Drought’s lingering impact
By Dave Gathman firstname.lastname@example.org March 23, 2013 10:33PM
Meat cutter Keith Bloedorn (left) heads to the butcher block to make more bacon as owner Ed Reiser watches Tuesday at Dreymiller and Kray Inc. in Hampshire. March 19, 2013 | Michael Smart~Sun-Times Media
Updated: April 25, 2013 7:25AM
HAMPSHIRE — Last week the average price paid to farmers for unprocessed “choice” beef cattle was the highest it has ever been. And worse may be in the offing, if you’re anywhere on the eating end of such transactions.
Whether you’re shopping for a sirloin at the local supermarket or looking over the menu at your favorite restaurant, you’re likely to see big increases in the price of meat — especially beef.
We could call it the other shoe dropping — or maybe better, the other shoe kicking meat-eaters in the rear — from last summer’s drought. But burning ethanol in our car engines and even the changing eating habits of people in China play a role, too.
“To be honest, there isn’t a huge profit in this. They basically just take care of themselves financially,” said Scott Horton, the owner of Horton Farms Shorthorns in rural St. Charles.
“In the last few years, the cost of their feed has gone up about 50 percent.”
The rising cost of corn and soybeans and hay doesn’t have a direct or immediate link to the price of meat. But it does have a very real, though often delayed, impact. Horton explains that it all has to do with supply and demand.
Most corn, soybeans and hay are grown to feed livestock. Last year’s drought, which cut crop yields by a fraction in our area but hit some parts of the Great Plains terrifically, cut the supply of that animal feed. With the supply down, the price of such grains and hay has gone up. And with meat prices not going up as fast, farmers like Horton who own beef cattle, chickens or hogs began to stop replacing the animals they had slaughtered.
Horton, for example, who works in construction as well as raising cattle on his 47-acre spread, says his family has cut down their usual herd of about 25 beef cattle by about a third.
The U.S. Department of Agriculture reports that beef cow numbers are at their lowest level since 1962. The number was down 3 percent in 2012. And that wasn’t all because of last year’s drought, either. A lingering yearslong dry spell in the Oklahoma-Texas-Kansas area has caused nationwide beef-cow numbers to drop 11 percent, or 3.6 million head, since 2007.
Chris Hurt, an agricultural economist at Purdue University, said the southern and central Plains have led the way with a 1.9 million-head reduction since 2007, followed by declines of 700,000 head in the Southeast and 680,000 in the Corn Belt states like Illinois.
As the number of meat animals on farms drop, the supply of meat goes down and the price of meat goes up.
Eventually, if crop production goes back to normal and demand for meat stays the same, the whole process works itself back to normal as the rising meat price again makes it profitable for farmers to grow livestock and they again rebuild their herds and flocks. Such cycles have happened often throughout American history.
Hurt said there are already signs of such a turnaround beginning. The number of beef heifers (female calves that haven’t yet given birth) being saved for herd replacement was up 2 percent, according to that USDA report.
Cow curve balls
But the world of 2013 also has thrown some curves into that process:
For one thing, notes Hampshire butcher shop owner Ed Reiser, a lot of corn and soybeans are now ending up not on our plates but in our gas tanks; they’re being used to make ethanol and soy diesel. That pushes the demand for and price of feed higher even without any drought.
Once-poor “Third World” nations like China and India, whose people once could afford little more than rice in their dinner bowls, are becoming more prosperous and discovering they like a good steak, too. Some of that meat is imported from the United States and other agricultural super-powers like Argentina and Australia, and that raises the demand for meat itself. But even if the developing country raises its own cattle and hogs and chickens, it likely will import much of their feed from us.
That again raises the demand for, and the price, of grain at the same time drought has cut into the supply of that grain. And it raises that price in a way that doesn’t automatically go down again just because 2013 is not a drought year — assuming it isn’t a drought year.
Curve 3: Bruce Krog, who raises 1,000 egg-laying chickens with his wife, Judy, at their farm in Plato Township, notes that the price-demand cycle tends to hit some types of livestock worse than others because of nature.
