A record drought in Texas last year and rising feed costs prompted ranchers to cull herds, even as beef exports surged from the U.S., the world’s largest producer. Cattle futures are up 15 percent since the end of June, reaching a record seven times this month, and the Livestock Marketing Information Center says retail-beef prices that reached an all-time high on an annual basis in 2011 will keep rising through next year.

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

Through to quarter one 2012, Rabobank expects an increase in global beef competitor meat supplies. This will take place amidst a backdrop of uncertain economic growth. However, cattle prices are likely to reach record highs later next year as markets transition from a short-term supply bulge - primarily in the US where herds are diminishing due to drought - to materially lower supplies.

U.S. farmers also may gain from increased shipments to South Korea, which reopened its market in 2008 to beef from cattle as old as 30 months. The two nations signed a free trade pact last year that will reduce import tariffs of as much as 40 percent over the next 15 years