In 2021 we are seeing commodity after commodity climbing. We have pointed out things from copper to coffee to rare earth minerals. Today, however, I want to draw attention to the rise in beef prices. Whoever does the food shopping in your house already knows this: prices have soared.
What's behind these gains?
The fundamentals are bullish. There has been a significant decline in beef cow inventory. The herd is expected to decline in 2021 and more in 2022.
Beef demand is the best in 30 years. Since 1998, the Retail Beef Demand Index shows increases of 4.4% yearly at the retail side, 4.5% at the wholesale market side. For the 2020-21 season, beef demand is projected to be at its highest level in three decades, according to analysts.
Exports are strong and growing. For the 2021 season, beef export numbers are projected to be up 15%, a trend expected to continue into 2022. Key export areas are China, Japan and South Korea.
In the daily bar chart of Live Cattle futures (a continuous futures chart links up a series of contracts to show longer-term trends), below, we can see an irregular uptrend the past 12 months. Prices are trading above the rising 50-day moving average line and above the rising 200-day line. Price gaps may be due to rolling of contracts rather than true supply/demand imbalances.
Trading volume has been active and the On-Balance-Volume (OBV) line has risen the past four months. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but poised for a downside crossover.
In this weekly Japanese candlestick chart of Live Cattle futures, below, we went back five years to show the times that futures failed in the $1.30 area. A breakout to new highs would be significant, in my opinion.
In this daily bar chart of (COW) -- the iPath Series B Bloomberg Livestock Subindex Total Return ETN -- we can see a sideways consolidation pattern between $37 and $40. The On-Balance-Volume (OBV) line has been steady and the MACD oscillator looks poised to turn higher.
In this weekly close-only Point and Figure chart of COW, below, we can see a potential upside price target in the $57 area.
Bottom-line strategy: Try to buy your meat on sale or from a warehouse club or consider going long COW. Risk to $36.25. The $57 area is our price target.