U.S. meat and poultry production is headed for what researchers at the Rabobank International Food & Agribusiness Research and Advisory group anticipate to be a “precipitous fall” by mid-2012, according to a recently released report.

The group’s “Where’s the Beef?” report notes that drought in the U.S. is a major contributor to the production decline, but 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 significant exporter of meat protein, the decline will also affect world markets as well as demand for feed, including corn. “The drastic decline in protein production we anticipate will be felt in a number of industries,” said David Nelson, global strategist with the Rabobank Food & Agribusiness Research and Advisory team. “We expect the decline will create concerns for everyone from foodservice operators to corn producers.”

The report delves into domestic and global consumption trends. 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, according to the report. However, a rising GDP in the developing world is contributing to an increasing global 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,” said Nelson. “Global meat and poultry production continues to significantly lag GDP growth, which is, of course, the key factor behind rising prices.”

The report notes the U.S. broiler industry is suffering some of its worst-ever financial losses. The industry has expanded breast meat output at a time when demand has been softening due to the weak economy. Despite some cutbacks in bird production, the report predicts profits will remain under pressure into early 2012 as bird weights have provided a significant offset, and due to a large increase in breast meat inventory. Barring further market dislocation, the report authors believe that the industry can return to profitability some time next spring, but only if the more aggressive cutbacks that the researchers expect actually take place.

Swine is the bright spot in the report, according to the researchers. The report suggests that in 2012 hog prices could end up on average 10% higher than even the record levels seen in 2011. The current supply and demand situation for the U.S. pork industry is much more stable than for beef or poultry. Strong export demand (currently accounting for roughly 25% of output) coupled with solid domestic pricing has allowed producers and packers to weather the storm of rising feed costs. That said, the deterioration in U.S. crop conditions — leading to higher corn prices — has dampened the outlook a bit.