How this summer's drought could have you paying high beef prices again next year

The impact of thissummer's drought across the Prairies could be felt byCanada's cattle sector for the next two to three years, according to market watchers, withconsumerscontinuingto face highbeef prices.

Hot, dry weather hasstrained pastures and hamperedhay production at a time when farmers are usually producing feed for winter. Feed costs have spiked as a result.

The situation hasranchers weighing the difficult decision to sell their cattle early, with potentially large numbers expected to be sold to slaughter.

If the droughtresults insmaller herds, it could keep beef prices already high due to strong demand elevated, withfewercattle coming to market over the next couple years.

"If you sell cattle due to a drought, it takes you two or three years or more to rebuild that supply chain and rebuild those supply numbers,"said analyst Brian Perillat, of Canfax, adivision of the Canadian Cattlemen's Association that tracks cattle market data.

"That sort of medium-term outlook is continued high beef prices, assuming this demand in North America and internationally remains strong. So you just don't see much relief down the line for consumers any time soon."

The summer's drought has been widespread, stretching from northwest Ontario to B.C.

"Pasture and forage conditions continue to deteriorate across Western Canada and a large area of the U.S.,"said livestock market analyst Jason Wood,with Alberta Agriculture and Forestry, in a report Thursday.

Prices on the rise since January

The drought comes as North American consumers have seen beef prices risewith growing demand,as pandemic-related public health restrictions ease and restaurant dining opens up.

Statistics Canada's monthly average retail food pricedata shows the cost of several popular cuts of beef largely increasing from the start of the year through June.

The average price of a sirloin steak, according to the data, climbed from $22.68 per kilogram in January to $24.34/kg in Junean increase of more than seven per cent.

Economists have said rising demand isn'tthe only factor driving price increases at the grocery stores, also pointing to COVID-related supply chain issuesand the Canadian dollar.

But even if more ranchers sell their cattle on the market in the coming weeks, analysts aren't expecting beef prices to tumble, due to strong domestic and internationaldemand.

"If there is a silver lining to the increased liquidation of cattle due to the drought, it is that demand remains strong for beef,"said Farm Credit Canada economist Leigh Anderson in an email.

"In addition, rising [COVID] cases in the U.S. has spurred consumers, wholesalersand restaurants to stock up on beef as concerns over potential restrictions surface again," he said.

"Strong demand is likely to support consumer prices, even with the marketing of additional cattle."

Anderson said one potential "wild card" forconsumerprices of beef is the direction of the pandemic;a fourth wave could disrupt either supply or demand or both impacting prices in either direction.

Exportdemand high

According to Canada Beef, which helps market the country's beef and cattle sector, beef exports are up 18 per cent this year, as of June.

"I don't see anything on the global horizon that's going to change demand," said Michael Young, the agency's chief executive. "Demand will remain high."

But domestic beef prices are unlikely to march much higher without a consumer response, cautionsSylvain Charlebois, senior director of the Agri-Food Analytics Lab at Dalhousie University in Halifax.

Higher beef prices could lead shoppers to seek other sources of protein, he said, noting that beef prices are up about eight per cent overall from the start of the year.

"The thing about meat-counter economics, though, is that there's not a whole lot of space anymore to move up, because you're likely to spook consumers," Charlebois said.

"They just could walk away from the category altogether and consider either the other two components of the meat trifecta:pork and chicken.Or they actually just could go on and buy a plant-based or another source of protein."