Abstract
Understanding how signals for change are transmitted from primary consumer demand through the supply chain is key for long-term prosperity of the cattle industry. Zhao, Du, and Hennessy (2011) used Ricardian rent theory (RRT) to determine if complete pass-through occurs from fed cattle and corn prices to feeder cattle prices. Due to changes in the beef industry since 2004, this study updates and expands Zhao, Du, and Hennessy (2011). This article presents three analyses. First, an update using data from 2004 to 2016 is presented. Next, an analysis using futures market feeder and live cattle prices from 1994 to 2016 identifies four different regimes and tests RRT in each regime. Finally, Kansas cash feeder cattle and expected live cattle prices using historical basis are used to test RRT with two structural breaks. Evidence supporting RRT in cattle markets is mixed. The future direction of expansion for this study is discussed.
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