COVID-19 and the Canadian cattle/beef sector: Some preliminary analysis

Canada's cattle/beef sector has already weathered a shock after a 2003 case of BSE resulted in closed borders and industry restructuring. Now, the sector has to adjust to similar shocks due to COVID-19. This paper examines the supply chain from the consumer up to the cow–calf producer by considering consumer reactions, labor market constraints, and supply response. A quarterly market model of North American cattle and beef markets is used to examine price and revenue impacts associated with the market disruptions. Depending on the scenario, there is considerable price and revenue suppression at all levels of the market.     

Effects of North American BSE Events on U.S. Cattle Prices

In May 2003, a beef cow in the Province of Alberta tested positive for bovine spongiform encephalopathy (BSE or mad cow disease). In December of 2003, a dairy cow in the state of Washington also tested positive for BSE. These discoveries disrupted cattle and beef trade in North America and major export markets. We examine the effects of these two North American BSE events on U.S. fed and feeder cattle prices. The results indicate that the demand for U.S. beef was affected to a much greater degree by the reactions of foreign governments to the BSE announcements than by the reactions of U.S. households.     

Bovine spongiform encephalopathy in Japan: consumers' food safety perceptions and willingness to pay for tested beef*

The discovery of bovine spongiform encephalopathy (BSE), commonly known as ‘mad cow disease’, in Japan caused anxiety about consuming beef and beef products. As a result, there was a sudden fall in sales of beef that hurt the Japanese beef industry as well as major beef exporters to Japan. We analyse factors that affect Japanese consumers' willingness to pay (WTP) price premiums for BSE‐tested beef and estimate the mean WTP for BSE‐tested beef using data obtained from a consumer survey in Japan. A single‐bounded dichotomous choice contingent valuation model is used to recover the premium amount. We find that attitudes to food safety, reduction in beef consumption following the BSE outbreak, and being female all have a statistically significant positive effect on the WTP for BSE‐tested beef. Interestingly, demographic variables such as age and income do not affect the WTP, possibly indicating that the BSE scare similarly affected multiple segments of the population. In our sample, consumers are willing to pay a premium on average of greater than 50 per cent for BSE‐tested beef.     

An Econometric Analysis of Total (Domestic) and Import Demand for Beef in Hong Kong

This paper presents an applied econometric analysis of total (domestic and import) demand for beef in Hong Kong for the period 1970 to 1988. The estimates are in logarithmic form and provide elasticity estimates for beef demand (domestic and import) in Hong Kong. Variables in the estimated domestic demand models (per capita and aggregate) include own price, prices of a substitute (pork) and a complement (rice) and income. Variables in the estimated import demand model include demand side variables (price of beef, price of pork, price of rice and income) and the price of imported live cattle as a supply shifting variable. The elasticities were inelastic for the domestic demand models while most of those for the import demand model were elastic.     

World Commodity Prices and Domestic Retail Food Price Inflation: Some Insights from the UK

We focus on two aspects of the links between world commodity prices and retail food price inflation: first, the effects of exchange rates and other input costs, and second; the effects of the duration of shocks on world commodity markets, not just the magnitude of price spikes (the latter often commanding most attention). The UK offers a natural and rather unexplored setting for the analysis. Applying time series methods to a sample of 259 monthly observations over the 1990(9)–2012(3) period we find substantial and significant long‐term partial elasticities for domestic food price inflation with respect to world food commodity prices, the exchange rate and oil prices (the latter indirectly via a relationship with world food commodity prices). Domestic demand pressures and food chain costs are found to be less substantial and significant over our data period. Interactions between the main driving variables in the system tend to moderate rather than exacerbate these partial effects. Furthermore, the persistence of shocks to these variables markedly affects their effects on domestic food prices.     

Short-Run Supply Responses in the U.S. Beef-Cattle Industry

This article investigates the response of beef-cattle producers to changes in the price of cattle. Previous research has suggested that there may be a negative short-run supply response to a permanent increase in the price of cattle. We build a dynamic, rational expectations model that separates the markets for fed and unfed beef. This separation generates predictions that the supply response is generally positive, even for permanent shocks in the short run, and nests the negative supply response as a special case for appropriately restricted demand shocks.     

