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Research predicts U.S. protein production will decline sharply in 2012

U.S. meat and poultry production is headed for what researchers at the Rabobank International Food & Agribusiness Research and Advisory (FAR) group anticipate to be a “precipitous fall” by mid-2012. Beef and broiler supplies are all expected to tighten as production increasingly lags behind GDP growth.

Rabobank International Food & Agribusiness Research and Advisory (FAR) group’s “Where’s the Beef?” report notes that drought in the U.S. is a major contributor to the production decline, but the report finds that global meat and poultry production is in the midst of a multi-year process of adjusting to higher and more volatile feed costs. Since the U.S. is a large and significant exporter of meat protein, the decline will also affect world markets as well as demand for feed, notably for corn.

“The drastic decline in protein production we anticipate will be felt in a number of industries,” notes David Nelson, Global Strategist with the research team. “We expect the decline will create concerns for everyone from foodservice operators to corn producers.”

Per capita meat consumption in the U.S. appears to have peaked. The poultry industry, in particular, should no longer count on rising domestic demand as a means of growing its way out of over-production situations. However, a rising GDP in the developing world is contributing to an increasing global demand for meat protein.

“The greater global demand for meat protein is the key driver to rising feed costs, which in turn drive up the cost of raising animal protein,” says Nelson. “Global meat production continues to significantly lag GDP growth, which is, the key factor behind rising prices.”

Given the long cattle-production cycle, as well as a relatively high feed conversion ratio, beef is the protein sector least able to cope with structurally higher and more volatile corn prices.

Extreme drought conditions in the South, specifically Texas, are resulting in significant herd liquidation. As a result, the report predicts U.S. beef supplies will be plentiful when the cattle currently in feedlots come to market, but the long term impact will include a dramatic decline in beef production by mid-2012.

“U.S. beef production could be running as much as seven percent below comparable 2011 levels by the third quarter of 2012,” says Nelson.

U.S per capita consumption will continue in a gradual decline, so the reduction in supplies will be most notable for importers of U.S. beef. The report indicates there could be a double-digit percentage decline in beef available for export in the second half of 2012.