Supply and demand for slaughter beef in the U.S. : a disaggregated econometric approach

Abstract

Analyses of commodity supply and demand functions generally do not evaluate relationships within the components of the commodity. Such aggregative approaches sometimes lead to generalizations with ambiguous conclusions. This is particularly the case in models of the beef industry. Beef is not a homogeneous commodity. The final product presents distinct characteristics determined by production practices and market structure. Consumers perceive rather well-defined quality differences and respond accordingly to changes in prices and income. Producers can choose among alternative feeding regimes, replacement rates, and other practices which affect the product mix. Since at any point in time they must make decisions both about current sales and inventory accumulation for future production, the decision making process is simultaneous and interrelated. Two sets of price parameters are relevant-current prices to which it is believed slaughter supplies respond, and expected future prices which are hypothesized to affect inventory decisions. Previous literature presents a wide range of price supply elasticity estimates. Several studies reveal near zero or even negative response of beef slaughter to price changes. This study hypothesizes positive slaughter beef supply response to product price changes for the components and for the aggregate..