Feeder Cattle Prices Research Articles

Projecting fed cattle price discovery over the next decade (1998)

Interviews were conducted with cattle feeders, beef packers, and others involved in cattle feeding, beef packing, and related the beef industry to project how fed cattle industry firms and organizations. These prices will be discovered in the next decade. interviews were conducted during October Respondents generally indicated that econom1996 through February 1997. They included ics will determine beef’s market share in discussions with five of the largest beef pack2010, how important public grades and grading firms and eight of the largest 25 cattle ing will be, and whether consumer brands for feeding operations. fresh beef will become common. Economics also will determine how much influence alliances will have, whether most cattle will be marketed by some value-based pricing system, and what changes will occur in market information and futures markets.

Price discovery issues for fed cattle

Interviews were conducted with cattle feeders, beef packers, and others involved in the beef industry to discern their concerns about fed-cattle price discovery. Three issues predominated. First was the need to better identify beef quality, ideally by objective means. Quality often, but not always, referred to tenderness and the "eating experience" of consumers. Second was the need for greater pricing accuracy, signaling a desire for less average pricing and more value-based pricing. The need for improved market information was the third issue identified.

Meat-Packer Conduct in Fed Cattle Pricing: Multiple-Market Oligopsony Power

The exercise of market power across multiple geographic fed cattle markets is measured with an econometric model which links behavior of the margin between boxed beef and regional fed cattle prices to an oligopsony model of multiple-market conduct. The game theoretic economic model suggests that for market power to be exercised in a single market a discontinuous pricing strategy must be followed. Total market power is enhanced if meat-packers coordinate this pricing strategy across geographic markets. Tests reject independence of pricing conduct across geographic markets which suggests multiple-market market power is present. The extent of the market power also is consistent with the economic model. More market power is exercised across regions with the same meat-packing firms. However, the magnitude of the market power is small and decreased between the early and late 1980s.

Impacts of GATT/Uruguay Round Trade Negotiations on U.S. Beef and Cattle Prices

The GATT/Uruguay Round trade negotiations have resulted in a multilateral relaxation of beef trade restrictions. A linear elasticity model of the U.S. beef industry is developed using log differentials equations. Beef consumption, production, and trade are disaggregated into appropriate ground and table cut components. The model predicts that GATT/Uruguay Round will cause asymmetric effects on ground and table cut beef consumers. In general, fed cattle and cow/calf producers will benefit from trade liberalization because of increases in fed and feeder cattle prices. However, nonfed cattle price will decrease.

Concentration-price relations in regional fed cattle markets

Since 1977, the U.S. beef packing industry has been restructured at a pace unprecedented in large American industries. By 1987, four packers slaughtered over two-thirds of all steers and heifers. In the thirteen regional feedlot-packer markets studied here, the four leading packers slaughtered 85 percent of fed cattle, on average. The impact of packer concentration on fed cattle prices during 1971–86 was examined using several econometric models. The results generally support the hypothesis that packer concentration was negatively related to live cattle prices. Cattle prices were estimated to be about 3 percent less in the most concentrated region compared to the least concentrated region. There was evidence of a critical concentration of CR4=60 in regional livestock markets.

Feeder cattle price differentials: how much did they change over time? (1995)

Results from mathematical models of feeder cattle price/characteristics using data collected in Kansa s and Missouri in 1986/1987 and from 1993 using the same data collection and modeling procedures indicate that the implicit values of many feeder cattle characteristics changed over time. Characteristic values often changed whether their value was measured in dollars per hundredweight or as a percentage of the mean feeder p rice during the data collection period. Directional impacts of characteristics on feeder cattle price were generally consistent from 1986/1987 to 1993. These results imply that, as market conditions change, new feeder cattle price/characteristic relationships need to be estimated.

Effect of Risk Aversion on Feeder Cattle Prices

AbstractThis paper determines the effects of cattle feeders' risk aversion on feeder cattle prices using pen data of Kansas feedlots. Higher profit risk results in lower feeder cattle prices. The elasticity of feeder cattle price with respect to profit risk was small (-0.013). The risk elasticity estimated here is similar to risk elasticities in previous studies and thus, the use of pen-level data does not seem to add much to the study of risk.

