Based on feed price ratios tracked by the USDA, beef and pork industry profits still are not high enough to trigger a herd-building phase, livestock analyst Steve Meyer said.

 

Feed price ratios represent the number of bushels of corn paid for by 100 pounds of a live, slaughter-ready animal. The ratios are a proxy for profitability and have historically been useful in predicting when producers may start expanding or contracting herds, Meyer said. For example, cattle at US$101 per hundredweight divided by an average corn price of US$3.41 a bushel yields last month's ratio of 29.6, according to USDA figures. The cattle ratio last topped 30 in November 2006.

 

The feed price ratio for hogs averaged 18.3 during May, the highest for any month since September 2006, the USDA said in its monthly Agricultural Prices report on Friday (May 28).

 

While May's ratio was up from 16.6 in April and marked the seventh straight month-over-month increase, it is still below 20, a level that typically signals breeding herd expansion, Meyer said.

 

For cattle, the ratio was 29.6 during May, unchanged from April but below 30, the level that suggests expansion. The April and May cattle ratios were the highest since September 2007.

 

Although feed price ratios have increased over the past two years, they are just now getting back to levels that may drive expansion, Meyer said.

 

The lack of expansion may reflect livestock producers' concern over the US economy. Producers are still smarting from more than two years of losses, after feed costs soared and the recession weakened meat demand. As a result, animal inventories have shrunk following widespread herd reductions.

 

Additionally, unemployment remains near a 27-year high, suggesting that consumers may continue to shun higher-priced foods, such as steaks and chops, economists said.