TECHNOLOGICAL CHANGE IN THE U.S. BEEF AND PORK SECTORS: IMPACTS ON FARM-WHOLESALE MARKETING MARGINS AND LIVESTOCK PRICES

Real livestock prices and farm-wholesale marketing margins have steadily declined over the past 20 years. Many studies have examined the effects of increasing packer concentration on these declines. However, most have generally failed to account directly for technological change in livestock production and red meat slaughtering. We estimate reduced form models for beef and pork farm-wholesale marketing margins and cattle and hog prices that specifically include measures of technological change. Empirical results indicate that meat packing technology has reduced real margins and technological change embodied in cattle and hog production accounts for substantial declines in real slaughter cattle and hog prices. When technological change is explicitly considered, we find that increasing packer concentration: (1) does not affect real farm-wholesale marketing margins, (2) positively affects real slaughter cattle prices, and (3) does not affect real slaughter hog prices.livestock prices, marketing margins, packer concentration, technological change, Marketing, Research and Development/Tech Change/Emerging Technologies, D4,

Wholesale-Retail Marketing Margin Behavior in the Beef and Pork Industries

An econometric model is used to estimate real wholesale-retail marketing margins for beef and pork. From 1970 to 1998, these margins increased by 27% and 149%, while farm-wholesale margins declined. Wholesale-retail (WR) marketing margin increases have caused livestock producers to focus on the retail sector as a contributor to declining real livestock prices. Increases in WR margins may be related to increased demand and costs of value-added food products/services as well as increased market concentration in the retail grocery sector. Results indicate that retail factors, and to a lesser extent meat processing factors, significantly increased WR margins and decreased livestock prices.livestock prices, retail concentration, retail costs, wholesale-retail marketing margins, Demand and Price Analysis,

THE EFFECTS OF U.S. MEAT PACKING AND LIVESTOCK PRODUCTION TECHNOLOGIES ON MARKETING MARGINS AND PRICES

Real livestock prices and farm-wholesale marketing margins have steadily declined over the past 20 years. Studies examining the causes of these declines have generally failed to account directly for technological change in livestock production and red meat slaughtering. We estimate reduced-form models for beef and pork farm-wholesale marketing margins and cattle and hog prices that include specific measures of technological change. Empirical results indicate cost savings generated by improved meat packing technologies have reduced real margins and positively influenced real cattle and hog prices. However, technological change embodied in cattle production weights has led to substantial declines in real slaughter cattle prices. Nonetheless, the net effect of improved meat packing technology has been to increase cattle price by $1.75/cwt and reduce the farm-wholesale beef marketing margin by 22.8 cents/lb.Demand and Price Analysis,