Feeder Cattle Forecasting Models: An Econometric Study of Development and Performance

AbstractThe purpose of this paper is to identify whether an intricate forecasting model which takes into consideration selling price, cost of gain, and seasonality will perform better at forecasting quarterly feeder cattle prices than a simpler model based only on the futures price of feeder cattle. Although both models exhibited good forecasting ability, econometric calculations demonstrated that the complex model had more accurate forecasting ability than did the futures model. Both models performed similarly in their ability to predict the directional movement of feeder cattle price.

Cattle Feeding Profit and Cost of Gain Variability Determinants

Volatile prices and cattle performance contribute to variability in cattle feeding profit and cost of gain. This study investigated the relative impacts of prices and animal performance on variability in cost of gain and profit for three placement weight categories using closeout data on 6,696 pens of steers placed on feed from January 1980 to May 1991 in two western Kansas feedyards. Fed cattle price and feeder steer price explained 70 to 80% of steer feeding profit risk. Corn price accounted for 6 to 16% of profit variability and animal performance explained 5 to 10%.Corn price explained 58 to 67% of cost of gain variance, feed conversion accounted for 23 to 33%, and average daily gain was responsible for approximately 3% of the variability in cost of gain. Results indicate that cattle feeders should consider these factors when developing budgets, calculating break-evens, or considering placing cattle on feed.

Meatpacker Conduct in Fed Cattle Pricing: An Investigation of Oligopsony Power

AbstractMarket power in regional fed cattle markets is measured with an econometric model which links behavior of the margin between boxed beef and fed cattle prices to an economic model of conduct. A noncooperative game theoretic model suggests that for tacitly collusive pricing behavior to persist in equilibrium, oligopsonists must follow a discontinuous pricing strategy. Meatpackers pay low prices for cattle during cooperative phases and purchase cattle aggressively during noncooperative phases. Tests for cooperative/noncooperative conduct and measures of market power are presented. Fed cattle prices in four direct trade regions in the central United States are examined. Evidence of cooperative/noncooperative conduct is present in all markets but has declined over time. Varying conduct across markets and over time suggests it is important to continue monitoring fed cattle markets to assure a competitive environment.

Markdown Pricing and Cattle Supply in the Beef Packing Industry

AbstractWe determine the effect of anticipated and unanticipated cattle supply on the departure of fed cattle price from cattle's marginal value product. Results indicate fed cattle were priced significantly below their marginal value during 31 of the 59 quarters between 1972II and 1986IV. When unanticipated supply shocks are small, markdown behavior is consistent with the hypothesis that packers follow an average processing cost (APC) pricing rule. One implication of our results is that reducing industry concentration is not likely to lead to changes in cattle prices predicted by SCP‐based studies of the industry.

Effect of Slaughter Cattle Marketing Method on the Production Signals Sent to Beef Producers

AbstractData collected from 759 steer calves that were consigned to the South Dakota Retained Ownership Demonstration Program were utilized to examine the effect of slaughter cattle marketing method on production signals sent to beef producers. Marketing systems examined included basing price on live weight (LW), dressed weight (DW), grade and yield (G-Y), or Excel Corporation’s proposed muscle scoring system (MS). Profitability per head averaged $6.64, $23.54, $26.00, and $27.09 for the LW, DW, G-Y, and MS marketing systems, respectively. For the LW pricing system, average daily gain, cost of gain, initial feedlot weight, and days fed accounted for 86.6% of the variation in profitability. For the DW pricing system, average daily gain, dressing percentage, cost of gain, initial feedlot weight, and days fed accounted for 92.86% of the variation in profitability. Average daily gain, dressing percentage, quality grade, cost of gain, days fed, and hot carcass weight accounted for 83.1% of the variation in profit for the G-Y marketing system. Average daily gain, dressing percentage, cost of gain, days fed, carcass fatness, quality grade, and rib eye area explained 75.6% of the variation in profitability for the MS pricing system. Only the MS pricing system penalized the production of carcass fat. Current fed cattle pricing systems used in the industry fail to transfer consumer demand for lean beef to beef producers.