POPULATION DYNAMICS AND MILK SUPPLY RESPONSE IN THE US LAKE STATES

This paper develops a dynamic model of a dairy cow population and of milk supply response. When applied to the US Lake States, the model provides evidence against the Nerlovian model. It suggests that the pattern of dynamic effects of prices on cow numbers varies for different prices. The estimated dynamic supply elasticities provide some useful information on the nature of dairy production adjustments. For example, the response of milk supply to market prices is found to be very inelastic in the short run. It takes at least 7 years of sustained change to obtain an elastic response to milk price. Also, feed price and slaughter cow price are found to have smaller effects on dairy supply than milk price, but larger effects than risk, hay price or capital cost.     

Effects of Bovine Spongiform Encephalopathy Outbreaks on U.S. Cattle and Beef Prices

U.S. trade of beef and live cattle declined substantially after the discoveries of bovine spongiform encephalopathy (BSE) in Canada and the United States in 2003. In this study, an econometric model is developed to estimate the effects of lifting trade restrictions on U.S. cattle and beef prices. Results show that increases in imports of Canadian cattle and beef would lower prices of slaughter steers, feeder steers, and retail beef, but these negative impacts would be more than negated by the positive effects on prices that would result if beef exports return to near pre-BSE levels.     

Volatility in Cereal Prices: Intra‐ Versus Inter‐annual Volatility

Intra‐annual (within crop year) price volatility and inter‐annual (between crop years) price volatility are measured for wheat, maize, rice, barley, oats and rye. A set of explanatory variables is used in a pooled regression to explain variations in these price volatilities. With low cereal stocks, supply (yield) shocks (defined here as volatilities, as for the price volatilities) mostly influence inter‐annual volatility while other influential factors are the crude oil price and exchange rate. Cereal demand and interest rate shocks combined with low stocks affect intra‐annual volatility, while other explanatory factors include exchange rate and crude oil price shocks. The derivatives market activity appears to have no significant effect on either intra‐ or inter‐annual volatility. In contrast, large cereal stocks and a well‐functioning international cereal market reduce the effects of shocks in the explanatory variables on both intra‐ and inter‐annual volatilities.     

Inflation,capital markets and the supply of beef

This paper puts forward an explanation for the negative elasticity of supply of beef found in many LDC's. As is explained by Jarvis (1974), the elasticity of supply of beef may be negative in the short run due to the dual role of cattle as both a capital and a consumption good. But in some LDC's, and especially in Latin America, one may find a long-run negative association between slaughter and prices, that cannot be explained by assuming shocks to slaughter are causing changes in prices. It is no coincidence that Jarvis' hypothesis itself was developed to explain developments in Argentina, a country with chronic high inflation. The paper argues that this long-run relationship cannot be explained by the Jarvis hypothesis, and offers an alternative hypothesis based on the demand for cattle as a hedge against inflation. The long-run negative association between slaughter and prices has been found in high inflation countries. High inflation combined with excessive regulation of capital markets cause the well known phenomenon of desintermediation. It is argued here that cattle plays a role in the inflation hedged portfolio that is then demanded. Therefore, with imperfect capital markets the supply of beef is affected by the demand for cattle as an asset, and this demand, in turn, is affected by inflation. This paper will only attempt to prove the link between imperfect capital markets and the supply of beef. The way inflation in a repressed capital market leads to an imperfect capital market is not addressed here, for reasons of brevity. The paper will develop a model that in the context of imperfect capital markets results in a negative elasticity of supply. The model will then be tested with Uruguayan data. Uruguayan data are very adequate to test the hypothesis because they cover both a period without inflation and a period of high inflation. The results support that cattle was used as an alternative to money holdings when inflation signified a big tax on the latter. Inflation therefore affected the demand for cattle, or, conversely, the supply of beef.     

Decompositions of corn price effects: implications for feed grain demand and livestock supply

This article examines how corn prices affect the demand for feed grains and the supply of livestock outputs. The differential approach to the theory of the multiproduct firm is employed to examine ex ante decisions about feed grain demand and livestock supply. The estimation results suggest that livestock producers have little flexibility in adjusting the demand for corn in response to an increase in corn prices. The substitutable relationship between corn and distillers’ grains contributes to alleviating pressures on feed costs in response to high corn prices. In addition, the estimation results highlight that the composition of livestock supply can be altered by changes in livestock prices. On the basis of the estimated elasticities, the decompositions of profit‐maximizing input demand are conducted to examine the effects of changes in corn prices on feed grain demand and livestock supply. The decomposition results reveal that an increase in corn prices reduces corn demand but raises the demand for distillers’ grains mainly due to the substitution effects of corn price changes. The decomposition results also show that an increase in the price of corn reduces cattle supply but raises the supply of chicken and pork due to the output relationships in supply.     

