Macroeconomic shock effects on beef carcass premiums

Abstract

An overview of how macroeconomic shocks affect beef quality-grade premiums and discounts in the U.S. fed cattle market is discussed. We review the shock transmission linkages along the beef industry supply chain and determine the economic implications for the finished cattle market. The analysis provides insight into how the fed cattle market responds to macroeconomic shocks. The economic implications of financial risk associated with the behavior of beef carcass quality-grade premiums and discounts associated with the Great Recession and the COVID pandemic are contrasted and assessed.

Data analysis indicates that macroeconomic shocks affect the quality-grade premium pricing mechanism for finished cattle. The origins of the shock (aggregate demand versus aggregate supply) and government fiscal policy intervention determines how premium levels and premium volatility responds to a macroeconomic shock. Thus, beef carcass quality-grade premiums are not only subject to industry idiosyncratic risk, such as swings in the seasonal demand for beef, but are also subject to systematic risk associated with business cycle fluctuations.