A Dynamic Monthly Model of U.S. Pork Product Markets: Testing for and Discerning the Role of Hedging on Pork-Related Food Costs

摘要

This paper extends prior econometric research and applies cointegrated VAR (CVAR) modeling methods to estimate a monthly system of U.S. upstream/downstream pork-based food product markets, while incorporating an empirical link to a relevant pork futures market.The study uses the CVAR to develop hypotheses that, if accepted, suggest the existence of hedging activity; tests such hypotheses that the data statistically accepts; imposes the hedging-suggesting restrictions into the estimated model; and then shows how the final cointegrated parameters illuminate the role and policy implications of hedging in the workings and dynamic interactions of the modeled pork product markets. Analysis of all cointegrated parameters suggests how hedging can act as a cushion onthe effects of sharp upstream episodes of market volatility on U.S. downstream pork-related food cost patterns.As well, results suggest that because U.S. demand for upstream product markets is a function of relative own/futures price, financial policies working through futures price are as effective policy levers as commodity-focused policies working through upstream commodity prices in influencing the modeled markets and managing related pork-based food cost patterns.