In the news: US Cattle Herds at their lowest in 60 Years. Beef prices going up. More S & D analysis.

Just on KPRC-2 today and confirmed by media outlets such as USA Today, we see a Thinning of the US Cattle Herd.  As a man who loves a good cheeseburger or medium grilled steak, this is not good news.

Per the article:

The Agriculture Department reported Friday there were about 91 million head of cattle in the U.S. on Jan. 1, down 2% from a year ago and the lowest level since 1952.

Retail beef prices, now near record levels, will likely rise 4% to 5% this year following a 10% increase in 2011, according to Agriculture. John Nalivka, owner of consulting firm Sterling Marketing, estimates prices could rise as much as another 10% — more than double the inflation rate for all food. 

The most severe drought in more than half a century last year left ranchers in Texas, Oklahoma and other states with meager supplies of grass and water to feed their cattle. Many animals were sold to feedlots or slaughterhouses.

The crisis added to a long-term trend of ranchers thinning their herds because of the soaring price of corn — a primary feedstock for cattle — rising property costs and increased competition for land with corn, soybeans and other crops, says Kevin Good, a senior analyst at research firm CattleFax.

At the same time, U.S. beef exports jumped about 22% last year on surging demand from Canada, Japan, South Korea and Hong Kong, Agriculture says. Helping fuel the increase was a falling dollar that made U.S. shipments less expensive for foreign buyers. The combination of low supplies and strong foreign demand lifted cattle prices despite falling U.S. consumption, Nalivka says. Live cattle prices hit a record $1.26 a pound last week, up 20% the past year.

[Paul Davidson, USA TODAY]

This particular article is very relevant to material being covered in ECON 2301 and ECON 2302 this week.

Questions for Comments:  How does the cost of water affect the market for corn (curve, direction of movement, reason why, effects on P* and Q*)?  How does this affect the market for Beef?  (same modalities as HW #1 Pr. #5 for 2301, Pr. #4 for 2302).  How does that affect the market for cheeseburgers served in restaurants?  If possible, construct S & D graphs that illustrate this effect for each market.

Success to you all!!!

Prof. Lewis