For decades, somewhat regular cycles of supply and demand ruled the meat and poultry marketplace. But instead of sloping peaks and valleys, the current era more closely resembles a jagged cliff with unexpected drop-offs and tenuous footholds.

Navigating the terrain of the past year or two has not been easy for anyone in the food chain, as producers, processors, retailers, foodservice operators and consumers alike have had to remap routes and choose new tools to contend with a global economic crisis on a scale not seen since the 1930s. The landscape has definitely changed, and with it so have cyclical-protein markets. Industry observers and insiders agree processors are contending with new challenges since the last American Meat Institute and Worldwide Food Expo was held in 2007.

There are a lot of things in play right now, and one of the key things is that the world is different now than it was two or three years ago. There are implications on meat and poultry, including on high-end cuts and niche markets," observes Dr. John Lawrence, professor in the Department of Economics at Iowa State Univ. and director of the Iowa Beef Center.

An industry analyst agrees that the topography of the food industry, including the meat business, has been altered by concurrent trends and events. "There are so many dynamics going on, with the recession, foodborne illnesses and the export market. It’s difficult to characterize who the winners are," says Wesley Moultrie, senior director in corporate finance at Fitch Ratings, New York, N.Y., adding that industry players who are most diversified are weathering the crisis comparatively well – or at least better – than others.

Processors have noted this is not the previous generation’s recession. "A unique set of circumstances contributed to a supply/demand imbalance never before seen," sums up Herb Meischen, vice president marketing strategy for Wichita, Kan.-based Cargill Meat Solutions.

Chief among those circumstances: the economic crisis that started in 2007, peaked in late 2008 and earlier this year tamped down demand, as consumers swiftly and strongly curtailed spending.

"Consumers have been hard hit by the recession; we are definitely seeing it at the meat case. Meat demand is down and the supply of beef, pork and other meat species is largely determined by the number of animals in the production system," says Dr. Stephen R. Koontz, associate professor, Department of Agriculture and Resource Economics, Colorado State Univ.

Indeed, consumption estimates for this year have been dialed back, reversing what had been an upward trend. "We had been steadily going up before this – pork and poultry were growing every year, and beef was going through its ups and downs. This year, though, we have decreases across the board, with turkeys, broilers, beef, pork milk and eggs all lower," says Lawrence. He forecasts meat and poultry per capita consumption will end up near 210 pounds for 2009, the lowest number since 1996. Estimates for 2010 are pegged even lower, similar to 1991 levels.

Other factors have made this past year historically challenging. For example, while the food-vs-fuel debate is no longer as much of a front-burner issue as it was, energy is still a hot topic. "It’s very much a different energy market than it was four or five years ago. When we come out of this recession, we will still be in a higher energy-priced world," points out ISU’s Lawrence.

Although energy costs have come down, there are residual effects from the higher feed prices of the past few years. "The first shoe that dropped in 2006-2007 was much higher feed costs. The only way out of this is reduced production and I think we will continue to see red ink and bankruptcies in production industries," Koontz predicts.

At Cargill, Meischen says feed costs have had a ripple effect. "In 2008, despite record-high corn prices – upwards of $8.00 versus $2.20 – producers were encouraged to keep cattle on feed longer with the promise of higher contract prices as the cattle board of the Mercantile Exchange moved higher every other month," he recalls.

Other factors are playing a role in the volatility of the protein industry. Cooler weather in much of the nation has backed up some herds. And concerns about the H1N1 virus have impacted the export market for U.S. pork.

The good news is the U.S. food industry is not as vulnerable as other industries. "While economic times might dictate what cuts of meats consumers buy, we are fortunate in that consumers largely want to consume meat and poultry products during both economic booms and busts," points out J. Patrick Boyle, president and CEO of the American Meat Institute, who adds the meat and poultry industry is an economic backbone in this nation.