Reputation Selling in Feeder Cattle Teleauctions

Recent research to identify significant factors that influence feeder cattle prices has focused on cattle and market characteristics. The research reported here used data from Georgia teleauctions during the 1977 to 1988 period to determine the possible impact of seller's reputation on price. Both significant premium and discount sellers were identified for two of the three teleauction organizers. The teleauction organization that transferred the least amount of information about the cattle had the greatest number of reputation sellers while the organization with the most information about sellers' cattle given to buyers registered no significant seller reputations. Reputations can help buyers estimate quality in the absence of complete information.

The Impacts of Quality on Cash Fed Cattle Prices

AbstractQuality factors affecting fed cattle prices were examined during a six-month period in southwestern Kansas. Transaction prices were significantly affected by the percentage of cattle expected to grade choice times the choice-to-select carcass price spread, finish uniformity, average weight, dressing percentage, breed, number of cattle purchased by a single packer on a given day, the packer, the feedyard, the day-of-the-week the cattle were sold, and the number of bids received. Asking prices were significantly affected by many of the same factors. Asking and transaction prices reflected approximately 25 percent of the packer value differentials for expected carcass quality grades.

Inter‐Firm Differences in Fed Cattle Prices in the Southern Plains

AbstractPooled cross‐section time‐series data were used to assess inter‐firm differences in fed cattle prices paid by southern plains meatpackers during June 1989. Significant price differences were found among packers, even after accounting for numerous factors affecting fed cattle value. Some buyers paid higher prices and some lower prices than did one of the three largest packers. As a group, the Big Three firms paid lower prices than did smaller firms, both in the southern plains as a whole and in three of its subregions.

Production and marketing factors influencing fed cattle prices (1992)

Summary An analysis of more than 1400 pens of cattle marketed during 1990 examined the influence of several cattle traits and marketing factors on fed cattle prices. Cattle grade had an important impact on packer bids and feedyard asking prices. However, both feedyard asking and packer purchase prices reflected less than 25%, on average, of estimated wholesale value differentials. Other factors, including estimated dressing percentage, finish uniformity, cattle weight, number of head purchased, presence of heiferettes, and cattle type had significant price impacts. Feedyards generally received what they asked for cattle; 65% of the pens sold for their asking prices. Price signals for differences in cattle quality are not fully transmitted to cattle feeders.

Factors affecting variability in feedlot steer profits (1992)

This study examined the relative importance of price and animal performance factors on cattle finishing profitability. Using data from a single feedlot, sale prices, feeder prices, and corn prices explained 90 to 95% of the variation in steer profits. About 50% of the variability was explained by fed cattle prices alone. Because sale, feeder, and corn prices have a large impact on profits per head, cattle feeders should attempt to manage the risks associated with these three factors.

Short-run impact of captive supplies on fed cattle prices (1992)

Factors affecting western Kansas fed cattle prices during May through November 1990 were investigated. In particular, the impact of changes in captive cattle supplies on cash prices was examined. The term captive cattle supplies refers to cattle procured by a packer well in advance of slaughter. Captive supplies take one of three forms: 1) packer-owned cattle, 2) cattle procured on forward contracts, and 3) cattle procured under formula price (or marketing) agreements. Captive supplies were defined as cattle procured under forward contracts or formula price agreements, because data on packer-owned cattle were unavailable. Over the May through November 1990 period as a whole, the presence of captive cattle supplies was associated with an average reduction in western Kansas cash market transaction prices of about $0.15/cwt.

Feeder Cattle Price Differentials in Georgia Teleauctions

AbstractThree Georgia feeder cattle teleauction markets were analyzed from 1977 to 1988 to estimate the impacts of cattle characteristics and market conditions on prices. Cattle characteristic price impacts were similar to those in previous studies. The impact of feeder cattle futures price on teleauction price was positive but varied across markets. Optimal lot size ranged from 143 to 276 head. In one market, 14 lots were necessary to generate positive price impacts. Additional buyers were estimated to have a $.30/cwt per buyer impact on price.

An analysis of feeder cattle price differentials

A static premium and discount analysis was used to determine whether certain management or marketing practices affect the price of feeder cattle at auction. Data included animal characteristics (sex, weight, muscle, frame, horns, breed, condition, fill, health) and market characteristics (price, lot size, market location, auction sale order). The analysis shows that marketing price can be enhanced by selling heavy muscled, crossbred cattle with either medium or large frame in large (truck-load) size lots. Cattle should carry average fill, an average or slightly fleshy amount of condition, and be dehorned.