Hostname: page-component-cd9895bd7-dk4vv Total loading time: 0 Render date: 2024-12-18T08:15:45.303Z Has data issue: false hasContentIssue false
  • English
  • Français

Factor Price Disparity and Retained Ownership of Feeder Cattle: An Application of Feedlot and Carcass Performance Data to Farm-Level Decision Making

Published online by Cambridge University Press:  28 April 2015

Brad J. White ,
John D. Anderson ,
W. Blair McKinley  and
Jane Parish
Brad J. White
Affiliation:
College of Veterinary Medicine, Kansas State University, Manhattan, KS
John D. Anderson
Affiliation:
Department of Agricultural Economics, Mississippi State University, Mississippi State, MS
W. Blair McKinley
Affiliation:
Department of Animal and Dairy Science, Mississippi State University, Mississippi State, MS
Jane Parish
Affiliation:
Department of Animal and Dairy Science, Mississippi State University, Mississippi State, MS
Get access Rights & Permissions [Opens in a new window]

Abstract

In this study, we used farm-level data from a university feed-out program to evaluate how the value of feeder cattle ultimately realized through finishing and grid pricing differs from their market value at public auction. Consistent with the theory of factor price disparity, results indicate that significant risk premiums exist in the feeder cattle market. Producers of cattle with known feedlot performance, carcass potential, or both might be better off retaining ownership of their calves or marketing them in a way that communicates the information that is known about their potential performance directly to the buyer.

Keywords

factor price disparityfeeder cattlegrid pricingQ11Q12Q13
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 39 , Issue 1 , April 2007 , pp. 87 - 101
Copyright
Copyright © Southern Agricultural Economics Association 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anderson, J.D., and Zeuli, K.A.. “The Revenue Risk of Value-based Pricing for Fed Cattle: A Simulation of Grid vs. Average Pricing.” International Food and Agribusiness Management Review 4(2001):275–86.CrossRefGoogle Scholar
Cross, H.R., and Savell, J.W.. “What Do We Need for a Value-based Beef Marketing System.” Meat Science 36(1994):19–27.CrossRefGoogle ScholarPubMed
Fausti, S.W., and Feuz, D.M.. “Production Uncertainty and Factor Price Disparity in the Slaughter Cattle Market: Theory and Evidence.” American Journal of Agricultural Economics 77(1995):533–40.CrossRefGoogle Scholar
Fausti, S.W., Feuz, D.M., and Wagner, J.J.. “Value Based Marketing for Fed Cattle: A Discussion of the Issues.” International Food and Agribusiness Management Review 1(1998):73–90.CrossRefGoogle Scholar
Fausti, S.W., Johnson, B., Epperson, W., and Grathwohl, N.. “Risk and Economic Incentive to Retain Ownership of Steer Calves.” Economics Staff Paper 2003-6, Dept. of Economics, South Dakota State University, Brookings, 2003.Google Scholar
Feuz, D.M. “Economic Implications of Show List, Pen Level, and Individual Animal Pricing.” Formula Pricing and Grid Pricing Fed Cattle: Implications for Price Discovery and Variability, Ward, C.E., Feuz, D.M. and Schroeder, T.C., eds. Blacksburg, Virginia: Research Institute on Livestock Pricing, Virginia Tech University, 1999.Google Scholar
Feuz, D.M., Fausti, S.W., and Wagner, J.J.. “An Analysis of the Efficiency of Four Marketing Methods for Slaughter Cattle.” Agribusiness 9(1993):453–63.3.0.CO;2-1>CrossRefGoogle Scholar
Feuz, D.M., “Risk and Market Participant Behavior in the U. S. Slaughter-Cattle Market.” Journal of Agricultural and Resource Economics 20(1995):22–31.Google Scholar
Gebremeskel, T., and Shumway, C.R.. “Farm Planning and Calf Marketing Strategies for Risk Management: An Application of Linear Programming and Statistical Decision Theory.” American Journal of Agricultural Economics 61(1979):363–70.CrossRefGoogle Scholar
Horowitz, I.Decision Making and Theory of the Firm. New York: Holt, Rinehart, and Winston Publishing, 1970.Google Scholar
Lambert, D.K. “Calf Retention and Production Decisions over Time.” Western Journal of Agricultural Economics 14(1989):9–19.Google Scholar
Livestock Marketing Information Center. Livestock Marketing Information Center. Internet site: http://lmic.info/ (Accessed March 2, 2005).Google Scholar
Mintert, J. “Beef Feedlot Industry.” Veterinary Clinics of North America: Food Animal Practice 19(2003):387–95.Google ScholarPubMed
National Cattlemen's Association. “The War on Fat!” Final report of the Value-Based Marketing Task Force. Englewood, Colorado: National Cattlemen's Association, 1990.Google Scholar
Rodriguez, A., and Taylor, R.G.. “Stochastic Modeling of Short-term Cattle Operations.” American Journal of Agricultural Economics 70(1988):121–32.CrossRefGoogle Scholar
Savell, J.W., and Cross, H.R.. “Value Based Marketing: Current Status.” Proceedings of the Annual Reciprocal Meat Conference of the American Meat Science Association, 1991, pp. 117–20.Google Scholar
Schroeder, T.C., and Graff, J.L.. “Estimated Value of Increased Pricing Accuracy for Fed Cattle.” Review of Agricultural Economics 22(2000):89–101.CrossRefGoogle Scholar
Schroeder, T.C, Ward, C.E., Lawrence, J., and Feuz, D.M.. Fed Cattle Marketing Trends and Concerns: Cattle Feeder Survey Results. Manhattan, KS: Kansas State University Agricultural Experiment Station and Cooperative Extension Service, MF-2561, 2002.Google Scholar
USDA-AMS (U.S. Department of Agriculture, Agricultural Marketing Service). “National Weekly Direct Slaughter Cattle Report—Formulated and Forward Contract.” St. Joseph, MO: LM_CT151, various dates, 2005a.Google Scholar
USDA-AMS (U.S. Department of Agriculture, Agricultural Marketing Service). “National Weekly Direct Slaughter Cattle Report—Prior Week Slaughter and Contract Purchases.” St. Joseph, MO: LM_CT153, various dates, 2005b.Google Scholar
USDA-AMS (U.S. Department of Agriculture, Agricultural Marketing Service). “National Weekly Direct Slaughter Cattle Report—Negotiated Purchases.” St. Joseph, MO: LM_CT154, various dates, 2005c.Google Scholar
U.S. Department of Commerce, Bureau of Economic Analysis. National Income and Product Accounts Interactive Tables. Internet site: http://www.bea.gov/bea/dn/nipaweb/index.asp (Accessed August 3, 2006).Google Scholar
Ward, C.E., Schroeder, T.C., Wheeler, T.L., Mintert, J., and Drouillard, J.S.. “Merits of Value Discovery Alternatives for Fed Cattle and Carcasses.” Paper presented at the Western Agricultural Economics Association Annual Meeting, Denver, Colorado, July 11-15, 2003.Google Scholar
Whitson, R.E., Barry, P.J., and Lacewell, R.D.. “Vertical Integration for Risk Management: An Application to a Cattle Ranch.” Southern Journal of Agricultural Economics 8(1976):45–50.Google Scholar