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

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  • White, Brad J.
  • Anderson, John D.
  • McKinley, W. Blair
  • Parish, Jane

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.

Suggested Citation

  • White, Brad J. & Anderson, John D. & McKinley, W. Blair & Parish, Jane, 2007. "Factor Price Disparity and Retained Ownership of Feeder Cattle: An Application of Feedlot and Carcass Performance Data to Farm-Level Decision Making," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 39(1), pages 87-101, April.
    • Handle: RePEc:cup:jagaec:v:39:y:2007:i:01:p:87-101_02
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    References listed on IDEAS

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    1. Abelardo Rodriguez & R. G. Taylor, 1988. "Stochastic Modeling of Short-Term Cattle Operations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(1), pages 121-132.
    2. Fausti, Scott W. & Feuz, Dillon M. & Wagner, John J., 1998. "Value Based Marketing For Fed Cattle: A Discussion Of The Issues," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 1(1), pages 1-18.
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    Cited by:

    1. Scott W. Fausti & Zhiguang Wang & Bashir A. Qasmi & Matthew A. Diersen, 2014. "Risk and marketing behavior: pricing fed cattle on a grid," Agricultural Economics, International Association of Agricultural Economists, vol. 45(5), pages 601-612, September.
    2. Lewis, Karen & Griffith, Andrew & Boyer, Christopher & Rhinehart, Justin, 2015. "Returns to Retained Ownership through Finishing for Beef Cattle Originating from Tennessee," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196620, Southern Agricultural Economics Association.
    3. Fausti, Scott W. & Qasmi, Bashir A. & Li, Jing, 2010. "Grid Pricing: An Empirical Investigation of Market Signal Clarity," Economics Staff Papers 93253, South Dakota State University, Department of Economics.
    4. Tang, Minfeng & Lewis, Karen E. & Griffith, Andrew P. & Boyer, Christopher N., 2016. "Identifying Factors that Impact Returns to Retained Ownership of Cattle," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229766, Southern Agricultural Economics Association.
    5. Fausti, Scott W. & Lange, Brent, 2011. "Uncertainty and Producer Fed Cattle Marketing Decisions: Theory and Evidence," Economics Staff Papers 102692, South Dakota State University, Department of Economics.

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