Not all beef-cut price shocks are alike: Disentangling supply and demand shocks in the US beef market

Abstract

We examine the causal effects of supply and demand shocks on the relative prices of beef cuts in the United States using a Structural Vector Autoregression model to disentangle the shocks. Supply and demand shocks have distinct, dynamic effects on relative prices, of roughly equal magnitude. Responses to supply shocks are less flat than implied by biological constraints, implying market constraints are binding. Responses to demand shocks are more stable, but interestingly “invert” about 9 months after the shock. Our findings are consistent with heterogeneous demand functions and fixed proportions of supply across cuts, as well as lifecycle constraints on livestock production.