How integrated are world beef markets? The case of Australian and U.S. beef markets

The objective of the paper is to examine market integration between Australian and U.S. beef prices at the farmgate level. If these two prices are found to be integrated then it can be alleged that Australian beef prices can be used as a world price in empirical analyses and/or as a ‘reference price’ to measure the level of support accorded the U.S. beef sector. Co-integration analysis and a time-varying parameter estimation procedure based on the Kalman filter model are applied. The paper distinguishes between steer and cow beef segments and it uses monthly data over the 1972:1 to 1993:2 period. The results indicate that Australian and U.S. beef prices are co-integrated, albeit not fully and that the degree of convergence between the various price pairs has not substantially increased over time. The results also suggest that Australian prices can not unequivocally be adopted as a world price in empirical analyses.     

Price predictors in an extended hedonic regression framework: An application to wholesale cattle markets in Ethiopia

Livestock markets influence income generation for producers, but also accessibility and affordability of highly nutritious animal-sourced foods for consumers. Despite their importance, the functioning of livestock markets in lower-income countries is poorly understood and rarely studied compared to more developed countries. This study analyzes wholesale cattle markets in Ethiopia using a uniquely rich large-scale dataset covering both prices and cattle characteristics in 39 markets (in both highland and lowland areas) over a 10-year period, and hedonic regression models structured to understand both cattle price formation and seasonal and secular price dynamics. We show that cattle prices are influenced by a wide range of factors, including proxies for meat quality, religious fasting practices, climate-based seasonality but also climate shocks and availability of grazing land, competition from animal traction services, and rising consumer incomes. However, the implied effects of these factors are often significantly different in highland mixed crop-livestock areas compared to agro-pastoralist lowland areas, emphasizing the dualistic nature of cattle markets in Ethiopia. The analyses help inform the systemic challenges that Ethiopia will need to overcome to meet rising demand for beef products in the face of sustained income and population growth, as well as the adverse effects of climate change.     

Tracing the evolution of the aggregate U.S. milk supply elasticity using a herd dynamics model

The U.S. dairy sector is characterized by increasing volatility of milk prices, and consolidation in production as evidenced by declining number of dairy farms with an increasingly larger share of milk supplied from a small number of very large farms. Using aggregate national data, we build a mixed‐frequency herd dynamics econometric model of the U.S. milk supply that updates and substantially amends the model first proposed by Chavas and Klemme. We implement a dynamic residual‐based bootstrap technique that can be used in testing for changes in nonmarginal simulated long‐run supply responsiveness, and trace the evolution of long‐run milk supply elasticity from 1975 through 2010. Several papers in the past have suggested that long‐run supply elasticity increases with dairy farm size, which implies that increased importance of large farms would increase aggregate long‐run supply responsiveness. Contrary to this conclusion, we find a declining trend in long‐run supply elasticity from 1975 through 2005. Persistence of such a decline would be a major cause for worry, as ever larger price swings would be needed to equilibrate the market in face of demand shocks. However, we find that milk supply is becoming more responsive since 2005 both to milk and feed price changes. Increasing responsiveness to feed prices further justifies focusing the next generation of the dairy policy instruments on managing dairy profit margins rather than just revenue streams.     

Regime switching and oligopsony power: the case of U.S. beef processing

In this article, we estimate a model of oligopsony behavior under imperfect monitoring of rival actions to analyze weekly marketing margin data for the U.S. beef packing industry. Oligopsonists are hypothesized to follow a discontinuous pricing strategy in equilibrium, and we focus on shocks in the normal throughput of supply as a potential catalyst for regime switching between cooperative and noncooperative phases. We adopt an algorithm developed by Bellone (2005) that relies on Hamilton’s (1989) multivariate first‐order Markov process to test for the cooperative/noncooperative switching behavior. We find strong evidence that links switching conduct by packers to disruptions in coordinating the derived demands for processed beef with the supply of live cattle. Once switched, cooperative regimes lasted an average of 21 weeks, while noncooperative regimes averaged 33 weeks. The average marketing margin for processed beef was 68% lower in the noncooperative regimes compared to the cooperative regimes. This led to an annual average increase in profits of 408 million dollars to the beef packing industry and about an 8–9% reduction in live cattle prices.     

