The pork and beef industries have worked to reduce the swine and cattle herds over the past couple years to restore some degree of profitability. In fact, the beef herd at the end of 2008 was the lowest in a half century. But there is still red ink on balance sheets for livestock operators and the reason is not the supply, but the demand, and that is a factor of the economy.

The object of cutting back on production was to raise prices to the point of profitability, but all of those efforts have been negated by the diminished desire of the consuming public to spend money on high value meats, says Nebraska livestock economist Darrell Mark in the recent edition of Cornhusker Economics. Mark reels off the achievements in the recent past that have gone unrewarded:
· 50 year inventory low in cattle and calves
· Swine breeding herd reduced.
· Canadian feeder cattle, feeder pigs, slaughter cattle and hog imports have declined.
· Never before seen drop in broiler production in recent months

Darrell Mark says the US livestock industry has both a domestic and foreign market. And for the most part exported US meat has been a growth market with a 32% increase in beef and veal exports and a 49% increase in pork exports during 2008. In fact foreign buyers took 1 hog out of every 5 that went to market. But the reliance on the foreign consumer began to fail late in 2008 and the global recession curtailed the foreign taste for US red meats.

The exchange rate did not help any either, when the dollar began climbing in value the demand dried up. Banks became less interested in extending credit to companies engaged in the meat trade and customers turned away from the higher priced products. That deflated the beef and pork exports for not only steaks and chops, but also for hides and variety meats, which are typically popular in many developing nations. Even the hide market has softened because people are wearing their shoes longer and buying outerwear that is less expensive than a leather coat. Mark says steer hides that sold for $68 last August are now worth $30. Another kick on the shin is even the lower value of inedible products, such as tallow and greases, which are valued with the energy market. Mark says the record high of $12 per cwt for those products is now $6 per cwt.

In the US the consumer market is dominated by disposable income, and the millions who have lost jobs have opted for lower value meats, which not only shifts preferences from steak to hamburger, but also from beef to pork and poultry, or away from red meats completely. Last year, beef and pork consumption slipped nearly 4%, in part from fewer meals eaten away from home, a trend that has hurt the restaurant industry. Such a trend that cut fine dining by 80%, and casual restaurants by 50% also saw those dollars shift to fast food restaurants.

Darrell Mark says the outlook for beef and pork in 2009 remains uncertain, and it will take an improvement in the general economy and consumer outlook to increase the demand for animal proteins. But when that happens, Mark says the livestock industry is in a good position because of the reduction in supply. He says when the demand begins to grow, the market will not be over saturated with meats and prices will rise with the demand for pork and beef products.

Summary:
Despite the efforts of livestock producers to cut the supply in an effort to raise prices, the economy caused the demand to soften, both for domestic and foreign markets. Prices for the entire spectrum of livestock products have declined, and simultaneously, consumer preferences have shifted to lower quality products in an effort to conserve disposable income. Livestock producers will still face unprofitable prices until the economy improves and demand eventually increases with resulting higher prices.