Technology Changes in the U.S. Beef and Pork Sectors

Research and Development/Tech Change/Emerging Technologies,

IMPACTS OF THE URUGUAY ROUND TRADE AGREEMENT ON U.S. BEEF AND CATTLE PRICES

The Uruguay Round trade negotiations completed in April 1994 reduced beef trade barriers. Trade barriers for beef products have historically been significant. The Uruguay Round essentially converts many nontariff barriers (quotas) to tariffs (tariffication), includes safeguards for import surges, establishes minimum access commitments, reduces domestic subsidy supports, and provides special tariff allowances for developing countries. These provisions, commensurate with a growing world demand for animal source proteins, will likely increase U.S. fed beef exports and ground beef imports. The United States is a major world producer as well as exporter of beef. In 1996, the United States represented 35 percent of world beef production (ranked first) and 28 percent of world beef exports (ranked second to Australia). U.S. quantity share of the annual world beef export market averaged 5.9 percent between 1980 and 1994 but has increased in recent years. In terms of beef and veal, the United States exports primarily higher-value beef cuts. The United States is the largest single-country beef importer. The U.S. annual quantity share of the world fresh beef import market averaged 16.5 percent between 1980 and 1994. U.S. beef imports primarily consist of lower-quality, manufacturing-grade (ground) beef which is primarily used by the fast-food service industry. The Uruguay Round Agreement will reduce trade restrictions gradually over an implementation period (1995–2000). Specifically, Japan is to reduce its beef tariffs and South Korea will increase its beef import quota by the year 2000. In 2001, South Korean import quotas will be replaced by a tariff. The European Union has agreed to reduce quantities of subsidized exports. In 1995, the United States replaced import quotas with a tariff and a tariff-rate quota. The reduction in trade barriers will increase U.S. beef imports and exports. Because U.S. beef imports are primarily ground beef and exports are primarily table cut beef, beef trade liberalization will have different impacts on producers and consumers of these products. In general, increased imports decrease the price of ground beef and increase per capita ground beef consumption. However, increased beef imports reduce nonfed cattle prices and slaughter. Increased exports cause the prices of table cut beef, fed cattle, and feeder cattle to increase. Per capita consumption of table cut beef declines slightly, and fed cattle slaughter and feeder cattle production both increase. Researchers have estimated that the Uruguay Round Agreement could increase U.S. beef imports by 6–19 percent and U.S. beef exports by 10–75 percent over 1990–1994 average levels. For example, the ground beef price could decline by $0.01–$0.04/lb from average 1990–1994 levels because of increased imports. Thus, the price of nonfed cattle (which generally produce ground beef) could decline by $0.71–$2.55/cwt. Conversely, because the United States exports primarily table cut beef, the table cut beef price in the United States could increase by $0.01–$0.09/lb. Increased foreign demand for table cut beef would cause the price of boxed beef to increase by $0.05–$0.10/lb and the price of fed cattle to increase by $0.62–$5.46/cwt relative to average prices received during the 1990–1994 period. B extension, increased demand for fed cattle would increase feeder cattle price by $0.61–$5.40/cwt over average prices received during the 1990–1994 period.GATT, beef trade, cattle prices, Q0, International Relations/Trade, Demand and Price Analysis,

A STATISTICAL MODEL OF THE PRIMARY AND DERIVED MARKET LEVELS IN THE U.S. BEEF INDUSTRY

An annual dynamic model of the primary and derived levels of the U.S. beef industry was estimated by rational distributed lags. Geometric rational lags at the retail level were instrumental in establishing prices in the dressed meat trade and the slaughter and feeder levels. Polynomial rational lags characterized primary inventory supply, which, along with cattle and corn prices, determined the production of fed and nonfed beef. The results suggest that the short- and long-term market behavior in the beef industry is better understood when higher and lower order market interactions are taken into account.Livestock Production/Industries, Marketing,

INTERTEMPORAL PRICE ADJUSTMENTS IN THE BEEF MARKET: A REDUCED FORM ANALYSIS OF WEEKLY DATA

An intertemporal reduced form model is estimated for boxed beef, carcass, and slaughter prices on a weekly basis. The results indicate that prices respond jointly to changes in economic information within weeks t and t – 1, supporting time-series studies showing farm and wholesale prices to be nearly instantaneously related. However, the existence of market uncertainty entails significant intertemporal lags, revealed by prices stabilizing 9-14 weeks subsequent to a market shock. The model results imply that postponing marketings of fed cattle to capitalize on expected price advantages would be risky and that selling cattle carcass grade and weight is more favorable when prices respond to increases in beef production.Demand and Price Analysis, Livestock Production/Industries,

