iPath Series B Bloomberg Livestock Subindex Total Return ETN

Futures markets exist for risk management.

Let’s say you are a cattle producer. The price of cattle can be impacted by many factors— weather, seasonality, global supply & demand. Whether you’re selling or buying cattle, something random like a fire at the Tyson Foods factory can mess up your long term financial planning.

If you are a cattle seller, you could use cattle futures to lock in the price for your cattle a year in advance. That’s a bit of a super power for you, because now you know how much you can pay for inputs like corn and still turn a profit. Cattle futures protect you against decreasing cattle prices at the wrong time.

Without futures, cattle producers would always be at the mercy of market prices at the time of sale.

For investors, cattle futures offer an interesting way to go long (or short) the commodity.

Before I go any further I want to note that futures contracts use leverage. A relatively small amount of money is required to control assets having a much greater value. The leverage of futures can work for you when prices move in the direction you anticipate or against you when prices move in the opposite direction. Futures are not for everyone.

Additionally, in order to trade futures you need a special account. Your normal stock brokerage won't let you trade futures directly, which is why I bought an ETN— but ETN's introduce their own risk tradeoffs:

ETN stands for 'Exchange Traded Note'— and they are riskier than ordinary unsecured debt securities because they have no principal protection. Owning the ETN is not the same as owning interests in the cattle futures contracts that the ETN is based on.

**The reason I bought $COW:**

The Annual Cattle Inventory Report published by USDA estimated overall inventory on January 1st, 2022 is down 2% from 2021. This declining cattle inventory suggests we're heading into the last couple of years of the contraction phase of the cattle inventory cycle:

![](https://cdn.commonstock.com/e39fa6d804ae3cdd892f6a0153e8c58119faabc11353d8237766a066b89a420f-800x450.png?fit=max&w=704)

Supply is decreasing at the same time as demand for beef is being under-appreciated. The USDA has forecasted a small decrease in consumer demand for meat in the next year, but I think beef demand will increase because:
• Consumer income levels will continue to increase, surprising people with how much consumers are willing to pay for beef.
• Prices of substitutes and complements will rise as fast or faster than beef.
• Consumer tastes and preferences will return strongly to beef as beef substitute fads start to wear off.

Low supply and high demand for beef make me bullish on beef the commodity. I'm **not** so sure the $COW subindex ETN is the best way to play it, so my starter position is very small as I continue to research whether or not I want to actually go buy the futures directly.

If anyone else out there has more experience with futures, would love to hear about your experience.

I'm currently doing more research on 'the rollover effect' which can cause gains in a subindex to be arbitraged away due to the timing of when the index manager rolls the current futures contract over to the next one when trying to replicate ongoing performance.

I have a feeling this will be one of the reasons why I'd rather buy the futures directly and not the ETN.

Nathan Worden

@olympia here's my thoughts on why I'm buying $COW. It's an exploratory position. Wondering if you've done much with futures in the past?

I'm playing cattle futures by buying a steer, feeding him over the summer, and butchering him in the fall. 😉

Actually going to pick one up tomorrow (I'm late due to travel this year).  All said and done, it comes out to about the cost per pound of hamburger in the grocery store, but you get all the prime cuts of meat as well.

We raise a steer every other year, and play pork futures the same way... by raising 2 hogs a year and having them slaughtered. This years are already here... 😊

ParrotStock

So interesting! Thanks for sharing your thoughts🙏🏼. 

ThomasFJE

I had steak last night. Just trying to do my part to help out your portfolio.

Young Money Capital

I like the recent action on the weekly chart.  It has reversed back up at the white horizontal line support level.
![](https://cdn.commonstock.com/9fb98cc92bbda51d44e6113b6a44765ec284df2160d78ae3ec8f959e57a7d71a-1920x939.png?fit=max&w=704)

Christian

Also, wanted to link to the Annual Cattle Inventory Report by the USDA I mentioned:

[https://downloads.usda.library.cornell.edu/usda-esmis/files/h702q636h/pn89f870n/jw828f69f/catl0122.pdf](https://downloads.usda.library.cornell.edu/usda-esmis/files/h702q636h/pn89f870n/jw828f69f/catl0122.pdf)

I think you’re a very brave person investing in cattle or any aspect of agriculture. 

So much of it depends on the weather and climate change is and will impact beef prices. 

From memory if you look at the ups and downs of coffee bean prices over 25 years it is really all over the show and makes it incredibly difficult to predict if prices will rise, fall or stay steady. 

Having said that I am a firm believer in that there is always money in land and it is on my radar to buy some agricultural land. 

Oliver

@nathanworden ![image](https://cdn.commonstock.com/2a63d7ede9596db2a7852f3e657c32507cf1eef4de2ece1ed4709055f25fe538-335x447.png)just doing my part! 10lb brisket been on for the last 11 hours. 4-6 more to go! 


sam stribling

How do you view the risk of holding this position into a recessionary environment? Not familiar with the nuances of this space, but i'm assuming in a situation where consumer sentiment and overall health is low, beef sales would take a hit even despite supply-side dynamics?

MT Capital

My brother heats his house with propane, I tried to get him to hedge the pricing risk with futures, but he looked at me like I’m crazy haha

Fat Baby Funds

Hey Nathan! I’m looking into commodities right now, but as a short. It looks like commodities are very correlated to economic recessions. There’s a probability one is coming up and wheat, corn and soybean futures are close to their ATHs from 2007! What do you think? ![image](https://cdn.commonstock.com/a34cf71127af412d2d0c614b2334ceebdceed7bcb25619f713f953534c5c9a48-320x223.png)![image](https://cdn.commonstock.com/f7e3ed2614db6acfbb0bef66b18ec9cc1da6f6e1ab0f28564af290c454c274fa-320x198.png)![image](https://cdn.commonstock.com/9ff181abff6916e5e7472a377d7a62548d80de5cf08147a3ce396dca9a139769-320x218.png)




Cattle futures

Wow, only the 2nd person to trade $COW.X ever on CS. Why the new position?
![](https://cdn.commonstock.com/fc1b16341d5b6715dbfad25f7e19dfbf13168842d6983f601c2dcc9f3a682c26-791x479.png)

Olympia

New position in COW

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