Dwindling cattle supplies that have already raised beef prices are now forcing feedlots and packing facilities to close their doors which could again impact the price of beef products.
The U.S. cattle herd is the smallest in 61 years and last summer’s drought continues to affect the industry as Friday’s report showed an increase in cattle placements for the first time in eight months. Producers are moving cattle off droughty pastures and into feedlots, but feedlot options are more limited.
According to the Associated Press, some feedlots in cattle producing states have closed while others are empty. States further south including Texas, the largest beef-producing state, have been hit hardest where two consecutive years of drought have hurt cattle producers.
Dick Bretz, an Amarillo broker who specializes in selling feed yards and other agribusinesses, told the Associated Press there are 10 to 15 feed yards for sale in the region with another 15 that are empty. Most of them are located in Texas.
Meanwhile, northern states less affected by drought have managed to retain herd sizes and grow. Cargill closed a processing facility in Texas on Feb. 1. Cattle that would normally go to that plant are now shipped to plants further north in Colorado and Kansas. Meanwhile, Northern Beef Packers opened in Aberdeen, SD over a month ago and is sizing up the export market.
Small herd sizes are slowly affecting other links in the chain; the final link will be consumers who will see high beef prices in grocery stores and restaurants. Economists have already predicted a 10 percent increase in beef prices by this summer and Reuters says retail beef prices posted an all-time high in January at $5.24 per pound, surpassing the previous record of $5.15 set in November.
Additionally, talk of automatic budget cuts have raised concerns about meat packing plant inspectors who may be furloughed if the sequester is implemented.