Table 1. Proportions of Forecast Error Variance к
Months Ahead Allocated to Innovations
of Corn, Farm Egg, and Retail Egg
Prices
Innovation Variable
Respone |
Std. | |||
Variable Steps к |
Error |
PCN |
PF |
PR |
— |
- percent |
— | ||
Farmgate ∞rn price: | ||||
1 |
.0777 |
99.44 |
0.10 |
0.46 |
6 |
.1441 |
95.93 |
0.11 |
3.96 |
12 |
.1879 |
95.56 |
0.12 |
4.31 |
18 |
.2113 |
94.85 |
0.12 |
5.04 |
24 |
.2257 |
94.67 |
0.36 |
4.97 |
35 |
.2361 |
93.81 |
1.40 |
4.79 |
__________36 |
.2364 |
93.74 |
1,44 |
4.82 |
Farm-level egg price: | ||||
1 |
.0936 |
5.94 |
93.57 |
0.49 |
6 |
.1251 |
17.04 |
81.93 |
1.03 |
12 |
.1374 |
25.68 |
72.89 |
1.43 |
18 |
.1456 |
32.27 |
66.12 |
1.61 |
24 |
.1508 |
31.58 |
66.37 |
2.05 |
35 |
.1563 |
34.60 |
62.52 |
2.87 |
_________36 |
.1569 |
34.92 |
62.17 |
2.91 |
Retail egg price: | ||||
1 |
.0608 |
9.82 |
67.41 |
22.77 |
6 |
.0914 |
19.84 |
67.84 |
12.33 |
12 |
.1030 |
28.77 |
61.26 |
9.97 |
18 |
.1103 |
36.57 |
54.13 |
9.30 |
24 |
.1142 |
35.28 |
54.48 |
10.23 |
35 |
.1186 |
36.49 |
51.11 |
12.40 |
_________36 |
.1191 |
36.62 |
50.79 |
12.58 |
30 percent of PF’s FEV is, however, attributed to
com price at most reported horizons. Retail price
contributes little to farm egg price’s explanation.
Retail egg price is highly endogenous, with no
more than 12.6 percent of its FEV attributed to
own-variation at all reported horizons beyond one
month. Farm egg price, the heaviest contributor,
accounts for more than half of the retail price’s FEV
at all reported horizons. Com price’s uncertainty, the
second most important contributor, accounts for
more than 28 percent of PR’s FEV at most reported
horizons.
Declining volumes of egg production marketed at
the farm pricing point and increasing production
proportions being contracted have raised questions
concerning the relevance of the farm pricing point
for eggs (Lasley). Table Γs results suggest that
despite the declining marketing shares associated
with farm egg price, PF is still an important (and
perhaps widely-watched) informational variable.
Farm egg price accounts for most of the retail price’s
variation—from 51 to in excess of 67 percent. Fur-
thermore, the relationship appears unidirectional
from farm to retail egg price, with minor proportions
(less than 3 percent at all reported horizons) of PF’s
FEV attributed to retail price. Thus, despite the
declining shares of egg production traded inde-
pendently, evidence suggests that farm egg price
continues to be an important and widely observed
egg price indicator.
An interesting com∕egg price relationship emerges
from analysis of the results of two different VAR
econometric t∞ls: (1) a combined application of the
impulse response function and the Kloek-Van Dijk
Monte Carlo generator, and (2) the FEV decomposi-
tions. The sensitivity parameters for PF and PR
impulses suggest that egg price response to com
price movements is less than one-for-one—that is,
the parameters are below unity. More specifically,
these parameters are 0.32 and 0.40, that is, within the
vicinity of one-third. The FEV decomposition
results (Table 1) suggest that com price accounts for
about one-third of egg price forecast error variances
at most reported horizons. These results suggest that
egg prices at the farm and retail levels respond (in
the same direction) by roughly one-third of the per-
centage shock in farm com price.
CONCLUSION
This study provides information about the
dynamics of how the three modeled prices move
between the pre-shock and post-shock equilibria
modeled by more conventional and theoretically-
based econometric models. A number of such
policy-pertinent and dynamic results about the PCN-
PF-PR price transmission emerge.
Farm and retail egg price responses have immedi-
ate reaction times to a rise in farmgate com price.
Egg price at the farm and retail levels increase in the
wake of the positive com price shock. Farm and
retail egg price responses to the com price shock
persist for 17 months. That is, the historical
dynamics embedded in the model would have com
price shocks being felt through the economy’s egg-
related sectors for about a year and a half. Change
in com price appears to elicit similar response pat-
terns at the farm and retail sectors of the egg-related
economy. Farmgate com price appears highly ex-
ogenous in the modeled price transmission
mechanism. Evidence suggests a high degree of
farm egg price exogeneity. Retail egg price is en-
dogenous, and appears highly influenced by the farm
egg price. Further, farm egg price appears to in-
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