Changing territories

To Boyle’s point, the landscape does have some smooth pathways in between the rough patches. While consumers are clutching their pocketbooks tighter, there is some shuffling of food dollars.

"It’s known within the industry people do trade down from more expensive cuts of red meat and poultry during a recession.

But there are other dynamics taking place – for example, Prime beef is now available in some retail settings, so you have some consumers who thought about going out to an upscale restaurant who are now preparing Prime steak at home. That’s trading around," explains Moultrie.

Lawrence agrees. "It’s been a twoedged sword for the industry. Consumption in restaurants has declined, but those people still eat and they are trading down, either from full-service to no-service or they are cooking more at home," he says.

The trading-around behavior has been heeded by processors in both the retail and foodservice business. "We’re calling this a ‘dislocation’. Prime beef essentially lost its traditional home – the high-end restaurant. But it found at new home at retail, and mainstream supermarkets such as HE-B in Texas and Safeway’s Dillon’s have begun selling prime beef," says Meischen.

Springdale, Ark.-based Tyson Foods has also seen movement within its businesses. "There has definitely been a change in consumer buying habits, evidenced by the decline in traffic in certain segments of foodservice. Consumers are eating more at home, as well as using carry-out and the retail deli to feed their families. They are looking at food away from home differently and we believe this is creating opportunities for us," says Tyson spokesman Gary Mickelson.

Value-driven consumers who can’t afford Prime beef even at supermarket level may divert to poultry. "We think the chicken side of the business is, from an economy standpoint, positioned to benefit as consumers trade down, because retail prices for poultry are lower than beef and pork," says Carla Norfleet Taylor, Moultrie’s colleague and a director at Fitch Ratings.

Sales of organic meats, however, which had been on a small upswing prior to the economic crisis of last year, are not expected to expand at the same pace. "Consumers are having to choose between their conscience and pocketbook," observes Lawrence. "Before, you had socially-conscious people spending like banshees on organic when growth was rapid, but as we go forward, they may choose other ways to express their preferences. They may buy commodity meats, but drive a Prius."

This type of shell game is challenging for companies that specialize in certain types of products, but it can insulate larger, more diversified processors. "I think it depends on where you’re at. If you’re supplying to quick-service restaurants as opposed to upscale restaurants, then you are probably in a pretty good position. If you are a supplier to some upscale restaurants or outlets, you’re likely to be feeling pressure," says Moultrie.

Looking ahead, many industry observers expect the new reality of consumer wariness to continue probably into the longterm future, especially as unemployment numbers continue to rise and as concerns over the deficit and a possible new outbreak of H1N1 linger. That said, processors are still forging ahead with new products.

Norfleet Taylor expects companies like Tyson Foods will focus more on prepared foods to meet the needs of consumers seeking to cut down on away-from-home food costs, but who still appreciate quality and convenience. Mickelson says Tyson’s new products reflect the evolving marketplace. "Consumers are looking for restaurant-quality food and convenience at home.

As a result, bold, new flavors and innovative products are being developed for snacking categories. An increasing number of consumers are also shopping the fresh-meat case more and are seeking help in building meal solutions across the numerous proteins and cuts," he notes, citing new products like Tyson’s Any’tizers line of snack items, its grilled chicken breast fillets and, set to be introduced later this year, 19 new fresh, value-added products.

Cargill is also keeping an eye on the future with new products centered on value and flavor, such as its new multicultural Rumba line of beef and pork.

On a more macro level, today’s challenges are likely to move the ground under producers’ and processors’ feet once again. "There will be pressure on the infrastructure out there, as we’re looking at less cattle and hogs and even less turkeys and broilers. Will we see some feeding facilities or see some plants close? That’s a question," remarks Lawrence, who also wonders if government scrutiny will grow more intense. "But eventually this thing will turn around and we could see some very explosive prices at a time we’ve seen the lowest supplies in 18 years. That has other implications that can play out all kinds of different ways," he says.

Lynn Petrak is a freelance writer based in the Chicago area.