Capacity Constraints and Beef Price Spreads

The elevated levels of the farm-to-wholesale beef price spread since 2015 and the dramatic spike in the spread during 2020–2021 have generated intense interest in this measure by cattle producers, policymakers, and agricultural economists. The simple model presented here, in which beef packers’ demand for cattle is determined from the combination of consumers’ beef demand and packers’ processing costs in the presence of capacity constraints, can help us understand the supply and demand factors that drive the price spread. While this model assumes away some complicating factors, like industry concentration and the use of alternative marketing arrangements, that also influence the price spread, research shows that capacity constraints are the primary determinant. For further information on the interaction between market structure, alternative marketing arrangements, capacity constraints, and price spreads in the beef packing industry, see Moschini and Smith (2025). See also: Moschini, G. and T.J. Smith. 2025. “Spatial price competition and buyer power in the U.S. beef packing industry.” American Journal of Agricultural Economics. https://doi.org/10.1111/ajae.70003