Brian Briggeman

Jason Henderson

English

Research Papers in Economics

The Slow Road Back for the U.S. Livestock Industry
By Brian C. Briggeman, Economist, and Jason Henderson, Vice President and Omaha Branch Executive
2009
T             
he recent recession has wounded the livestock 
industry. Since 2007, falling demand and rising 
feed costs have battered U.S. producers of 
cattle, hogs, poultry and dairy products, forcing them to 
trim herds. This traditional supply adjustment should 
help rebalance supply and demand, thus boosting profit 
margins and staving off larger losses over the next year. 
Renewed prosperity in the livestock industry, however, 
hinges on a rebound in protein demand. While the U.S 
economy appears to be recovering, domestic protein 
consumption typically stays sluggish following a recession. 
Consequently, most potential gains in demand will probably 
come from developing countries as their incomes rise. 
This article analyzes the profitability and 
competitiveness of the U.S. livestock sector. Saddled 
with high production costs and weak domestic demand, 
producers also face the likelihood of sluggish gains in 
consumer incomes and spending, which could limit any 
rise in U.S. protein consumption. Rising global demand 
will offer significant new profit opportunities—but to seize 
those new opportunities, U.S. producers must create new 
livestock products targeted to the tastes and preferences of 
global consumers. 
Lost ProfitabiLity Leads to Herd Liquidations 
In 2008, after several years of robust profits, 
livestock profits disappeared with rising feed costs 
and falling demand. From 2004 to 2007, livestock 
producers enjoyed periods of strong profitability due 
to increased demand and short protein supplies (Chart 
1). The dietary fad of low-carb diets, such as the Atkins 
diet, helped boost U.S. protein demand, especially for 
red meat. And rising incomes, especially in developing 
countries, strengthened foreign protein demand. Producers 
responded by strengthening production capabilities and 
expanding breeding herds for hogs, beef cattle and dairy 
cows. According to the U.S. Department of Agriculture 
(USDA), from 2004 to 2008, red meat and poultry 
production rose 10 percent with the strongest gains in 
pork production. At the same time, milk production 
jumped 11.2 percent.
Just when livestock production peaked, however, 
global protein demand declined in the recession. This year, 
domestic consumer spending on food items has fallen 1.5 
percent, with even larger contractions in food consumed 
away from the home.1 Similarly, after sliding at the end of 
2008, U.S. meat and dairy exports in the first five months 
of this year plummeted 23 percent below year-ago levels. 
Dairy exports declined even more significantly.
With demand weak and supplies bulging, most U.S. 
livestock producers have operated in the red over the past 
year. Weak livestock demand weighed heavily on livestock 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2 0 0 9	•	Vo l	I V 	 	 	Issue	IVpag e   2
prices received by farmers. Cattle and hog prices have 
declined roughly 10 percent since 2007. Milk producers have 
faced the sharpest decline, with prices plummeting by more 
than one-third. By 2008, profits in the livestock industry had 
fallen sharply, as prices dipped well below break-even levels.
At the same time, livestock production costs 
spiked, with strong crop export and ethanol demand 
underpinning a surge in U.S. crop and feed prices. By 
August of this year, feed prices had risen 48 percent above 
2007 levels. As a result, livestock prices dropped well 
below production costs and breakeven prices (Chart 1). 
Confronting disappearing profits, livestock producers 
began trimming herd sizes. In 2008, poultry producers 
reduced the number of chicks hatched 1 percent and 
trimmed the number of chicks placed on feed 2 percent. 
At the same time, the number of cattle on feed fell 6.6 
percent and hogs for breeding declined 2.7 percent. Aided 
by a dairy buyout program in 2009, dairy producers 
are expected to cut herds 1.5 percent. Herd and flock 
liquidations have helped narrow losses. Still, analysts 
suggest that bringing the market into balance may require 
more cuts, especially in dairy and pork production. In 
fact, USDA suggests that hog and dairy herds could shrink 
further in 2010. 
u.s. Livestock demand decLines
Despite the liquidation of livestock herds, a rebound 
in demand will be essential for livestock 
farmers to ignite a return to profitability. 
Historically, livestock demand has 
