Examination of asymmetric supply response in the U.S. livestock industry

This paper aims to investigate asymmetric supply response in the U.S. cattle, hog, and chicken industries. This investigation can be described in the context of structural change of the U.S. livestock industry. That is, the move to larger operations that occurred from the economies of scale that exist in many of these sectors today results in an inability to adjust to low profitability because of the high capital outlays associated with the large facilities. These same economies of scale allow for quick expansion in periods of high profitability. For this purpose, the threshold autoregressive (TAR) model and the momentum threshold autoregressive (M-TAR) models are used to analyze these industries. The empirical results of the M-TAR model suggest that there is evidence in support of the presence of asymmetric supply response in the hog and chicken industries. In contrast, there is presence of symmetric supply response for cattle. The finding for the hog industry is consistent with a priori that the positive discrepancy from the long-run equilibrium made by the producers’ expectation of high profitability may more quickly adjust to equilibrium while the negative discrepancy created by the producers’ expectation of low profitability tends to persist. Overall, the empirical results suggest that there is evidence in support of symmetric supply response for the cattle industry, while there is the presence of asymmetric supply response for both the hog and chicken industries. These findings imply that the recent structural change in the cattle industry has contributed to improving the production efficiency for cattle, but in the hog industry and the chicken industry, there might exist potential production inefficiencies that should be corrected.