Price Volatility Spillovers in the Western Canadian Feed Barley,U.S. Corn,and Alberta Cattle Markets

Price volatility complicates price discovery and creates risks for cattle producers. This paper analyzes volatility spillovers in the western Canadian beef cattle supply chain. A modified bivariate VAR‐BEKK‐GARCH model is used to examine spillovers and account for asymmetries associated with rising versus falling markets. The spillovers that are found are unidirectional from input to output markets. Spillovers tended to be stronger when cattle prices are depressed and feed costs are rising. Volatility transmission is also flows from feed barley to feeder cattle markets, but volatility does not flow in the opposite direction nor does it advance by more than one level in the supply chain. La volatilité des prix complique la découverte des prix et crée des risques pour les éleveurs de bétail. Cet article analyse les répercussions de la volatilité au sein de la chaîne d'approvisionnement des bovins d'élevage. Un modèle VAR‐BEKK‐GARCH modifié à deux variables sert à l'examen des répercussions et tient compte des asymétries associées aux marchés à la hausse et à la baisse. Les répercussions décelées sont unidirectionnelles du marché des intrants aux produits. Les répercussions semblent plus fortes lorsque les prix des bovins sont bas, et les coûts de fourrage à la hausse. Le transfert de la volatilité se fait aussi sentir de l'orge de fourrage aux marchés de bovins d'engraissement, mais l'inverse ne survient pas et elle ne progresse pas de plus d'un niveau dans la chaîne d'approvisionnement.     

Canadian Exports of Livestock and Meat to the United States

Canadian exports of beef and live cattle to the United States have increased significantly since the late 1980s. Hog and pork exports have increased since the mid-1990s. Major factors affecting exports of beef, pork, cattle and hogs from Canada to the United States include the exchange rate, increased Canadian production, Canada-U.S. price differentials and trade liberalization under the Canada-United States Free Trade Agreement of 1989. Increased Canadian exports have resulted in small but significant reductions in U.S. domestic prices of beef, pork and hogs.     

Price transmission in the Spanish bovine sector: the BSE effect

A regime-switching vector error correction model is applied to monthly price data to assess the impact of Bovine Spongiform Encephalopathy (BSE) outbreaks on price relationships and patterns of transmission among farm and retail markets for bovines in Spain. To evaluate the degree to which price transmission is affected by BSE food scares, a BSE food scare index is developed and used to determine regime switching. Results suggest that BSE scares affect beef producers and retailers differently. Consumer prices are found to be weakly exogenous and not found to react to BSE scares, while producer prices are conversely adjusted. The magnitude of the adjustment is found to depend on the magnitude of the BSE scare.     

A time series analysis of Danish markets for pork, chicken, and beef

We offer a first-time empirical depiction of Danish dynamic meat price/quantity transmissions by formulating, estimating, and testing a VAR model of market-clearing quantities and prices of the Danish pork, chicken, and beef markets. The analysis illuminates how these markets dynamically handle shocks, and it is demonstrated that: (i) the three meats are close substitutes; (ii) chicken and pork market shocks have own-market and cross-market effects that occur rapidly and swiftly, while beef market shocks have more enduring impacts on pork and chicken markets; (iii) prices are in general more endogenous than quantities; and (iv) the price of chicken is much more endogenous than the prices of pork and beef.     

Spatial price premium transmission for Meat Standards Australia‐graded cattle: the vulnerability of price premiums to outside shocks

Studies of market integration show that price changes are transmitted spatially through arbitrage. Transmission across differentiated agricultural products is important to investigate, but it has not been explored given its complexities for assessment. Using data from Australian cattle markets, we examine the dynamics of Meat Standards Australia price premium transmission between states. An impulse response function analysis using Bayesian vector autoregression with sign restriction identification shows that shocks to prices and price premiums are partially transmitted contemporaneously between markets and it takes several weeks to complete transmission. In addition, we find an asymmetry of price and price premium shocks originating in Southern Queensland that have an inverse immediate impact in New South Wales, and take months to transmit the usual price response. This outcome may be explained by differences in cattle availability in each state, which can be related to forage availability due to weather conditions. Based on these results, producers can forecast fluctuations on price premiums and adjust their cattle supply accordingly.