Academic journal article Journal of Agricultural and Applied Economics

Which Broiler Part Is the Best Part?

Academic journal article Journal of Agricultural and Applied Economics

Which Broiler Part Is the Best Part?

Article excerpt

Predominance of production and marketing contracts in the broiler industry suggests a traditional analysis of price relationships might no longer be appropriate. In this study, markets for broiler cuts are defined as spatial. Results of a vector autoregressive regression analysis of monthly USDA data from 1987 to 2000 verify the price relationship between white meat and whole broiler prices. Price shocks in the boneless skinless breast market have a greater effect than dark meat shocks, suggesting this market is most important in price transmission. These results will assist industry participants to form more effective marketing and pricing strategies, thus adding efficiency to the market.

Key Words: broiler markets, market structure, marketing contracts, price transmission

JEL Classifications: C4, D4, L1, Q0

Price relationship studies in the U.S. livestock sector have drawn considerable attention and have been an important area of research in the past (Babula, Bessler, and Schluter; Bessler; Goodwin and Holt; Hahn). Babula, Bessler, and Schluter's study of the poultry industry found that in the period 1970-1980, shocks in corn production affected consumer prices more quickly than those in mid-1950 to late 1960. Hahn studied price transmission in the pork and beef markets. His study suggested that there was strong evidence of price interactions among farm, wholesale, and retail prices.

Past studies of price relationships in different market structures explicitly assumed the existence of different market channels (wholesale, retail, and farm sectors). Therefore, a major theme of these studies was to look at the effect of price shocks in one sector of the market as they related to the others. Great interest has developed to investigate how price shocks in the input markets affect, or are transmitted to, both wholesale and commodity retail prices. More recently, Goodwin and Holt and Goodwin and Harper, respectively, have conducted price transmission assessments in the livestock sector. It is the objective of this study to determine dynamic price relationships observed in traditional auction-type wholesale broiler markets in the presence of extensive industry contracting. Thus, in contrast to past studies that have analyzed price transmission between farm, wholesale, and retail market levels, we instead focus attention on the price transmission mechanism among different wholesale broiler markets. The contractual nature and structure of the broiler industry means that price discovery for the industry as a whole is primarily generated at the wholesale level. Hence, a better understanding of the price mechanism between wholesale broiler markets is of particular interest to all broiler market agents.

Price discovery in the broiler industry might be more complex than in the beef and pork industries because price linkages in different wholesale broiler markets are directly affected by the dominant presence of production and marketing contracts. Therefore, one might expect to find that the price discovery process is influenced by the way the industry conducts business. The contracting strategies applied in both input and output markets need to be taken into account through the price linkages in different markets to capture the latest developments in the industry. Currently, most food processors use contracts for buying inputs and selling their products in the market. This is particularly true in the broiler market. Most broiler integrators sell wholesale broilers without giblets (WOG) and different broiler cuts or parts (e.g., boneless skinless breast, BSB; wings, W; leg quarters, LQ; backs and necks, BN; etc.) through contracts with buyers such as fast food or grocery chains.

However, the interaction between poultry buyers and processors also supports actively traded traditional-type auction markets for broiler cuts and WOG. It is these auction-type markets that convey price signals observed in the broiler cut markets to the WOG market and vice versa. …

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