Examining Dynamically Changing Cattle Market Linkages with Inventory as Controlled Transitions

This article reports tests of price cointegration of cattle markets in the U.S. and proposes a simple procedure for incorporating a flexible transition function into the ECON smooth transition autoregressive (ECON-STAR) model to evaluate market dynamics over time. This model allows evaluating varying market integration as an exogeneous economic indicator changes throughout a specified time. Cattle are perishable, bulky and costly to transport. These characteristics make cattle markets easily segmented across regions. The empirical results show that these markets have been highly cointegrated when there exists excess supply. Following a sudden decrease in cattle inventory, the market pattern has become very regionally segmented.