A Dynamic Model of U. S. Beef Cow Inventories

The dynamics of beef cattle supply and the existence of cattle cycles have been widely researched topics in the last four decades. The work of Jarvis (Journal of Political Economy, 1974) was first to treat beef cows in the context of capital goods and recognized that increasing beef prices can actually lead to reduced slaughter in the short run. This approach influenced empirical approaches to modeling the beef cattle herd such as formulated by Rucker, Burt, and LaFrance (American Journal of Agricultural Economics, 1984) and stimulated a theoretical treatment of the dynamics of livestock production by Rosen (American Journal of Agricultural Economics, 1987). Rosen, Murphy, and Scheinkman (Journal of Political Economy, 1994) specifically addressed the existence of cattle cycles. More recently Aadland (Journal of Economic Dynamics and Control, 2004) constructed a model to describe the putative 10 year cattle cycle by assuming that producers maximize a discounted stream of future profits subject to biological constraints and market forces. This analysis reconsiders the dynamics of beef cow inventories in light of the shift in the structure of cattle finishing during the last fifty years. The presence of large commercial feedlots has industrialized the production of fed beef. Feedlot operators have the skill and resources to manage production and risk by taking positions in futures markets for feeder cattle, fat cattle, and feed grains. In 2014, more than 86% of steers and heifers slaughtered were supplied by feedlots with over 1000 head capacity. On the other hand, cow-calf operations have been largely unchanged. Just as Holt and Craig (American Journal of Agricultural Economics, 2006) speculated that continuous farrowing and total confinement operations may have shortened and dampened the hog cycle, the changing structure of fed beef production may have impacted the cattle cycle in a similar manner.