Dynamic Effects of Grain and Energy Prices on the Catfish Feed and Farm Sectors

By Muhammad, Andrew; Zheng, Hualu | Journal of Agricultural and Applied Economics, November 2010 | Go to article overview

Dynamic Effects of Grain and Energy Prices on the Catfish Feed and Farm Sectors


Muhammad, Andrew, Zheng, Hualu, Journal of Agricultural and Applied Economics


This study examines the dynamic effects of grain prices and energy prices on catfish feed prices and the price of food-sized catfish at the farm level. Using the autoregressive distributed lag model and bounds testing procedure, a long-run relationship between feed and farm prices and their determinants was confirmed. Given the effect of corn and soybean meal prices on catfish feed prices, and catfish fish feed prices on farm prices, the long-run responsiveness of feed prices to a percentage increase in U.S. ethanol production is 0.325, and the responsiveness of catfish farm prices is 0.064. Although both feed and farm prices increase with ethanol production, the relatively small responsiveness of farm prices when compared with feed prices suggests that catfish farmers are worse off. Results are conditional on ethanol production causing an increase in grain prices.

Key Words: catfish, prices, autoregressive distributed lag (ARDL) model, ethanol, feed, corn, soybeans

JEL Classifications: C32, QIl, Q22

The recent increase in catfish feed prices induced by the increase in grain prices has created concerns in the U.S. catfish industry. Corn and soybeans are the primary ingrethents in catfish feed in which corn can account for up to 32. 1 % and soybean meal up to 41.6% of total feed ingrethents (Robinson, Li, and Hogue, 2006). Furthermore, feed costs are the primary expense in catfish production, accounting for over 50% of total variable expenses. Wells (2007) indicate that increased grain prices resulted in catfish feed prices increasing by nearly $30 per ton in 2007. Spencer (2008) gives an even greater estimate. He notes that feed that once sold for $250 a ton was selling from $380 to $410 a ton in 2007.

Monthly catfish feed prices ($/ton), #2 yellow corn prices ($/bushel), and soybean meal prices ($/ton) from 1996 through 2008 are presented in Figure 1 . Given the importance of corn and soybean meal to catfish feed production, there is a strong relationship among catfish feed, corn, and soybean meal prices. In mid-2004, corn prices peaked at $2.90 and soybean meal prices peaked at $311.50. During this period, catfish feed prices peaked at $310.00. Particularly striking is what occurred in 2008 when corn and soybean meal prices reached highs of $6.55 and $412.25, respectively. During this period, catfish feed prices reached a high of $442.00 (Figure 1).

In addition to higher feed prices, catfish farmers have also been challenged by higher energy prices, particularly the price of diesel fuel and gasoline. The increase in fuel prices in 2008 was primarily the result of the increase in crude oil prices. Throughout most of the 1990s, crude oil prices averaged less than $20 per barrel but reached approximately $65 in the summer of 2006 and averaged $59 for the year (Westcott, 2007). In 2008, crude oil prices rose beyond $140 per barrel.

There has been little research on the effects of grain and energy prices on the U.S. catfish sector. This is of particular importance because the increase in corn and soybean prices and the resulting increase in feed prices have caused economic hardship for catfish producers. Streitfeld (2008) in a New York Times article notes that many catfish farmers emptied their ponds because of higher feed prices and energy costs. According to the National Agricultural Statistical Service, pond acres dedicated to catfish production decrease from 175,940 acres in 2005 to 146,900 acres by the end of 2008 (Hanson and Sites, 2009). Additionally, farms sales in 2008 were 514.9 million lbs, down 8.7% when compared with the previous year and 24% since 2002 (Table 1).

The purpose of this study is to examine the short-run and long-run effects of grain prices (particularly corn and soybeans) and energy prices on catfish feed prices and the price of food-sized catfish at the farm level. We use the autoregressive distributed lag (ARDL) approach and bounds-testing procedure (Pesaran, Shin, and Smith, 2001) to estimate the specified relationships and to determine if a long-run/ cointegrating relationship exists between the variables. …

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