A drought in Australia has forced ranchers in the world's third-biggest beef exporter to cull cows, stoking fears of a global beef shortage in coming years with the U.S. herd at its lowest in six decades.
The slaughter of animals and effect of the drought could boost beef supply in the short term, but spells longer term shortages due to the reduced breeding stock.
"The big problem that we are going to have in the next 12 to 18 months is that progeny that would have been born today won't be there," said Brad James, Rabobank's manager for the Northern Territory and the key beef producing state of Queensland, which is home to around half the country's 28 million head of cattle.
"Drought affected cows can't calve."
The shortfall for a country that accounts for almost a fifth of the global trade in beef could drive up prices at a time when demand is rising in many emerging countries, where increasingly affluent middle classes are developing a taste for high-protein western diets and fast-food like hamburgers.
Analysts see Australian cattle prices climbing by up to about 50 percent this year. If they are right, that would further fuel Chicago live cattle futures already hitting record highs.
Queensland has recorded less than half of the normal rainfall in the last three months, draining water reserves and stunting grass growth in pastures double the size of France. It is the second straight year the state has suffered poor rains.
For the week ending Jan. 24, cattle slaughter in Australia rose 40 percent year on year to reach a record high of 161,712 head, according to industry data firm National Livestock Reporting Service.
Last month, industry body Meat and Livestock Australia (MLA) projected cattle numbers would drop to 27.25 million head by July - the end of the 2013/14 marketing year - but warned that fall could be steeper if the drought persists.
Heavy rains from Cyclone Dylan provided a brief respite last week, but the Australian Bureau of Meteorology forecasts a return to dry weather for Queensland, with less than 10 millimetres of rain expected this week.
"We need weeks and weeks of good rains if we are to turn things around in Australia," said Simon Quilty, meat and cattle analyst at FCStone Australia.
Distress sales by ranchers dragged prices to their lowest in more than three years, with Australia's benchmark Eastern Young Cattle Indicator (EYCI) falling to A$2.78-1/2 kg on Jan. 22.
But analysts expect prices to rebound once concern over the future dearth of cows registers with the market, especially as some will look to restock parts of their herds when the drought eventually breaks. Luke Mathews, commodities strategist at Commonwealth Bank of Australia, said the EYCI could rise "well above" A$4 a kg by the end of 2014.