A dynamic model of prices, supplies, and revenue adjustments in the U.S. beef market : emphasis on changing feed costs
Phillips, Stanley Storey
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Results of past beef research lack concurrence with respect to the effects of federal grain programs and grain market prices on the beef cattle market. This study examines the impact that changes in exogenous factors, particularly feed prices, have on cattle prices and supplies over time. A dynamic econometric model of the.U.S. fed and nonfed beef cattle market is formulated using quarterly data from 1973 to 1987. Price and supply equations were estimated for fed cattle, cull cows, nonfed steers and heifers, and feeder cattle placements. The equations were estimated within a rational distributed lag framework characterized by nonstochastic difference equations and autoregressive-moving average error terms. Solved reduced form coefficients were used to calculate short run and long run percentage price and supply responses. In addition, percentage responses were used to simulate revenue adjustments in the beef industry resulting from changes in corn price and the corn loan rate. The largest short run percentage price and supply responses were associated with by-product value except in the case of cull cow supply where corn price dominated. By-product value generated the largest long run percentage responses in all but the feeder sector and the total nonfed cattle supply sector where corn price demonstrated the larger effects. Interest rate was associated with the smallest short run percentage responses in all cases and the smallest long run responses in all but total nonfed cattle supply. All prices responded inversely to changes in corn price as did fed cattle supply and feeder cattle placements. Cull cow supply, nonfed steer and heifer supply, and total nonfed cattle supply responded positively to changes in corn price. Fed cattle and feeder cattle sector gross revenues were inversely related to changes in corn price and the corn loan rate, while gross revenues in the nonfed steer and heifer sector and cull cow sector were positively related. The results emphasize the importance of resource trade-offs between cattle finishing and nonfed cattle production; however, they must be interpreted carefully in light of recent structural changes in meat packing.