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Alternative Pricing and Delivery Strategies for Alberta Cattle Feeders

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  • Novak, Frank S.
  • Viney, Bruce

Abstract

This study evaluates the risk and returns to cattle feeding in Alberta from the application of alternative marketing and pricing strategies. Feedlot finishing of 650 pound calves and 800 pound yearlings is modeled over the years from 1980 to 1993. The results of the study are based on the domestic and US marketing of live cattle using traditional cash marketing, futures contracts, put options, and forward production contracting systems. Use of the Western Domestic Feed Barley contract is also simulated. The results showed that barley price changes produced relatively small return changes compared to feeder and fat cattle price changes. An important source of return risk was found to be basis risk. Production contracting strategies which eliminated basis risk were found to provide the best returns in a market based risk-return comparison. The use of put options did not add value to cattle feeding investments.

Suggested Citation

  • Novak, Frank S. & Viney, Bruce, 1995. "Alternative Pricing and Delivery Strategies for Alberta Cattle Feeders," Project Report Series 24044, University of Alberta, Department of Resource Economics and Environmental Sociology.
    • Handle: RePEc:ags:ualbpr:24044
    DOI: 10.22004/ag.econ.24044
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    File URL: https://ageconsearch.umn.edu/record/24044/files/pr950006.pdf
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    References listed on IDEAS

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    1. Harvey Lapan & Giancarlo Moschini & Steven D. Hanson, 1991. "Production, Hedging, and Speculative Decisions with Options and Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(1), pages 66-74.
    2. Philip Garcia & Raymond M. Leuthold & T. Randall Fortenbery & Gboroton F. Sarassoro, 1988. "Pricing Efficiency in the Live Cattle Futures Market: Further Interpretation and Measurement," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(1), pages 162-169.
    3. C. A. Carter & R. M. A. Loyns, 1985. "Hedging Feedlot Cattle: A Canadian Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 32-39.
    4. Robert J. Hauser & Yue Liu, 1992. "Evaluating Pricing Models for Options on Futures," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 14(1), pages 23-32.
    5. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    6. Shonkwiler, John Scott, 1986. "Are Livestock Futures Prices Rational Forecasts?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 11(2), pages 1-6, December.
    7. Brian S. Freeze & A. Gene Nelson & Wesley N. Musser & R. Hironaka, 1990. "Feeding and Marketing Portfolio Effects of Cattle Feeding in Alberta," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 38(2), pages 233-252, July.
    8. Raymond M. Leuthold, 1974. "The Price Performance on the Futures Market of a Nonstorable Commodity: Live Beef Cattle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(2), pages 271-279.
    9. Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(1), pages 1-13, July.
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    Cited by:

    1. Unterschultz, James R., 2000. "New Instruments For Co-Ordination And Risk Sharing Within The Canadian Beef Industry," Project Report Series 24046, University of Alberta, Department of Resource Economics and Environmental Sociology.
    2. Steiner, Bodo E., 2007. "Formal beef alliances and alignment challenges: issues in contracting, pricing and quality," Project Report Series 7709, University of Alberta, Department of Resource Economics and Environmental Sociology.

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    Demand and Price Analysis; Marketing;

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