Droughts Everywhere Are Sending Beef Prices To Record Highs

REUTERS/Walter BrandimarteA man prepares to barbecue beef to create the "Biggest Barbeque in the World" in General Pico March 20, 2011.Recent droughts have cast a long shadow over beef prices.

Live cattle contracts hit $1.43/lb. today, highest since the contract started in 1964, according to Bloomberg's Phoebe Sedgman.

In a recent note, ConvergEx's Nick Colas explained what's going on: Although we had a normal and even wet summer last year, it takes years for pastureland - and the volume of animals grazing on them - to recover from such a severe lack of precipitation. The last three years have seen below to severely below average precipitation.

Colas:

"There are a lot of cattle in America - just over 89 million head in total - but those numbers are down from 94 million in 2010. Pasture land doesn't recovery from drought in just one or two years, so ranchers have to maintain lower herd sizes even when the weather improves. It did so this year, but numerous articles (one cited below) in local farming community newspapers seem to indicate that ranchers remain cautious despite this year's better environment. Bottom line: U.S. herds are at a 60 year low and seem likely to remain depressed. For a long term frame of reference, consider that the peak was just over 103 million head of cattle in 1996.

Sedgman writes ground beef prices hit a near 30-year high of about $3.50/lb. last September. Here's the chart for Live Cattle contracts.

Ground beef prices have since come down a bit. But Sedgman reports prices may rise again, as severe droughts in Australia are forcing massive sell offs among ranchers Down Under. Although this will cause exports to temporarily increase, demand is surging in places like China, which "puts a lot of pressure on imports for fast-food grinding beef," and means "beef will go to the highest bidder," she quotes Global AgriTrends' Brett Stuart as saying.