Import demand for U.S. beef by-products and affects on domestic by-product and live cattle prices

Abstract

The objectives of this study were to econometrically estimate the impacts of economic factors such as income and exchange rates in the Asian and North American countries on import demand for U.S. by-products, and translate these changes to U.S. byproduct value and inverse slaughter demand. Four countries (Japan, Korea, Mexico and Canada) and four beef by-products (variety meats, edible tallow, inedible tallow and hides) were considered in the econometric study. Given the maintained hypothesis, the empirical model consisted of three stages. First, structural import demand equations were estimated by country and according to by-product class using a systems (SUR) approach. In the second stage, a behavioral equation for U.S. beef by-product value was estimated (by OLS) in order to statistically link foreign sector affects on U.S. beef by-products and domestic slaughter cattle price. The third stage was to estimate U.S. slaughter steer inverse demand, the function that finalized relating impacts of foreign income and currency valuation on prices received by U.S. beef producers. The majority of the model coefficients were statistically significant. The marginal impacts indicate, for example, that a one percent depreciation in the Japanese yen, Korean won, Canadian dollar and Mexican peso decreases U.S. slaughter steer price by 0.160 percent, 0.148 percent, 0.074 percent and 0.068 percent, respectively, as a result of decreasing by-product import demands. A one percent decreases in real GDP in Japan, Korea, Canada and Mexico decreases U.S. slaughter steer price by 0.058 percent, 0.089 percent, 0.036 percent and 0.015 percent, respectively. In post-sample analysis, the period from 1997 to 1998 indicated that real Japanese GDP decreased by 1.93 percent and the yen depreciated by 8.2 percent; real Korean GDP declined by 5.8 percent and the won depreciated by 9.5 percent. The impact from deteriation in Asian income and currency values therefore was to reduce nominal slaughter steer price by $2.18/cwt and real steer price by $1.35/cwt. Model implications are that producer returns can be enhanced by further trade liberalization in the area of by-products.