Is cattle meat (‘beef’) about to become more expensive?
The Barron’s cover story (‘The Cattle Crisis: Small Herd, High Prices’) last week highlights the impending crisis in the industry.
You can sense this by just looking at the price chart of Live Cattle.
Prices have been rising non-stop for the last 2-3 years. After a brief consolidation late last year, cattle prices have rebounded strongly. A strong upside breakout (to record highs) looms .
What exactly is driving this price rally? In the world of commodities, supply and demand still dictate price trends. In other words, cattle numbers are in critical short supply.
According to the Barrons’ article,
“The herd in this case refers to the U.S. cattle population, which recently hit a 75-year low. Steak prices have shot 55% higher over the past five years, and ground beef, 69%. These American staples might not weigh on household budgets like car insurance and electricity, but they are frequent cost-of-living reminders to any grocery shopper or restaurant diner.”[1]
But why are US cattle herds so low? One reason is drought. Another is disease, which is reducing supply from Mexico.
The other problem is expensive land prices. This reduces profit margins. Also, the industry has struggled to attract newcomers.
If you take all these together, it is not surprising that cattle herds have stayed stagnant while demand has risen from natural population increase (see Chart 2).
Live cattle prices are behaving in ways that are strikingly similar to cocoa, coffee, or orange juice prices in recent years. When supply of the commodity constricts to a critical point, its long-running price uptrend suddenly accelerates higher.
Is there anyway one can ride this? You can, via futures.
In the UK, there is this WisdomTree Cattle ETF (CATL) that tracks the industry.
