A Dynamic Model of U.S. Beef Cattle

We develop a simple and tractable model that will ultimately estimate and project prices and quantities in the U.S. beef cattle industry. While the economic literature focuses on static equilibrium displacement models to measure the impacts of policy proposals, the present study develops a dynamic model that includes cattle of all ages, price expectations, and demand for meat. In the cattle market, dynamics is an important feature, and absence of dynamics could lead to biased long-run estimates. By including dynamics we directly use data to estimate prices and quantities rather than relying on static counterfactuals. First we present and derive the model to provide an analytical solution. We then use numerical methods to solve the model using available data. The estimated holding costs are below the cull prices. The estimated prices and costs generally follow the same trend as the observed prices and costs.