The warm weather in the winter months gave farmers hope for a great crop production this year, but a crippling U.S. drought now covers around 60% of the continental United States. the looming U.S. food price increase in 2013 is just the beginning, and the reasons go far beyond the current drought.
Add in the USDA's recent report that U.S. beef consumption fell for the sixth consecutive year in 2011, and their forecast that consumption will drop to 11.359 million tons in 2012, the lowest level since 1993, and you can see why some traders sold over the past few months.
However, there are many reasons why cattle prices should quickly rebound. Cattle futures could hit a record $1.33 a pound by year-end according to Ron Plain, a livestock economist and advisor to the USDA. Among them:
While U.S. beef consumption is easing (because of both cost and trends in health consciousness), export demand for U.S. meat is rising - to an estimated 2.675 billion pounds this year, the highest level ever.
The size of the U.S. cattle herd fell to 90.77 million head at the end of 2011, smallest since 1952, as U.S. ranchers culled stock to battle severe drought, skyrocketing feed prices and shrinking margins.
The loss of breeding stock as a result of smaller herds means a continued low cattle population, with calf production this year dropping to the lowest levels since 1950.
The USDA estimates beef production will drop 2% to 24.671 billion pounds next year, the lowest output since 1993.
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