Beef Prices Expected to Increase This Year as Farmers Deal With Drought

Aug. 29, 2012 — -- Despite the torrential rainfall in the South with Hurricane Isaac, severe drought is affecting the Midwest, which is expected to make the already rising price of beef only go higher.

Many farmers are selling their cattle to save their profits because they don't have the grass and water to feed them.

Missouri, which has 106,500 ranches, the second largest number of any state, behind Texas, is seeing noticeably smaller herds, the St. Louis Post-Dispatch reported.

Last week, there were 30,571 cattle were sold in the state, compared to 22,387 for the same week in 2011, according to data tracked by Missouri's Department of Agriculture.

"There's hardship out here for some of these guys due to drought and higher feed cost," said Bill Lapp, president of Advanced Economics Solutions, an economic research firm focused on the food industry. "Consumers will feel pain too."

The USDA projects that prices for cattle, or steer, for the fourth quarter will be $1.15 to $1.23 per pound, up from the 2011 annual average of about $1.14, which Lapp said is closely correlated to consumer beef prices.

The cattle industry and beef prices have been negatively affected since 2007 by cycles in the industry and an increase in exports, he said.

Lapp said the beef industry always sees an ebb and flow in herd sizes and commensurate increases or decreases in beef production, directed by the industry's profits.

Spikes in the price of corn, which is feed for cattle, in 2008 and 2011, and then one of worst droughts in Texas and Oklahoma last year exacerbated the situation.

As supplies decrease, prices will likely increase further in 2013, consistent with the USDA's forecasts.

"Without regard to the high price of corn and drought, this has more or less been etched in stone," said Lapp, who is based in Omaha, Neb.