Commodity Trader's Almanac 2O11

60

SUMMER BBQ SEASON GIVES BEEF A BOUNCE

This is seasonally the best time to buy live cattle.

Fundamentally, beef consumption starts to

de cline in hot weather, but so does supply, as

feed lots are short on inventory. Cash grain

prices tend to remain high, as supply decreases

before harvest season. This supply/demand im -

balance creates a bid under the market. Then

before school season begins, federal government

sub sidies for school lunch programs kick in for

beef purchases.

As winter and the holiday season approach,

consumption increases. This helps keep a floor

of support in cattle futures through mid-February

(page 176). Enter long positions on or about June

20 then exit on or about February 7. Out of the

past 40 years, this trade has worked 26 times for

a 65.0% success rate.

A retreat in feed grain prices from the

ethanol-fueled rally, recent favorable grazing

conditions, and increased foreign buying have

been a boon for U.S. cattle ranchers. If demand

remains steady, then we could see sharply higher

red meat prices in the next few years.

The chart below has McDonald’s (MCD)

closing prices overlaid on the front contract live

cattle futures with the seasonal price move of the

futures on the bottom. It is interesting to note

that while beef has a tendency to rise from June

through August, MCD has a tendency to decline

during this same time period on average since

1970.

Traders may want to look at long ...