The name is absent



ground beef sales as indicated by the first ad-
justed solution (Figure 1, row 13) would neces-
sitate an increase in the price of ground beef in
relation to the prices of the other beef prod-
ucts. In the second adjusted solution (Figure
1, row 14) the 7 percent increase in the price of
ground beef could conceivably result from only
a 3 percent decrease in the quantity of ground
beef offered for sale (.07 x —.43 = —.03). In the
third adjusted solution (Figure 1, row 15), the
11.5 percent price increase for ground beef
(from $.866 to $.966) could be induced by a 5
percent decrease in the quantity exchanged of
ground beef (.115 x —.43 = —.05).

The adjustments in relative prices and per-
centages of total volume of beef sales for each
beef product as depicted by the Unear program-
ming model cannot be expected to simulate ac-
tual beef market adjustments to reductions in
cow, buU, and other nonfed cattle slaughter. As
can be seen by referring to the beef market-
submarket structural models in equations 1
through 7, changes in the price of one of the
beef products, including the intermediate prod-
uct domestic manufacturing beef, can result in
shifts in both the demand and supply of
ground beef and the fed beef products. Thus
the LP model results are much SimpUfied ap-
proximations of a very complex market situa-
tion. The results do, however, accurately illus-
trate one important point—that is, a ground
beef price increase of only 7 percent in relation
to the prices of some of the fed beef products
(rounds in this model solution) would be suffi-
cient to induce these fed beef primais to be
diverted to the ground beef trade. Thus, if the
assumed relative price elasticities are reason-
ably accurate representations of the wholesale
markets, a relatively small decrease in the
production of ground beef will induce sufficient
price increases in ground beef relative to the
prices of the fed beef products to cause beef
from the block beef trade to be diverted to
ground beef.

Although in actual market situations rela-
tive prices and volumes are in a continuous
process of adjusting toward an equilibrium, it
nonetheless seems plausible that if cow, bull,
and other nonfed beef are significantly
restricted in their availability during the next
few years, and imported beef is restricted to
current or near current levels, more fed beef
primais, principally rounds and chucks, will be
diverted to the ground beef trade.

Diverting Cattle to “Grow-Out” Programs

The second alternative is to divert cattle
that normally would be finished to a grade of
good or choice in a conventional feedlot to a
feeding program to produce beef suitable only
for the production of ground beef. In the sim-
plified model of the processor-wholesaler beef
market the activity of purchasing domestic
manufacturing deboned beef, which is 15 per-
cent fat and 85 percent lean, is restricted first
to represent the estimated current availability
of the product and second to represent its es-
timated availability after a 30 percent reduc-
tion from current levels in the slaughter of
cows, bulls, and other nonfed cattle. One in-
dication of the feasibility of diverting cattle
from traditional finishing programs to “grow-
out” programs can be obtained by determining
the maximum price the beef industry could
“afford to pay” for additional domestic manu-
facturing beef to produce more ground beef
given the alternative or diverting beef from the
block beef trade to produce more ground beef.
In the linear programming model, this
maximum price is indicated by the shadow
price of the limit on domestic manufacturing
beef as indicated in the solution where domes-
tic manufacturing beef is restricted to 164 lbs.
and ground beef is priced at $.926 per pound
(Figure 1, row 14). This approach also necessi-
tates the assumption that domestic manufac-
turing beef adequately represents the end
product of beef produced in a “grow-out” pro-
gram. The shadow price of domestic manu-
facturing beef corresponding to the solution ac-
tivity levels shown in Figure 1, row 14, is $.146
(not shown in Figure 1) which indicates that
with the model price of domestic manufactur-
ing beef of $.998, the beef industry could afford
to pay no more than $1.144 per pound for addi-
tional domestic manufacturing beef. Alterna-
tively it indicates that if additional domestic
manufacturing beef could be purchased at a
price of $1.14 or less, it would be profitable to
do so and to substitute it for the round primais
that the solution indicated would be used in
the production of ground beef.

This derived relative maximum price that
the industry could afford to pay for additional
domestic manufacturing beef enables one to
determine a maximum carcass and liveweight
price for animals that could be used to produce
the domestic manufacturing beef. If it is as-
sumed that carcasses from “grown-out” beef
cattle will yield 76 percent of their carcass
weight as deboned meat, and that deboning
costs $.07 per pound of carcass, a carcass price
of $.799 per pound [(1.144 x .76) — .07] can be
derived. This price compares to a carcass price
of $.768 per pound for the fed beef carcasses
used in model solution (average price of high-
good quality grade carcasses). Conversion to
liveweight equivalents shows the derived rela-
tive maximum price of the “grown-out” beef
animal to be $.44 per pound (assuming a yield
of 55 percent). The comparable derived live-
weight price of the fed beef used in the model is

25



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