rebounded sluggishly following recessions. 
The prospects of a rebound in U.S. 
demand appear bleak, especially if 
the recovery is not strong enough to 
spur rising employment, incomes and 
spending. 
Over the last half century, rising U.S. 
incomes have supported a steady rise in 
U.S. protein consumption. According to 
the Bureau of Economic Analysis, real 
per capita disposable income in the U.S. 
has risen from roughly $11,000 in 1960 
to almost $33,000 in 2008. The nearly 
three-fold gain in discretionary income 
has allowed U.S. consumers to change 
to a more protein-based diet. By steadily increasing their 
protein consumption, consumers have boosted their 
spending on beef, pork, poultry and milk products. 
Increased protein consumption was also supported by 
lower prices and changing consumer preferences. Since the 
1970s, robust efficiency gains in U.S. livestock production, 
which lowered meat and milk costs, have made livestock 
products more affordable for consumers. Moreover, 
changing dietary fads and food safety concerns have also 
altered livestock consumption patterns. For example, driven 
by dietary trends discouraging the consumption of red 
meat, beef consumption declined in the 1990s, replaced 
by a rise in poultry consumption. Moreover, outbreaks of 
bovine spongiform encephalopathy (BSE), or “Mad Cow 
Disease,” in Europe accelerated this switch.
During recessions, U.S. protein consumption stalls 
as slower income gains reduce spending. While recessions 
historically have reduced consumer spending, per capita 
expenditures on livestock products have typically held 
steady during the five recessions since the 1980s (Chart 
2).2 For example, since 1980, livestock expenditures have 
risen on average 6.5 percent in the year prior to a recession, 
with the strongest gains emerging prior to the 2001 and 
the most recent recession.3 During the five recessions 
since 1980, expenditure growth on beef, pork, poultry 
and milk slowed to 0.2 percent. And, in the most recent 
cHart 1
cattLe, Hog and miLk Prices
Dollars per hundredweight
Break-even price
Break-even 
price
Break-even 
price
Hog price
CA Milk price
Cattle price
0 
20 
40 
60 
80 
100 
120 
0 
20 
40 
60 
80 
100 
120 
Jun-04  Jun-05  June-06  Jun-07 Jun-08  Jun-09 
Source: USDA, Iowa State University, and California Department of Food and Agriculturepag e   3
recession, expenditures have actually declined. Moreover, 
consumers become more cost-conscious during recessions 
and alter their protein consumption patterns. For example, 
consumers tend to substitute more expensive away-from-
home consumption with cheaper at-home consumption 
and high-cost beef with cheaper poultry meat.
More importantly, livestock expenditures have also 
been slow to rebound during economic recoveries. In 
fact, since 1980, livestock expenditures have edged down 
a full year into an economic recovery (Chart 2). The 
declines were driven by large contractions in the jobless 
recoveries following the 1990 and 2001 recessions, when 
stronger economic growth failed to increase employment 
or incomes. Livestock expenditures dropped 2.9 percent 
and 4.6 percent, respectively, during the first year after 
these recessions. Declines were spread across all livestock 
products—beef, pork, poultry and milk. 
Livestock producers could face another sluggish 
rebound in U.S. protein demand following the current 
recession. Livestock expenditures have plummeted 1.65 
percent, with losses across all livestock sectors. While 
economic forecasts suggest the recession is near its end, 
the prospects of another jobless recovery remain (Knotek 
and Terry). Fundamental changes in labor markets, such 
as a rise in businesses hiring temps instead of permanent, 
full-time workers, tend to increase 
the likelihood of sluggish job gains 
during the initial stages of a recovery. 
In addition, unemployment tends 
to rise following a financial crisis, as 
evidenced by foreign countries such 
as Japan in the 1990s. Therefore, the 
prospects of anemic employment and 
income gains following the current 
recession appear to be high. Indeed, 
if unemployment continues to rise 
even after the recovery begins, limited 
income gains could slow any rebound 
in U.S. protein demand. Moreover, 
unlike past recessions, the contractions 
in expenditures during the current 
recession could be an ominous sign of 
steeper contractions going forward.
WiLL foreign demand rise?
With the prospects of weak domestic demand for 
protein, the rebound for the livestock industry may 
hinge on global protein consumption. In the near term, 
