The global credit crisis took the wind out of commodities' sails as consumers reigned in their spending. As one of the easy targets to reduce personal spending, dining out fell out of fashion. But with economy beginning to regain some of its former glory, investors are realizing the consumer isn't quite dead yet, nor is he starving. Consider this, combined with a growing demand for new sources of protein from emerging markets' rising middle class, and the livestock market could be just what a portfolio ordered.
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The Hamburger Between Your Buns
Globally, as the emerging world gets richer, they are demanding more variety and protein in their diets. In terms of per-capita consumption, there's plenty of room to grow. For example, according to USDA, the average resident in the United States consumes around 41 pounds of beef a year. In China, that number is just 4.3 pounds, India eats only 1.6 pounds and Russia nearly 14 pounds. In addition, as investors look for diversification and less correlation, livestock represents a truly uncorrelated asset.
The livestock futures market is dwarfed by other commodities, such as corn and oil, but investors do have some choices in playing the sector. Investors can add shares of domestic producers such as Smithfield Foods (NYSE:SFD) and Pilgrim's Pride (NYSE:PPC) or international growers such as Zhongpin, (Nasdaq:HOGS) as a pass through plays onto consumers. However, the real action is in the direct commodities, themselves.
The iPath DJ-UBS Livestock ETN (ARCA:COW) and the UBS E-TRACS CMCI Livestock ETN (ARCA:UBC) are two exchange traded notes (ETN) that follow both live cattle and lean hog futures. Investors wanting a more diverse agriculture portfolio can do so with the popular PowerShares DB Agriculture (ARCA:DBA), which tracks livestock as well as wheat, corn and other agriculture commodities, or the Market Vectors Agribusiness ETF (ARCA:MOO), which tracks equipment, fertilizer and seed companies.
The Bottom Line
The global crisis took down many commodities, as demand fell and consumers closed their wallets. However, with the economy beginning to turn around, some commodities are beginning to look like buys. For investors wanting to play the increasing global demand for protein, livestock and its represented funds look like sure things in the long term.
SEE: Exchange Traded Notes - An Alternative To ETFs
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