Steak-loving consumers should start saving now – drought conditions and high corn prices have resulted in low inventories of cattle that will keep beef prices high for the foreseeable future.
Cattle futures in Chicago jumped 7.3 per cent between April of 2012 and Friday on expectations of lean (you see what we did there) inventories for 2013. The root cause of the problem is consistently high feed corn prices, resulting from the severe drought last year. Faced with higher costs to maintain herds, North American farmers have increasingly chosen to send animals to slaughter.
The end result is a sharply lower cattle population. In Canada, herds have declined 17.1 per cent to 12.5 million head. South of the border, inventories fell 8.5 per cent for the same period. The U.S. Department of Agriculture concludes, "demand for ground beef products and cow inventories, [which are] at the lowest in decades, will likely continue to support prices into 2014 or 2015."
To complicate matters, the U.S. agricultural community is already concerned about 2013. The Nebraska-based National Center for Drought Mitigation (NCDM) reports drought conditions are persisting for 51 per cent of the United States and water supply is becoming a serious issue. Another poor crop this year would put more pressure on prices throughout the agricultural complex, including beef.
Agriculture accounts for 1.8 per cent of Canadian GDP and 1.2 per cent of U.S. GDP but these seemingly small numbers understate the importance of the sector. A stressed agriculture sector creates higher food costs, which detract from overall economic growth by lowering discretionary consumption. The effect is magnified on the most economically vulnerable populations.
Scott Barlow