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Demand-supply dynamics and input price shocks: A case of the United States livestock-meat industry
Abstract
The purpose of this study was to develop a dynamic empirical framework to investigate: (1) beef and pork prices and quantities, (2) beef and pork prices and quantities when supply-demand interactions from the poultry sector (broiler prices and quantities) are allowed in the model, (3) price margins for beef and pork for retail-to-wholesale and wholesale-to-farm, and (4) if in response to risk originating from corn supply shocks, structural change in production-processing of livestock has evolved. The method used to characterize the dynamic relationships between corn prices and livestock-meat prices and quantities at the farm, wholesale, and retail levels was vector autoregression (VAR). VAR is a tool well suited to the analysis of dynamic systems. The results of the analysis indicate that supplies of both beef and pork at the farm, wholesale and retail levels are strongly impacted by corn prices. For pork, these results do not suggest a "stickiness" of retail prices relative to wholesale prices relative to farm level prices. The responses for beef, however, do suggest a relative insensitivity of retail prices to a corn price shock. The results from Model II (inclusion of poultry) indicate that the inclusion of the poultry sector in the model did not have a noticeable impact on either the statistical significance of the causality relationships or the behavior of the impulse response functions for beef and pork to a corn price shock. Nevertheless, impulse response functions of supplies and prices for pork and poultry appear to react to a corn price shock in a similar fashion compared to beef. Further, poultry quantities are found to be non-susceptible to corn price shocks. Insofar as price margins are concerned, the results demonstrate that margins between retail and wholesale prices for both beef and pork are subject to less variability compared to the margins between wholesale and farm price levels. The margins between retail and wholesale and between wholesale and farm for both beef and pork tend to move in opposite directions. Moreover, margins demonstrate a relative inflexibility compared to the prices, except for pork prices at the wholesale level. The hypothesis related to the fourth objective was that the increased corn price variation since early 1970s was one of the predominant causes triggering structural changes in the U.S. livestock industry. Two periods were analyzed: Period II (1970-81) and Period III (1982-93). The results exhibit weakly significant causal relationships between corn price variability and beef and pork price variabilities for Period III implying that increased variation in corn prices was one of the major factors which triggered structural changes in the livestock industry of the U.S.
Subject Area
Agricultural economics
Recommended Citation
Khan, Mohammad Akhtar, "Demand-supply dynamics and input price shocks: A case of the United States livestock-meat industry" (1996). ETD collection for University of Nebraska-Lincoln. AAI9712515.
https://digitalcommons.unl.edu/dissertations/AAI9712515