developing countries are expected to pace the economic 
recovery. Longer term, an emerging middle-class in 
developing countries is rapidly increasing its protein 
consumption, offering new opportunities in global 
markets. While livestock producers face several challenges 
in penetrating these markets, the development of new 
products, targeted to the tastes and preferences of global 
consumers, could help them compete abroad.
Developing countries are projected to post strong 
economic gains during the global recovery. According to 
the International Monetary Fund (IMF), world GDP 
growth is projected to be approximately 0.5 percent in 
2009. Stronger growth in developing countries, such as 
China and India, are projected to offset GDP contractions 
in advanced economies, such as the United States and the 
U.K. Indeed, China is projected to lead world GDP growth 
by expanding 6.7 percent in 2009 and 8 percent in 2010. 
Stronger growth in developing countries could also 
sustain the long-term pattern of robust income growth for 
a rising middle-class, which boosts protein consumption. 
The clearest example is China, the world’s most populous 
cHart 2
u.s. Per caPita exPenditures on beef, Pork, PouLtry and miLk
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
One Year Prior to Recession
During Recession
One Year After Recession
Percent Change
Average in 5
Recessions
Since 1980
1981 
Recession
1982
Recession
1990
Recession
2001
Recession
2007 to
2009* 
Recession
Calculations based on Bureau of Economic Analysis data.
* The National Bureau of Economic Research indicates the recession started in Dec. 2007. At the time of 
publication, the end of the recession had yet to be specified.pag e   4
country with approximately 
1.3 billion people. Since 1991, 
median household income in 
China has increased more than 
50 percent.4 As incomes have 
jumped, Chinese consumers 
have added more protein to 
their diets, yielding a sharp rise 
in protein consumption. For 
example, U.S. meat consumption 
rose 18 percent from 1975 to 
2009, while China’s surged 532 
percent (Chart 3). The strongest 
gains emerged in Chinese milk 
consumption, which has grown 
by a staggering 3,000 percent, 
compared to a modest 17 percent 
gain in the United States. 
While protein consumption 
in developing countries like China 
has been impressive, the future 
may bring even further growth. 
Economic activity and protein consumption in developing 
cHart 3
u.s. and cHina consumPtion of Livestock and 
miLk Products
cHart 4
gross domestic Product and Livestock Protein 
consumPtion by country, 2007
0
25
50
75
100
125
150
0
1975 1980 1985 1990 1995 2000 2005 1975 1980 1985 1990 1995 2000 2005
50
100
150
200
250
300
U.S. (left scale)
China (right scale)
0
20
40
60
80
100
120
0
110
220
330
440
550
660
U.S. (left scale)
 China (right scale)
Beef, Pork and Poultry Consumption Milk Consumption
Pounds per person Pounds per Person
Calculations based on Foreign Agricultural Service data.
0
200
400
600
800
1,000
1,200
1,400
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000
2
0
0
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(
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2007 Per Capita Gross Domestic Product (in U.S. Dollars)
Australia
United States
Canada
Switzerland
Japan Korea
China
India
Egypt
Philippines
Chile
Thailand
Columbia
South 
Africa
Malaysia
Mexico
Brazil
Russia
Argentina
Venezuela
Saudi Arabia
Source: International Monetary Fund and Foreign Agricultural Service and authors’ calculations
countries pales in comparison to that in advanced countries 
(Chart 4).  A simple plot of per capita GDP and protein 
consumption of several countries suggests that if China 
follows global patterns, a rise in economic activity could 
foster significant increases in protein consumption. If 
China and other developing countries 
expand as projected, further boosting 
protein consumption patterns beyond 
their production capabilities, export 
opportunities for U.S. producers could rise.
While identifying international 
demand opportunities is straightforward, 
actually competing in international 
markets is not. U.S. producers face 
several steep challenges in meeting 
global demand. The livestock industry 
continues to cope with trade barriers 
associated with food safety issues. For 
example, the slaughter of a dairy cow in 
2003 with BSE closed foreign markets 
to U.S. beef (Henderson). Food safety 
fears slowed the re-opening of many 
of these markets and dampened trade pag e   5
thereafter.5 Consequently, the livestock industry must 
