Supply Effects on Price Discovery and Pricing Choice for Fed Cattle

Price discovery research related to fed cattle has involved data covering a relatively small portion of the longer cattle cycle. Thus, research has not explicitly addressed the impacts alternative supply conditions have on price discovery. Additionally, little research has addressed the pricing choices for fed cattle marketing or procurement. In research reported here using data from an experimental market, the Fed Cattle Market Simulator, models were estimated that encompassed live weight, dressed weight, and grid pricing under alternative supply scenarios, specifically a larger supply and smaller supply period. Variables explaining fed cattle price variation differed somewhat between the two supply periods. For the two periods combined, results were nearly as theoretically expected. One consistent finding was that higher quality fed cattle marketed with a grid brought higher prices in both supply periods. Similarly, some differences were noted in the pricing choice model between the two periods and the combined periods. Another consistent finding was that having lower quality cattle to market increased the probability of marketing them on a live weight basis. Higher quality cattle were more apt to be marketed with a grid.