It's been a bull market for livestock investors lately, as a smorgasbord of factors have pushed cattle and hog prices sharply higher.

First, extreme heat in the Midwest prompted a rash of cattle deaths, diminishing supply already thinned after ranchers cut herds in 2008 and 2009. Unseasonably hot weather also lengthens the time it takes animals to reach market weight. Seasonal demand, particularly for bacon (and thus pork bellies), climbed right along with the heat. A falling dollar has supported prices, and a massive spike in wheat, prompted by supply shortages in Russia, has steered money into commodities across the board.

Pork belly prices now sit near record highs. Cattle futures rose 5% in July and, along with live hogs futures, have gained nearly 50% over the past year, contributing to a quiet but sustained rise in iPath Livestock ETN, last mentioned in this space in March. This exchange-traded-note, issued by Barclays, tracks an index of 61% live cattle and 39% lean hogs. I've maintained the trade and even added to it in recent days.

Lassoing Profits

iPath Livestock ETN (COW) 1 year

That's why investing based on predicted movement is called "speculation Back in January, my interest in COW had been primarily for its diversification attributes, given the security s extremely low 0.24 correlation to the S&P 500. I had no way of foreseeing the heat wave, wheat spike or sharp drop in the dollar.

Now that I'm positioned to benefit from these circumstances, it behooves me to maximize that exposure, rather than simply throw it away. As Kenny Rogers deftly put it, "every gambler knows that the secret of survivin' is knowin' what to throw away and knowin' what to keep." A trade moving in my direction and not yet dominated by the herd? That s what I keep.

Indeed, despite the sharp rise in prices, investors have not yet embraced livestock as they have gold, silver or oil. From United States Oil Fund to PowerShares DB Energy Fund and E-TRACS UBS Bloomberg CMCI Energy ETN, there are no less than 11 exchange-traded funds that track energy, and they have attracted billions of dollars of investor cash. iPath Livestock holds a mere $70 million and trades about 10,000 shares a day. E-TRACS CMCI Livestock Total Return, the other livestock ETF, is minuscule in size and virtually untraded.

We ve often remarked that trading is like bar-hopping: you ve got to go where the action is. Although there s a taste for risk assets across the board right now, the market is clearly showing an affinity for beef. For now, it is what s for dinner."