African Swine Fever Driving Livestock Futures – iPath DJ-UBS Livestock Total Return Sub-Index ETN (NYSEARCA:COW)

In September of 2018, an article was posted on the council of foreign relations website reporting African Swine Fever in China. The article reported the spread of the deadly porcine disease, which does not affect humans, but is highly contagious and deadly for pork, into China. In September 2018, the article cited the disease causing slaughtering in Romania, preparations in Vietnam and concern for spread to China. It may be spread by the respiratory tract or through tick-borne vectors and is highly resistant to death from harsh conditions, and can also be spread via contact on surfaces. The most generally accepted containment procedure is to slaughter pigs to prevent spread. Certainly this is a highly spreadable, deadly, hard to contain virus that poses a huge threat to pork populations.

An Iowa State review article cited the disease can have a mortality rate approaching 100% in pigs which represents a huge toll on the population. As population of pigs decreases, with steady demand, we should see prices rise. In the article from last fall, Campbell states that it was likely china would have to think about mass slaughtering and subsequent importing of livestock to keep up with demand. In January an article published in Bloomberg cited that there was a 12% surge in pork prices, and a decrease in production by 15%. the article, updated this week, indicated that China had just made its third largest purchase of pork from the US EVER.

In the beginning of the year China had reported over 100 cases of the disease across almost 20 provinces in the country. One farm that had over 70,000 hogs reported a case themselves in which the result was fatal. China released a statement containing mandates that all slaughterhouses must test product for African Swine Fever, before selling, and if the disease is found, slaughter all pigs, and suspend operations for 48 hours – effective Feb 1, 2019.

According to multiple sources China is home to over half the world’s pig population, totaling ~700 million pigs. Pork is the country’s primary protein source. China went so far as to issue statements about covering up the disease being a crime when a dead pig was found on the shore, showing just how widespread the problem may be. But, Taiwan is still accusing China of a cover up.

What does this mean for investors, though? Well futures have flipped from bearish to bullish amidst the crisis:

So have pork prices:

So, we can see it is clear that this is affecting global pork supply and cost. We can try to capitalize on this in a few ways. Those who actively trade futures and options on futures can take advantage of the rise in prices that way. But, for those who, like me are a student in a measly Doctor of Pharmacy program, and don’t have a ton of collateral there are a couple different options. One could choose to track the $DJCILV or COW (COW)- the iPath Series Bloomberg Livestock Subindex (in the past UBC and LSTK were options, but not available currently)

This ETN has had an interesting past couple of months, but definitely suffers from Low Volume issues – the chart is below:

As can be seen, the ETN has moved in response to news over the past few months, and as news is publicized more and more it seems it only has one way to go. But, the ETN has a volume of 112 at present time, and an average just under 2,000/day. That is insanely low, and represents a risky investment for potential buyers. Options, have even lower volume on a daily basis, but it is a clear opportunity for those interested in capitalizing on the spread of African Swine Fever.

It is reasonable to suspect that this ETN will continue to risk as a result of poorer news over the past couple of weeks, however nothing is ever sure-fire. As larger institutions become more involved, we may see unexpected movements due to highly leveraged firms.

Disclosure: I am/we are long COW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not a licensed professional in the financial industry, nor do I have a formal education or training in anything but pharmacy. All views are my own and do not represent the views/opinions of any affiliates or employers.