## Live Animal Demand Calculations

Sources of price data

Live animal prices - Calculated by USDA/ERS from data collected and published by USDA/AMS.
http://www.ers.usda.gov/Publications/LDP/

Deflated livestock prices - The nominal live animal prices are deflated using the Consumer Price Index for all urban consumers (CPI) published monthly by the BLS
http://www.bls.gov/cpi/home.htm

Formula: The deflated live animal price equals the nominal live animal price divided by the CPI

Formula: The percent change in deflated live animal price equals the deflated live animal price in month X divided by the deflated live animal price in month (X minus 12) times 100 minus 100.

Sources of slaughter data

Monthly commercial livestock slaughter - Calculated by USDA/AMS and published by USDA/NASS
http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1096

Formula: The percent change in slaughter day adjusted animal slaughter equals slaughter day adjusted animal slaughter in month X divided by slaughter day adjusted animal slaughter in month (X minus 12) times 100 minus 100.

Elasticity

Own price elasticity is an economic term that measures the relationship between a change in quantity sold and the accompanying change in price. The formula for elasticity is percent change in quantity sold divided by the percent change in price. For example, if the price of an item goes up by 1% and sales drop by 1%, then the calculated elasticity is -1 (-1% divided by +1%). Over time, the calculated elasticity of slaughter livestock tends to average between -0.2 and -0.5, e.g. a 1% price increase is likely to result in a 0.2% to 0.5% decrease in quantity sold.

Note: I use a Marshallian demand function rather than a Hicksian demand function. My demand model is simply D=f(% change in deflated price and % change in per capita usage).

Formula: The expected percent change in animal slaughter equals the percent change in deflated live animal price times -0.3.

Formula: The percent change in live animal demand equals (the actual percent change in livestock slaughter plus 100) divided by (the expected percent change in livestock slaughter plus 100) minus 1, times 100.

Data Revisions

Prices - price data for a month is usually published about 20 days into the following month and is rarely revised.

Slaughter - preliminary data on livestock slaughter for a month are usually published about 22 days into the following month with typically very minor revisions one month later. The final value is usually published in March of the following year.

Limitations

Garbage in garbage out - The estimate of livestock demand is no more accurate than the data used in the calculation.

Why do others get different numbers?

The calculation of work days in a month is a bit subjective, especially when it comes to estimating the impact of minor holidays and Saturdays. Others who attempt to calculate meat demand may chose to use a different data series, use unrevised data, use different elasticities or use an entirely different model for demand.

[ AgEBB ] - [ Farm Marketing]