Grain prices have dropped significantly from last year’s peak, but the impact of higher prices will continue to affect livestock production, according to a new report from USDA’s Economic Research Service.

The report points out that manufacturers producing general goods and services that the public deals with make decisions on the amount and timing of production based on input costs and the expected product price. Manufacturers may react to a significant increase in the price of a variable input, such as energy, by reducing production.

Biology, however, prevents livestock producers from instantly responding to price changes. The timeline for meat production — from farm to retail — ranges from 2 months for poultry meat to 2 years for beef. From the time a female animal is bred, it takes about 9 to 10 months to expand milk production, 30 months to produce a steak, 10 months for a pork roast and 10 weeks for a chicken breast.

Record-high grain, oilseed and energy prices between 2006 and 2008 increased the costs of producing and marketing meat and dairy products. Expecting feed and energy costs to remain high, livestock producers started to cut back on animal and dairy production. They question is how long and how deep will those cuts run? 

Just as producers were making their 2009 livestock-production decisions, feed prices began to decline. The dollar strengthened, which lowered exports, and worldwide economic growth began to slow. As a result of decisions made before the end of 2008, livestock production can be expected to level off in 2009 and might even continue to decline. Because of this, consumers can expect to pay higher prices for meat and dairy products through 2009 and into 2010.

For more, click here.