Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Meat-to-Feed Ratio: Feeding the Agricultural Commodities Bull?

Commodities / Agricultural Commodities Dec 06, 2011 - 01:45 AM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleWith 2011 about to be history, investor should be thinking about two matters. How did various market sectors perform during the year, and why did they do so? That task is part of the learning process. It allows us to refine our thinking, and shed thoughts that will not be productive in the future. Second, we are of course interested in the implications of current trends for investments in the coming year. 2012 is still a blank page. Thus far as 2012 is concerned, we have made no mistakes. To start this learning process the first chart portrays the performance of the various sectors of the Agri-Food market over the past year.

As is apparent from the chart, a wide range of returns was experienced this past year. Barley prices rose by more than 50% while cotton prices fell by more than 40%. In between was the U.S. stock market, which provided no price return. US$Gold was perhaps the best of the traditional asset classes with a gain of about 25%. An investor could very easily have had a good year or a bad year.

Our interest is in the winners of the past year, and whether they will be so in the coming year. At the top of the chart the meat sectors stand out. Beef and hog prices were up nicely in the past year. Rather than chasing silver, an investor would have been better off buying a hog for the back yard. Consider broilers, which are table chickens. A chickens in the freezer would have performed better than most stock portfolios, and one would not have had to pay a management fee.

These Agri-Food prices to us as consumers are part of the cost of living. Those prices to the producers of Agri-Foods are revenues. Price is an important component of the revenues received by producers of beef, hogs, and chickens. Those revenues are part of the equation that determines profits. High prices do not guarantee profits to producers of beef, hogs, and chickens, but they can often be a helpful starting point. As far as starting 2012, the prices for meats are generally the best these producers have seen.

Other component of the profits of beef, hog, and chicken producers is largely the expense of feed. Pork chops are not produced in a factory. Animals must be fed until they reach marketing weight. That feed is largely grain, such as corn and wheat. The ratio of meat prices to the cost of feed is an indication of the profitability of those that produce animals.

Consoloidated Meat/Feed Ratio

Second chart plots a ratio of the price of beef, hogs, and chicken to the cost of feed, wheat and corn. We refer to it as consolidated as it combines the meat-to-feed ratios for hogs, feeder steers, and broilers in a proprietary manner. That ratio is a proxy for the profitability of animal producers. When low, feed costs are high relative to meat prices, depressing profitability. When high, meat prices are high relative to feed prices, expanding profitability.

In 2008, during the mad rush into commodities, grain prices rose dramatically. As a consequence of that, the ratio fell to a profit crushing low. When grain prices then retreated, the ratio rose dramatically. In the Summer of 2010 the Russian wheat embargo caused grain prices to again rise dramatically, and the ratio again turned down.

After being low and flat for months, the ratio is now moving up. Recent action might be interpreted as an upside breakout. That view is somewhat justified by the fundamentals. Beef prices in the U.S. have moved to record highs as supply of beef cattle has been reduced by the second round effects of the Southwestern drought. USDA does not expect U.S. beef production to expand until the Fall of 2012. At the same time grain prices are weakening.

Those firms producing beef seem to be starting 2012 with excellent fundamentals. Hog producers are also starting the year in good position. Chicken producers are not as well positioned, but financial necessity is going to ultimately improve that situation.

While corn farmers "owned" the past few year, producers of beef, pork, and chicken will likely "own" the next. Investors thinking about the hungry world of the future should be researching those firms that produce cattle, hogs, and chicken. A massive secular transfer of wealth to Agri-Producers is only in infancy, and the Agri-Demand/Agri-Supply situation is far more precarious than it ever was in oil.

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To contract Ned or to learn more, use this link:

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules