note, like other unsecured debt securities, carries inherent risk, primarily issuer credit risk; we caution traders to conduct due diligence.
In addition to Live Cattle seasonal strength beginning in June, Cocoa, Wheat and Sugar also begin seasonably favorable periods in the month.
Outside of the futures market, iPath Pure Beta Cocoa ETN (CHOC), Teucrium Wheat (WEAT) and iPath Bloomberg Sugar ETN (SGG) correlate well.
However, with the exception of WEAT, all have traded less than 40,000 shares per day on average over the past three months and holdings are generally meager presenting further liquidity concerns.
PowerShares DB Agriculture (DBA) is a good alternative as it provides exposure to eleven different commodities: Feeder Cattle, Cocoa, Coffee, Corn, Cotton, Lean Hogs, Live Cattle, Soybeans, Sugar, Wheat and Kansas Wheat.
DBA has assets of $862 million and trades better than 500,000 shares per day on average, offering plenty of liquidity relative to other choices.
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By Jeffrey Hirsch, Editor of Stock Traders Almanac
