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As a general
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Because of
the worst drought since 1988 the U.S. Department of Agriculture
declared a federal disaster area in almost one-third of all the
counties in the United States – more than 1,300 counties covering
29 states, the largest disaster declaration ever made by the USDA.
Only in the 1930s and 1950s has a drought covered more land.

The United
States Drought Monitor shows 88 percent of corn, and 87 percent
of soybean crops are in drought-stricken regions.

This map show
the counties affected:

“We
just had a crop report today, which indicated a significant reduction
in corn production as well as bean production, lower forecast for
wheat, soybean, soybean oil, soybean meal, and corn, lower forecast
for milk, beef, pork, broilers, and turkey. And it’s obvious that
weather is having an impact on the estimates of crops. Despite the
fact that we have more acreage planted this year, we still are looking
at significant reductions, and despite the fact that we may even
with the corn estimates, as they have been reduced, would still
have the third largest crop of corn in our history, nearly 13 billion
bushels, and a very large soybean crop. We need to be cognizant
of the fact that drought and weather conditions have really impacted
and affected producers around the country.” ~ Agriculture
Secretary Tom Vilsack

Corn, the biggest
ingredient in livestock feed, is a mega-crop, there are more than
4,200 different uses for corn products;

Adhesives,
aluminum, aspirin, clothing starch, cosmetics, cough syrup, dry
cell batteries, envelopes, fiberglass insulation, gelatin capsules,
ink, insecticides, paint, penicillin, powders, rugs and carpets,
stamps, sweetener’s, talcum, toothpaste, wallpaper, vitamins, processed
and fast foods and of course as fuel – ethanol.

Extreme heat
and drought conditions hit the Midwest just as the corn crop was
suppose to pollinate – the key yield determining growth phase
for corn. Crop ratings have fallen to their lowest level in 24 years
– the most recent estimate pegged the crop as just thirty-one
percent of the U.S. corn crop in good or excellent condition as
of July 15, the least for the date since 1988.

Cattle
Country

The U.S. beef
herd has shrunk to its smallest since 1956.

“Feed
costs account for about 40 to 50 percent of total costs of production,
and when a rancher or poultry producer or dairy producer is faced
with higher feed costs it’s less profitable to produce that animal.
Often times you will see animals brought to market before they reach
full weight. In dire cases, producers will liquidate the entire
herd and don’t expand as much as they might have.” ~ Joseph
Glauber, chief economist at the U.S. Department of Agriculture.

The drought
in the Midwest comes on the heels of one last year in the southern
Plains, the heart of Texas cattle country – the 11 months through
August 2011 were the driest since at least 1895 in Texas.

A record 54
percent of pasture and rangeland is in poor or very poor condition.
The drought has destroyed a lot of pasture, and the lack of rain
has hit hay and alfalfa production hard. Ranchers normally start
feeding their animals hay in December or January (as cold temperatures
kill the grass) and stop in late spring as grass becomes available
in pastures.

This year many
ranchers haven’t stopped feeding hay because what grass was in their
pastures withered.

Ranchers are
again selling off part of their herd. In the week ending June 30,
52,700 cows were slaughtered. That’s a three percent rise higher,
year over year, then during the peak of the Plains drought. Farms
are sending young cattle to feedlots earlier than normal and slaughtering
more beef cows because pastures have no grass and hay prices have
more than doubled.

Corn prices
are up so much feedlot margins are drastically reduced or non-existent,
feedlots buy year-old animals that weigh 500 to 800 pounds –
these young animals are called feeders. They are fattened on corn
for four or five months until they weigh around 1,200 pounds, then
they are sold to meatpackers.

Fewer cows
today means fewer beef and *dairy cattle tomorrow.

Economic
Outlook Overview: U.S. Beef/Cattle Industry, Kansas State University

Short term
meat prices might drop because of the extra cattle (and hogs and
**chickens) going into the meat market. Unfortunately when those
cattle should have been sold there’ll be no cattle to sell, so meat
prices will go up, a lot, and stay that way for a considerable time,
until the herds are rebuilt.

*Expect dairy
prices to skyrocket up, not only because part of the herd is being
sold off but, if feed is of poor quality dairy production goes down,
if there’s less milk given per cow and its of lower quality it will,
for example, take more milk to make the same amount of cheese as
from higher quality milk.

** Poultry
meat and eggs will see the earliest price increases since these
shorter lived birds are raised almost entirely on corn.

Read
the rest of the article

July
31, 2011

Richard
Mills is host of aheadoftheherd.com
and invests in the junior resource sector. His articles have been
published on over 200 websites, including: Wall Street Journal,
SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey
Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington
Post, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary
Herald, Resource Investor, and Financial Sense.

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Copyright 2012 Ahead
of the Herd