A dynamic model of U.S. beef cattle

Abstract

The primary purpose of this dissertation is the development of an economic framework for the U.S. beef cattle industry that incorporates its dynamic production process. The economic model is conceived upon a bottom-up framework, where the optimizing behavior of a representative producer, the biology, age, and gender composition of cattle, evolving changes in the U.S. cattle structure, and micro-foundations of consumers are incorporated. The model is derived on a consistently measured set of data, and the data are collected and compiled from various U.S. Department of Agriculture (USDA) sources. The economic model is calibrated to fit the observed data appropriately and to replicate the historical evolution of the industry. The calibrated model is then utilized to project beef cattle prices and quantities several years into the future. To validate the model projections, the projected prices and quantities are compared with USDA and Food and Agricultural Policy Research Institute (FAPRI) long-term projections.

The value of the dynamic model developed in this dissertation is demonstrated by estimating the potential economic impacts of a hypothetical Foot-and-Mouth Disease (FMD) outbreak on the U.S. beef cattle industry. The exogenous shocks to the beef cattle industry such as supply, trade, and consumer shocks due to the disease outbreak are incorporated within the model to generate price and supply counterfactuals. Along with the economic impacts, the evolution of inventory levels determined by the model will be of interest to policymakers, industry stakeholders, and researchers. The framework developed in this dissertation proves to be a valuable tool for analyzing the introduction of exogenous shocks such as various production and policy changes in the beef cattle industry.

The first chapter of the dissertation provides an overview of the beef industry, a literature review, and the purpose of the dissertation and its contribution to the literature. In the second chapter, a conceptual model framework is presented, along with an analytical solution, a numerical solution algorithm, and a framework to conduct projections. This chapter also includes a discussion of the data used to solve the model, as well as the numerical solution of the model which includes estimated parameters, fitted results, the model fitted errors and replication of cattle inventories. Also included in Chapter 2 are the model projections and the comparisons of the model projections to USDA and FAPRI projections. The third chapter demonstrates the developed model by estimating the economic impacts of a hypothetical FMD outbreak. The exogenous shocks assumed because of the FMD outbreak are described in this chapter. The scenarios designed to simulate the model, the algorithm used to generate counterfactuals, and the results of the scenarios are also presented in the third chapter. Finally, the fourth chapter serves as a conclusion to the dissertation.