An Economic Analysis of U.S. Broiler Industry: A Structural Bayesian VAR Approach

The U.S. broiler industry has seen major structural changes due to higher degrees of vertical integration and industry concentration. These structural changes have influenced the adjustment characteristics of key production variables to external disturbances. We examine these adjustment characteristics to external shocks in a dynamic context. A VAR approach was used to simulate the impulse response functions and forecast error variances. The results show that a positive feed cost shock leads to gradual declines in production and lagged increases in wholesale broiler prices. Shocks to wholesale prices yield a tepid production response. However, a sudden increase in production depresses the wholesale price of broilers. These results imply that feed cost increases pay a major role in the growth of the U.S. broiler industry. Improvements in feed conversion ratio, advances in production technology and adoption of better risk management practices at the national and farm level may help minimize the influence of feed cost.