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Forbes: The Drought's Impact on Food Prices


As with pork and chicken, the beef industry has been rushing to reduce herd sizes in response to soaring feed prices. But this isn’t a recent measure. 2011 was also a very dry year, and Texas, Oklahoma and parts of Kansas – all heavy cattle producing states - suffered drought. Consequently, producers began to liquidate their stock last summer, which meant that they started off this year with already diminished herds, explains Kevin Good, senior market analyst at Cattle Fax. Since beef supplies were already headed down, the recent haste in liquidating fed cattle (animals that are finished in feedlots) hasn’t meant a glut in the market for cuts like steak. Ground beef, on the other hand, is currently enjoying lower prices. This is the result of vast numbers of dairy cows being sent prematurely to slaughter, as “hamburger” meat doesn’t come from fed cattle but rather from dairy cows that are no longer productive.

So, how then will the cost of steak and other cuts be impacted by the drought? “It takes about 60 bushels of corn to finish a fed steer or heifer in the feedlot setting. With corn prices jumping $2 from July, that’s an extra $120 cost per head,” explains Good.

Luckily, the consumer will only bear a relatively small amount of that increase when they come to shop for their beef dinners. As there are several different segments to the beef industry, a surge in cost gets mostly absorbed within the supply chain and just a fraction gets passed to the retail level. For example, the rancher with sun-scorched, desiccated pastures will wean his calves earlier to avoid losses, and will increase the placement of cattle into feedlots, explains Mike Miller, senior vice president of global research for the National Cattlemen's Beef Association. “And since the price of corn has increased so dramatically, feedlot operations will buy those calves and feeder cattle at a lower price to try to make up for the higher costs they’ll bear in finishing them,” says Miller. Nonetheless retail increases will come with tighter supplies, and Miller anticipates that consumers could face an increase between 6% and 10%. But, raising a market ready steer or heifer takes about 3 years, so with this in mind it’ll be the end of 2013 if not 2014 before this increase takes hold.

(Photo via Forbes)

More from Forbes:
Where You Might Not Shop In 2012
America’s Most Overpriced Cities
The Best Cities For Bargain Shopping

The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.

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