High Corn Prices Ripple Through the Economy

According to Deutsche Bank’s chief economist Joseph LaVorgna, the drought last summer sapped about one percentage point of growth from the U.S. economy in 2012. Although the photos of withered crops and sun-baked fields have largely disappeared, the worst drought since the 1930s remains. Its latest casualty is one of the largest beef processing plants in the country: Cargill’s Plainview (Tex.) facility, which handled about 4 percent of all the cattle slaughtered in the U.S., was expected to shut down on Feb. 1. Shrinking cattle herds made the plant unnecessary, and most of the 2,000 workers there will lose their jobs. Cargill is helping workers find jobs at its other plants and other companies.

Although it took some time to work its way up the food chain, the drought is now hitting the beef industry with full force. Cattle ranchers were already thinning their herds because of higher corn prices, which increased the cost of feed. Now that grasslands have dried up and the price of hay has risen 60 percent above its 10-year average, the thinning has quickened considerably. At 90 million head, the U.S. cattle herd is at its lowest level since 1952, leaving too much slaughterhouse capacity to chase fewer and fewer cattle.