overcome persistent food safety concerns to boost foreign 
demand for its products.
The key to boosting foreign demand, however, 
might already exist in the U.S. livestock industry. The 
industry has traditionally innovated to meet ever-changing 
consumer tastes and preferences at home. As domestic 
demand for meat has changed over time, largely due to 
rising incomes and more time spent away from the home, 
the industry has responded. Pre-packaged meats and pre-
cooked meals, for example, have met rising consumer 
demands for safe, convenient, quick and appetizing 
products. As foreign countries emerge from poverty, the 
lessons livestock producers have learned about demand at 
home might hold for demand abroad.
Indeed, the livestock industry has already started to 
identify ways to meet evolving tastes and preferences of 
foreign consumers. The U.S. Meat Export Federation 
(USMEF) is assisting U.S. livestock producers through 
various promotional campaigns for new products. For 
example, the global economic downturn has led to a rise 
in “bento-boxes” sold in Japanese convenience stores. 
USMEF has positioned U.S. beef as a main ingredient 
in these quick and affordable lunches, not only boosting 
demand for U.S. meat but, more importantly, rebuilding 
Japanese consumers’ trust in U.S. beef. The exports of 
other meat cuts-such as steak-may benefit as well.
concLusion
Livestock producers are currently struggling to post 
profits amid weak demand and historically high production 
costs. A recovery in the livestock industry will center on 
a rebound in the demand for livestock. But the livestock 
rebound may not be led by U.S. consumers, especially if 
the recovery produces modest employment and income 
gains. Instead, as stronger economic growth emerges in 
developing countries, foreign consumers will enjoy some 
of the fastest-rising disposable incomes in the world—with 
per capita meat consumption patterns to match. 
Competing in global markets can be a challenge for 
U.S. livestock producers facing higher costs at home. But 
producers can still penetrate global markets in this era of 
intense global competition—if their products target global 
consumer tastes. In short, for U.S. producers to seize new 
global opportunities, they must continue to create new 
products for new consumers.
Calculations based on Foreign Agricultural Service data.
references
Henderson, Jason. 2004. “FAQs about Mad Cow Disease 
and Its Impacts” Main Street Economist, Federal Reserve 
Bank of Kansas City, January. http://www.kansascityfed.org/
RegionalAffairs/Mainstreet/MSE_1203.pdf.
Jones, Keithly and Mathew Shane. 2009. “Factors Shaping 
Expanding U.S. Red Meat Trade.” LDP-M-175-01, 
Economic Research Service, U.S. Department of 
Agriculture, February.
Knotek, Edward S. and Stephen Terry. 2009. “How Will 
Unemployment Fare Following the Recession?” Economic 
Review, Federal Reserve Bank of Kansas City. Third Quarter.
Livestock, Dairy, and Poultry Outlook, ERS, USDA  
http://usda.mannlib.cornell.edu/usda/current/LDP-M/
LDP-M-07-17-2009.pdf
MacDonald, James M. and William D. McBride. (2009). 
“The Transformation of U.S. Livestock Agriculture: Scale, 
Efficiency, and Risks” Economic Information Bulletin 
43, Economic Research Service, U.S. Department of 
Agriculture, January. http://www.ers.usda.gov/Publications/
EIB43/EIB43.pdf.
endnotes
1Unless otherwise specified, all data referenced in the article 
obtained from the U.S. Department of Agriculture (USDA). 
2 The pattern of limited protein consumption growth holds 
for most recessions since World War II. The lone exception is 
the 1974 recession, where industry restructuring and strong 
productivity gains reduced meat and milk prices enough to 
stimulate consumption.
3The National Bureau of Economic Research indicates 
the recession started in December 2007. At the time of 
publication, the end of the recession had yet to be specified, 
while many economic forecasts suggested economic growth 
would rebound in the second half of 2009.
4Taken from the Statistical Yearbook of The Republic of 
China, 2008, which can be accessed at http://eng.dgbas.gov.
tw/public/data/dgbas03/bs2/yearbook_eng/Y103I.pdf.
5See Jones and Shane (2009) for a discussion of how 
rising incomes, changing consumer preferences, free trade 
agreements and changes in the value of the dollar affect red 
meat trade.

The slow road back for the U.S. livestock industry

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The slow road back for the U.S. livestock industry

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