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Multi-Billion Dollar Drought to Drive Beef Prices Up

Posted: 09/20/11 10:58 AM ET

A multi-billion-dollar weather disaster -- a devastating drought -- raging across Oklahoma and Texas is expected to increase already-high food prices for beef-eating Americans in the coming months.

According to Bloomberg, ground beef prices in August were already the highest since at least 1984, and beef prices are expected to rise 8% this year. This is twice the rate of the increase in food prices overall.

The supply of beef is expected to meet demand for the next several months, in part because of a temporary flooding of the market caused by the slaughtering of cows that cannot be supported by the extreme conditions. This might temporarily slow the increase in prices, but beef supply is expected to decrease during the second quarter of 2012.

A decreased supply, of course, would drive prices up further.

In addition, damage to pastures, some of which might take years to recover, and the potential for the drought to continue through the upcoming winter means that the price increases might not be short-lived.

The concern for a continuation of the drought stems from the return of La Nina, a cooling of water in the equatorial Pacific that influences global weather patterns. During a La Nina winter, precipitation is typically less than average in the southern Plains. Last year's La Nina contributed significantly to the current drought.

Much of the devastated regions have had some rain during the past week, but exceptional drought conditions -- the worst category -- continue across vast portions of Oklahoma and Texas, as well as southern Kansas.

2011-09-20-southern_drought.png

Damage in just Oklahoma and Texas is estimated to be close to $7 billion, which includes a record-breaking $5.2 billion for Texas alone through August 15, a number which has undoubtedly increased since. This is according to a CNNMoney.com article from earlier this month.