A baby chick can grow up into a juicy meat chicken in just a few weeks. A hog can go from cute little flat-nosed newborn to a market-ready bruiser bigger than a man in half a year. But a calf bought by a beef farmer to increase his herd? That will take four years to grow up, give birth to a bull that can be converted to a meat steer, and see her son raised to market weight.
Buffalo, whose meat Reiser also sells at his 84-year-old Dreymiller & Kray butcher shop in downtown Hampshire, take five to six years to go through that same calf-to-meat-counter process.
Thus chicken meat tends to recover faster from market shocks like the drought. Pork takes a little longer to return to normal. And beef, with its long gestation and growing times, takes a long, long time to get back to a normal level of price and supply.
Curve 4: Reiser notes that in this era of big businesses, even the strategy of a single corporation can distort the market. A change in the menu at McDonald’s can cause a price spike or a price tumble for a certain kind of meat. Most recently, Reiser said, Walmart switched its grocery departments from selling “select” cuts of meat to selling the higher-grade “choice.” Immediately the price of choice cattle went up and that of select steers went down.
Curve 5: New equipment and efficiencies of scale are pushing livestock production away from the Upper Midwest and toward giant megafarms with hundreds of head of cattle in places like Colorado and Kansas. Indiana, for example, wasn’t hit by drought until last year, yet it has lost 18 percent of its beef cattle since 2007 as Hoosier farmers found that growing only corn and soybeans made about as much money with a lot less work.
“I can think of a lot of people around here who used to raise cattle but gave that up,” says one of them, Kane County Fair dairy cow superintendent Ray Russell of Plato Township. “To make it run efficiently now, you need something like 100 cows, and to do that, you need to hire outside help.”
Despite the rising price of feed, Krog said, he has not cut down on the number of his laying hens and hasn’t raised the price of eggs for couple of years. For one thing, he said, “with our automatic feeding equipment, you have to keep the (henhouse) full or the machinery doesn’t work right.”
Krog said machinery also played as much of a role as markets when he decided in 2006 to give up the two beef steers and pen full of hogs he used to raise, mostly to provide meat for his own family. “The equipment was shot and would have cost a lot to replace.”
Not going veggie
Reiser said the price of meat has gone up through the years, but he sees little indication of his customers going vegetarian.
“Some of our people have said they will switch from beef to pork, and if pork prices rise too they will switch from pork to chicken,” Reiser said. “But I don’t see people really changing all that much. People are buying smaller amounts of some cuts, because they really look at the total price of what they’re buying more than the price per pound.”
Reiser said he noticed the biggest increases in wholesale meat prices about two years ago. Beef prices are rising some now, he says, but perhaps have not yet caught up with the herd reductions caused by last year’s drought.
“The price of prime rib for the year to date has barely changed,” he said. “Cattle overall are up about 18 percent since 2008.”
Reiser admits that in some ways Dreymiller & Kray’s has followed the lead of breakfast cereal companies and candy makers that have kept the same price yet have made their packages a little smaller. For example, the wholesale price of hog bellies to a shop like Dreymiller & Kray has more than doubled since 2008. But when the shop changed from selling bacon a pound at a time to selling it in three-quarter-pound packages, that rise no longer seemed so steep.
The road ahead
Factors like the rise of the Third World and the use of biofuels won’t change anytime soon. But the future of meat prices will depend largely on what kind of weather we, and the rest of the Midwest — the rest of the world, for that matter — get in the growing season that starts next month.
If we get just the right amount of rain, corn and soybeans and hay will grow abundantly, and feed prices paid by farmers will go down. The happy impact on the price of chicken meat and pork will be quick, since the supply of those animals can be restocked quickly. But beef prices may take a little longer to catch up.
The heavy late-winter snowfalls that have hit not only our area but some of the most drought-plagued parts of the Great Plains could be a promising hint of spring rains to come. Already they have helped to restock moisture in the subsoil where farmers will be burying seed in a few weeks.
“However, everyone watching the Drought Monitor knows that much of the country has not yet returned to normal weather conditions,” economist Hurt told a University of Illinois journalist.
And if we have another Midwest-wide drought like 2012’s? Well, let’s not even think about that.
Contributing to this story were news specialists
Debra Levey Larson from the University of Illinois—Urbana/Champaign
and Jennifer Stewart from Purdue University.