The effects of domestic and trade policy variables on the U.S. beef wholesale and slaughter markets

Abstract

Trading in beef products has been increasing during the 1980's and its impact on the U.S. beef industry has become an important issue for various interest groups. Particularly, U.S. by-product exports have become a large value item in U.S. beef product exports and contribute greatly to meat packer returns and Japanese beef import quotas have become less stringent. The main objective of this study is to develop a dynamic structural model of the U.S. wholesale carcass and slaughter cattle industry. The model incorporated pertinent domestic variables and foreign trade variables such as imports and exports of beef and veal, live cattle imports, and by-product exports. The econometric model explicitly includes U.S. carcass demand and supply, U.S. slaughter demand and supply, beef and veal import demand and supply, beef and veal export demand and supply, live cattle import demand and supply, and foreign trade in farm level by-products. The empirical model was estimated within a rational distributed lag framework, using instrumental variables with either the maximum likelihood or ordinary least squares procedure depending upon the nature of the stochastic error terms. The short-run and long-run impacts of the exogenous variables on the dependent variables are calculated using sequential partial derivatives involving the difference equation coefficients and slope parameters. The distributed lag impacts of trade shocks on the U.S. beef prices are calculated using reduced form coefficients specific to selected exogenous and predetermined variables combined with price transmission effects between market levels. The empirical results show that most of the foreign trade variables were statistically significant and demonstrated theoretically correct signs. The long-run impacts of foreign trade in beef products were generally small but were large enough to suggest that incorporating foreign market arguments in the framework of dynamic analysis is important in a U.S. beef market analysis. However, the use of monthly or quarterly data and disaggregate price and quantity data for the trade variables would be more desirable in order to reduce aggregation bias.