I'm going to try to make this as short as possible....
For me the question is, why does God allow suffering (at all)? Even with the commonly perceived idea that humans are above animals in the importance of life, can we really say that suffering is ever GOOD? That it is ever justified? I have yet to see any answer as to why God would PLAN for someone (or some animal) to suffer that serves a great purpose to their, or others, lives. The ONLY exception would be the story of Jesus, and similar self-sacrificial acts. Again though, it can be said that those examples of suffering (which were for good purpose) were choices that the individuals made. They were not defenseless. They chose to suffer for the good of those they love.
As to the question of whether or not animals have souls... I think anyone who has a had a pet or much interaction with animals would agree that they have the same types of responses to things that humans do - just in different ways. Animals have emotions, physical sensation, they make decisions, etc. I don't see anything telling me that they *don't* have a soul. I am of the personal belief these days that we are all connected through our spirits/souls and that it does include everything from plants to animals to humans, to even the earth and stones we walk on. I don't think that means that everything is "alive" in the sense that it breathes and lives and can die (i'm not crazy i swear). I just think that everything has a history and a purpose for existing in the "circle of life," and that as such is connected through the spirit world as well.
I am leaning more toward the belief system of reincarnation these days, so the idea of a reward at the end of life for good deeds or bad, is not necessarily where I'm at. I am more of the mindset that you will receive back what you give out in one way or another, eventually.
I find that I usually wind up with more questions than answers, but at the least it spurs on thought that helps me to slowly define what it is that I believe these days. I used to be a devout conservative Christian, and it is subjects like this that made me take a second look at what I was putting faith into, and whether or not I could *really* match up what I see in real life around me, to the God that is all loving, all powerful, and all knowing.
I respect others rights to believe as they wish. All I can do is question what it is that *I* know and believe... and this is where I'm at, I suppose.
Re: animals as food vs. cruelty. I think if we are okay with other animals being carnivores and eating meat, then we have to understand that humans are naturally carnivores as well. I think each person can make a conscious decision as to whether or not to eat meat based on what they feel they want to do / what they feel is right. I can absolutely see the merit in vegetarianism, and I also do not support bad farming practicies and cruelty in any way. I do support ethical farming (usually small farmers), and fast/painless deaths. I have a dear friend who is a farmer, and raises all of her livestock free range (and no, her chickens do not lose their beaks, etc - she's not "big business"). She does sell her animals to market, but gives them a good, happy healthy life and ensures that their death is quick and painless. In those cases, I really feel like farming is okay and that it is alright to be a carnivore. I feel that we should look to animals as examples. Wolves don't have massive bunny farms where they don't care for them, and kill thousands at a time to throw in the freezer. They kill only what they need, and no more. They make the most of their kill and leave the rest (the carcass) to the other animals / the earth where it helps sustain life in nature.
I also feel that its important to honor the life that was lost in some way, by a way of a thankful prayer, or by way of giving back to the cycle of nature in some way. Turn scraps into compost, for example. I think we should make the most out of what we have. As silly as it sounds, I was really inspired when I watched an episode of Top Chef. The host took the contestants to a farm so that they could see where the food comes from, meet the animals and get connected with them, etc. Then he had them cook food fresh from the farm. He gave them plenty of time to cook in and gave them the task of making a meal worthy of the lives that were given for them to be able to cook. His theory was that by recognizing the sacrifice given for human nourishment, they would be more careful to do a good job with cooking and honor the animal by cooking something beautiful. I think it was a good lesson to not be wasteful, and to always be mindful that our nourishment (and that of any being that eats both plant or animal) comes with a sacrifice, and that it should not be taken lightly, and be honored in some way.
If you look at ancient Native American lifestyles - that is a common belief among them as well, and one could argue that they were/are as a group, very conscious of animals, and honor them as important aspects of their spiritual world.