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Price pass‐through in the U.S. beef industry: Implications of feedlot capacity utilization

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  • Melissa G. S. McKendree
  • Glynn T. Tonsor
  • Zekuan Dong

Abstract

Transmission of prices, profits, and more generally, economic well‐being across vertically connected sectors of agriculture have a long history of interest—arguably of most current interest in meat and livestock markets. Disruptions in live animal harvesting, especially from COVID‐19, have corresponded with substantial market adjustment and hence elevated interest in inner‐industry relationships, including from policymakers. This paper's main contribution is assessing how price changes in the U.S. feedlot industry manifest in feeder cattle markets. We use Ricardian rent theory as a framework to quantify price transmission by testing how price fluctuations actually pass through the supply chain versus theoretical expectations. We posit that the capacity utilization of feedlots changes because of market shocks, impacting price relationships. In the empirical model, when feedlot capacity utilization rates are below the 65% critical point, we find that both fed to feeder cattle and corn to feeder cattle pass‐through rates are higher than hypothesized. When feedlot capacity utilization rates are high (>65%), estimated pass‐through rates are lower and not statistically different from Ricardian rent theory. Understanding how prices pass through in the beef industry can help inform policy discussions about beef market competitiveness and promote efficient resource allocation. La transmission des prix, des bénéfices et, plus généralement, du bien‐être économique entre les secteurs agricoles verticalement connectés suscite un intérêt de longue date—possiblement l'intérêt le plus actuel pour les marchés de la viande et du bétail. Les perturbations dans la récolte d'animaux vivants, en particulier à cause de la COVID‐19, ont correspondu à un ajustement substantiel du marché et ont donc suscité un intérêt accru pour les relations au sein de l'industrie, y compris de la part des décideurs politiques. La principale contribution de cet article consiste à évaluer comment les changements de prix dans l'industrie américaine des parcs d'engraissement se manifestent sur les marchés des bovins d'engraissement. Nous utilisons la théorie de la rente ricardienne comme cadre pour quantifier la transmission des prix en testant la manière dont les fluctuations de prix se transmettent réellement à travers la chaîne d'approvisionnement par rapport aux attentes théoriques. Nous postulons que l'utilisation de la capacité des parcs d'engraissement change en raison des chocs du marché, ce qui a un impact sur les relations de prix. Dans le modèle empirique, lorsque les taux d'utilisation de la capacité des parcs d'engraissement sont inférieurs au point critique de 65 %, nous constatons que les taux de transmission des aliments du bétail aux bovins d'engraissement et du maïs aux bovins d'engraissement sont plus élevés que prévu. Lorsque les taux d'utilisation de la capacité des parcs d'engraissement sont élevés (> 65 %), les taux de répercussion estimés sont plus faibles et ne diffèrent pas statistiquement de la théorie ricardienne de la rente. Comprendre comment les prix se répercutent dans l'industrie de la viande bovine peut contribuer à éclairer les discussions politiques sur la compétitivité du marché de la viande bovine et à promouvoir une allocation efficace des ressources.

Suggested Citation

  • Melissa G. S. McKendree & Glynn T. Tonsor & Zekuan Dong, 2024. "Price pass‐through in the U.S. beef industry: Implications of feedlot capacity utilization," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 72(3), pages 365-387, September.
  • Handle: RePEc:bla:canjag:v:72:y:2024:i:3:p:365-387
    DOI: 10.1111/cjag.12357
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    References listed on IDEAS

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