Abstract
AbstractData from 1,422 feeder cattle teleauction lots were used to assess the impacts on profitability of the Virginia quality assured (VQA) feeder cattle program. The analysis finds higher profits for VQA cattle due to their faster turnover and lower feed costs; however, certification does not have a significant effect on price received by producers. The analysis further suggests that the cost associated with production under VQA should be considered in addition to price effects studied in previous literature.
Highlights
Value-added certifications have become a ubiquitous part of today’s agricultural markets
The temporal variability in the price premium for certified cattle is high, ranging from less than $1 per hundredweight in 2017 to over $20 in 2015. This variability is in line with the results from previous Virginia quality assured (VQA) research, where lower premiums in some years were attributed to the combination of decreases in finished cattle prices and futures and rises in feeder cattle prices (Greiner et al, 2003)
In addition to not being statistically significant, this premium is smaller than the $2.39 to $5.74 per cwt that Williams et al (2012) found for a similar certification in Oklahoma, and it is smaller than the $3 or more premium that Zimmerman et al (2012) found for both weaning and vaccination certifications independently. Physical attributes such as weight, frame size, and flesh score play a larger role and once these factors are accounted for, VQA participation has a negligible effect. This finding is in contrast to Williams and Zimmerman, where certifications carried statistically significant premiums when controlling for physical attributes of the cattle
Summary
Value-added certifications have become a ubiquitous part of today’s agricultural markets. In the feeder cattle industry, where buyers representing feedlot operators must interpret large amounts of information to make decisions quickly about the expected profitability of a large group of cattle, transmission of certification value is indirect. For public investment in the VQA program to be considered socially beneficial, evidence is needed that the value it provides exceeds its costs and that it has higher returns than alternative uses of the funds invested in VQA. Buyers in feeder cattle markets look for animals that will provide the largest profit. Characteristics that buyers seek are those that will maximize feedlot performance, meaning that the market value of feeder cattle is tied to the expected value of weight gained in the feedlot. During periods of high input prices, preconditioned (weaned and vaccinated) cattle have been found to receive significant premiums (Williams et al, 2012)
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