Markets Update: Investors may wish to break away from the herd with the latest market-moving idea from analysts - trade cattle.
Steer for investors -look to the fatted calf
Bearish investors looking to rustle up a profit are finding the path to juicy returns is not found on bull markets but cattle exchanges.
Prices for live cattle - and feeder cattle, their older, fatter counterparts - have risen this year. Futures contracts for live cattle - young steers and heifers - have risen 5.3 per cent since the start of the year to US$1.42 per pound of beef, while feeder cattle have increased 11.8 per cent.
The MSCI World Index of global equities, by comparison, has sunk 7.3 per cent during the same period. Prices for feeder cattle and live cattle have been resilient in the face of the euro zone's worries, said Ole Hansen, the vice president of trading advisory at Saxo Bank. "It's one of these recessionary-type diversification trades because you'll have the demand no matter what," he said. American demand for beef was as strong as ever, while Chinese consumers were starting to change their dietary habits from chicken to beef, Mr Hansen added.
"With a growing middle class, there's a slow change in dietary habits, and this is one of the things raising demand," he said, adding that it would take a lengthy bout of recession for that effect to go into reverse. Drought in the southern US was also having an impact on grazing herds, Mr Hansen said. "That's reduced herds quite dramatically, and that's what's spurring this on."
The result is cattle herds that are slimmer than last year, meaning less beef for the markets.
Prospects are looking good for cattle ranchers, analysts from Rabobank wrote in a report.
"With the anticipated relaxation of import restrictions by Japan and the recent ratification of the US-Korea Free Trade Agreement, we see both improved market access and export demand providing strong support for US beef prices in 2012," the report said.
A weakening US dollar against the Australian dollar and the Brazilian real should also make American beef a mouth-watering prospect for investors.