Objectives, Scope, and Methodology

Concerned that current models the government uses do not fully account  for how some marketing practices and trade affect prices U.S. cattle  producers receive for their livestock, Senator Daschle asked us to  determine   the extent to which economic models that USDA and ITC incorporate  imports, concentration in the U.S. meatpacking industry, and marketing  agreements and forward contracts in predicting domestic cattle prices;   the most important factors affecting cattle prices and producers’   the most important data and modeling issues in developing a  comprehensive analysis to project cattle prices and producers’ incomes. One  of the strengths of the Delphi method is its flexibility. This model consists of  equations specifying supply and demand relationships that affect the  livestock sector. Beef export  and import projections are based on USDA’s link system model. The panel also identified key international trade  factors that affect cattle demand and supply. The panel believed that domestic cattle demand and supply are the  fundamental forces driving cattle prices and producers’ incomes. The panel’s findings underscore the importance of  demand and supply relationships throughout the cattle and beef industry,  from cow-calf producer to retail consumer. Other panel members  pointed to the need for better data for analyzing consumer demand.
Why GAO Did This Study

Concerns have been raised that the economic models used by the U.S. Department of Agriculture (USDA) and the U.S. International Trade Commission do not account for all the factors that affect cattle prices and producer incomes. GAO reviewed USDA's livestock model to determine whether it incorporates imports, market concentration, marketing agreements, and forward contracts.

What GAO Found

In reviewing best modeling practices, GAO's expert panel concluded that domestic cattle demand and supply were the fundamental forces driving cattle prices and producer incomes. The panel identified issues necessary to develop a comprehensive modeling system that predicts cattle prices and producer incomes. The panel recommended the collection of better data to quantify several important factors omitted from the model. The panel also wanted to see a more complete characterization of the supply and demand relationships connecting the cattle producer to the final consumer. The panel's emphasis on a more complete characterization of the cattle and beef industry underscores the idea that the demand for cattle is ultimately driven by consumer demand for beef and other demand and supply forces linking cattle producers to feedlots, meatpackers, and retailers.