U.S. BEEF AND CATTLE IMPORTS AND EXPORTS: DATA ISSUES AND IMPACTS ON CATTLE PRICES

U.S. participation in trade liberalization agreements with Canada and Mexico through the Canada–U.S. Free Trade Agreement (CFTA) and the North American Free Trade Agreement (NAFTA) has generated intense debates in agricultural sectors about the benefits and costs of those agreements. The CFTA and NAFTA mandate that live cattle and beef trade among Canada, Mexico, and the United States be based upon competitive factors and include legal safeguards to deal with arbitrary trade restrictions. Nominal and real U.S. fed and feeder cattle prices declined throughout the 1990s. Over the same period, the total U.S. beef supply increased from 25 billion pounds to 28.5 billion pounds. Imports (both beef and beef obtained from live cattle) accounted for almost 0.5 billion pounds, about 14 percent, of this increase. Thus, most of the supply increase has resulted from increased domestic production. This supply increase has occurred even though total cattle inventories have steadily declined since the mid-1970s. Most of the increase is explained by increased productivity of the U.S. beef cow breeding herd—caused by factors such as improved genetics, management, and feeding programs. Consequently, actual U.S. beef production remains relatively large even as cattle and calf inventories have declined. U.S. cattle and beef imports from Canada have increased substantially since 1988. Expansion of Canadian slaughtering capacity has not kept pace with the expansion of the Canadian cattle finishing industry. Given that the United States has excess slaughtering capacity and a larger consumer demand for high-quality and ground beef compared to Canada, fed cattle imports from Canada have increased. While beef and cattle imports from Canada have expanded throughout the 1990s, total beef imports from all sources have increased only slightly. Canada's share of U.S. beef supplies increased by slightly over 3 percentage points during the 1990s. As a consequence, of the $8/cwt decline in slaughter price during this period, about$0.35/cwt was attributable to increased Canadian imports or about 4.4 percent of the price reduction. For a 1,200-pound fed steer, this amounts to about $4.20 per head. In addition, 1998 cattle and beef net imports from Canada were similar to 1997 levels. Although Canadian beef and cattle exports to the United States certainly put downward pressure on cattle prices, these exports were responsible for only a small portion of the 1998 decline in U.S. cattle prices. Rather, the combination of low feed prices, which encouraged unusually heavy average dressed weights, large supplies of competing meats, a flat market for high-quality U.S. beef exports, and a significant reduction in by-product values in Asian countries contributed to the 1998 price woes. Producers have recently expressed concerns regarding the method in which the U.S. Department of Agriculture (USDA) reports U.S. beef production levels. Prior to the mid-1980s almost all U.S. live cattle imports were feeder cattle. The USDA's definition of U.S. beef production was reasonable given that most of the meat being added to imported feeder cattle was actually being produced in U.S. feedlots. However, because of increased fed cattle imports from Canada, it is important that analysts continue to recognize and account for USDA's definitions of beef production and imports. Perhaps increased fed cattle imports provide a rationale for altering data reporting methods to more accurately account for imports. Nonetheless, the current reporting system does not prohibit appropriate analyses of the impacts of trade on U.S. cattle and beef prices. U.S. cattle producers operate in a commodity marketing system that is highly competitive. Increased prices cause increased production from both domestic and foreign sources—which, in turn, eventually depresses prices. Because of such supply responses, a competitive industry will not experience sustained price levels in excess of long-term average costs (which include a normal rate of return). Therefore, industry participants must continually work at expanding both domestic and foreign markets, developing new products, improving product quality, and lowering production and marketing costs.cattle imports, beef exports, cattle prices, Demand and Price Analysis, Q0,

JAPANESE IMPORT DEMAND FOR U.S. BEEF AND PORK: EFFECTS ON U.S. RED MEAT EXPORTS AND LIVESTOCK PRICES

Japanese import demand for U.S. beef and pork products and the effects on domestic livestock prices are econometrically estimated. Japan is the most important export market for U.S. beef and pork products. Results indicate foreign income, exchange rates, and protectionist measures are statistically significant. The comparative statistics quantify the effects of recent economic volatility. For example, the 1995-1998 depreciation in the Japanese yen (39%) reduced U.S. slaughter steer and hog prices by $1.29 per cwt and$0.99 per cwt, respectively, while the 1994-1998 reduction in tariffs (14%) increased slaughter steer and hog prices by $0.49 per cwt and$0.33 per cwt, respectively. Livestock producers will continue to have a vested interest in Asian trade liberalization policies.elasticities, exchange rates, import demand, income, tariffs, Demand and Price Analysis, Q17, F14, C32,

The Impacts of North American BSE Discoveries on U.S. and Canadian Cattle Prices

Demand and Price Analysis, Research and Development/Tech Change/Emerging Technologies,