Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.
 / Updated 

Beef has never been more expensive, and rarely more controversial. From top-end T-bone to Big Mac, the future of the beef industry is at stake.

The most obvious expression of this is its price. Cattle futures in the U.S. scaled all-time highs in 2013, and are predicted to peak at a record $1.405 in early 2014. This is already having an impact on consumers, even though there is usually a delay between prices of cattle rising and retail prices increasing.

"People are switching from steak to burgers," Derrell Peel, agricultural economist based at Oklahoma State University, said.

Health scares around red meat and beef products like "pink slime' - which celebrity chef Jamie Oliver compared to dog food - have also led to a leveling off in demand.

"Demand for meat and meat product is changing, for economic and health-related reasons," David Simon, author of Meatonomics, said.

However, the appetite for beef is multiplying rapidly in markets like China – and the competition to secure these markets is increasing.

"People are switching from steak to burgers."

International trade barriers should be eased after the new Trans-Pacific Partnership Agreement between Australia, Canada, New Zealand and the United States, which account for a half of global exports between them, comes into effect. European beef will come fully back onto the global table after years of restrictions imposed after the BSE crisis. The disease in cattle – commonly known as mad cow disease – wreaked havoc in the market for meat in the 1990s. Negotiations to allow the U.S. to export beef to China, one of the world's fastest-growing markets, are also continuing.

Where's the beef?

Cattle supply is at an all-time low in the U.S. after nearly three years of drought, which led to more farmers killing off their herds earlier than planned. U.S. beef output will hit a 20-year low of 24.205 billion pounds this year, according to Department of Agriculture forecasts. It will be 2017 before production is restored, Peel predicts.High prices are causing concerns in the industry that demand will be affected – and that lower consumption will mean farmers switch to other products.

"The main challenge for the industry is: Where does the beef come from?" Albert Vernooij, a meat industry analyst, told CNBC.

Sometimes, it's not beef at all. Last year's horsemeat scandal in the U.K., where some producers substituted beef for horse in cheaper beef products, illustrated the negative effects of consumer demand for less expensive beef.

"The challenge is always that the food service chains want to offer burgers at the same price," Vernooij said. Chains like McDonald's and Burger King want to keep their flagship burgers at a similar price – but beef is one of their biggest commodity costs.

Beef has a much longer life cycle than other meats like poultry or pork. Cattle typically are slaughtered at between 2.5-3 years old – although that has come down to around 2.3 years in 2013 as producers tried to compensate for the effects of drought, according to Rabobank.

Where's the water?

"We have been in a drought situation for much of the last three years which has caused a 60-year low in cattle numbers. We are now looking at a period of reduced production as part of that process is allowing cows to mature, and allowing people to rebuild their herds," Peel said.

This longer life cycle, and a low level of multiple births, mean that producers find it more difficult to adjust quickly to price movements.

It also means that the developed markets face less immediate danger from emerging markets producers than poultry or pork, which are much easier to set up in countries like China or Russia.

The cycle between peak and trough of the beef industry, which is usually about a decade long, has been changed by "abnormal conditions" over the past 15 years, according to Peel.

"The beef industry was really ready to expand in 2011, but drought has prevented their plans," he said