Estimated Value of Increased Pricing Accuracy for Fed Cattle

To improve vertical market coordination beef packers have introduced fed cattle grid pricing systems that offer premiums or discounts for varying carcass quality and yield grades. This study calculates the value of cattle quality information for producers considering live, dressed, and grid pricing alternatives. The value of fed cattle quality and yield grade information is at least $15/head. When fed cattle are sold on a live weight basis, high-quality cattle subsidize low-quality cattle by an average of $30/head. Price signals that could improve beef market coordination are ignored when fed cattle are marketed using traditional live or dressed weight methods.     

Improving Market Selection for Fed Beef Cattle: The Value of Real-Time Ultrasound and Relations Data

The introduction of value-based marketing has provided the industry with the means to price cattle based on their desired attributes and has provided an alternative marketing channel for producers to select. Gains can be made by selecting animals that will be "in the grid" for value-based marketing channels while screening out animals that won't and sending them to dressed-value or live-weight marketing channels. This study estimates the gains from using real-time ultrasound (RTU) as well as information on graded animal relations (i.e., animals that have the same parentage slaughtered and graded in previous years) to predict carcass quality and yield grades prior to slaughter. These predictions are used in an optimization model designed to select the marketing channel for individual animals that will maximize returns. The optimal marketing strategy from this study involves a mix of live-weight, dressed-weight and grid sales methods rather than marketing all of the animals together. The results suggest that increases in returns in the range of $0.61–27.26 per head from using relations data, $9.04-16.75 per head from using RTU measures and $11.27-27.93 per head from using both to selectively market beef animals. These estimates do not account for the gains that could be obtained from using RTU to improve market timing, i.e., to time when the animal will grade best.     

Managing economic risk in value-based marketing of fed cattle

This research investigates optimal price risk management strategies for fed cattle producers engaged in grid pricing. Stochastic simulation is used to determine optimal hedge ratios for fed cattle priced on a live weight basis or on a series of grids that vary in terms of premium/discount structure as well as base price. Results indicate that the optimal hedging strategy is greatly affected by the base price used in a particular grid. This has significant implications for pricing efficiency in the cattle market. Base prices that are linked more closely with downstream markets offer the potential to improve pricing efficiency; however, the risk associated with these prices is difficult to manage effectively with existing futures instruments.     

Risk and (Re-)organization in Agriculture: The Economics of Back grounding Cattle in Saskatchewan

The beef system in western Canada is currently undergoing restructuring. To increase the number of animals a feedlot finishes, their portion of the production process is being narrowed to the final 136 kgof weight gain. This results in a stage of production known as backgrounding, where calves are grown before entering the feedlot. This paper explains the reorganization that is occurring in the context of transaction cost economics, which explains this evolution as a process in which the governance structure involved in contracting has minimized the transaction costs. New methods of marketing these backgrounded cattle are being developed, which may increase the profitability of these operations. This paper measures the impacts of five different marketing options on the backgrounding enterprise's risk and returns. Thirteen enterprises are modeled, using various levels of capital and labor intensities, live stock numbers, sizes of calves fed and average daily gains. These models are simulated from 1978 to 1994 using costs of production and prices of cattle. Profits per head calculations allow the comparison of the enterprise efficiencies. The marketing alternatives are then evaluated using mean-variance rule(E-V) and stochastic dominance methods of risk analysis.     

Impacts of Declining U.S. Retail Beef Demand on Farm-Level Beef Prices and Production

A systems model was estimated to determine the effects of declining U.S. retail beef demand on farm-level beef prices and production. Retail beef demand declined by nearly 66% from 1976 to 1999. Results indicate autonomous shifts in retail demand significantly impacted farm-level demands and production. Based on equilibrium multipliers, the 1976–99 reduction in beef demand decreased real slaughter cattle prices and production by 32.1% and 11.2%, respectively. Real feeder cattle prices and production decreased by 8.0% and 22.6%, respectively. Combining the decreases in farm prices and production, slaughter and feeder cattle producers experienced a real revenue reduction of $13.3 billion (61%) due to the long-term decline in demand.     

Incentivizing sustainable rangeland practices and policies in Colombia’s Orinoco region

Livestock grazing, along with agriculture, are key drivers of deforestation and land degradation that subsequently affect ecosystem service provision in the tropics. Although environmental and agricultural policies may curtail these negative effects, information is needed on how specific programs and instruments could be used to incentivize ranchers into adopting rangeland practices to achieve land conservation. We examine what encourages livestock ranchers to adopt more sustainable rangeland practices with various technical and conservation attributes in Colombia’s Orinoco region. First, we analyze a management alternative based on an improved pasture (IP) approach traditionally used in tropical South America, and another practice that promotes silvopastoral systems (SP) that better sustain the long term provision of ecosystem services. Second, we assess the influence that technical assistance and conservation payment instruments can have on the adoption of the IP or SP programs. Using expert-based elicitation, questionnaires, choice experiments, and econometrics, we found that when either SP or IP management alternatives include a complete technical assistance program (CTAP), emphasizing forage or cattle production, the propensity to adopt the conservation focused SP alternative significantly increases. The SP alternative with CTAP for cattle production was valued by ranchers at $290 ha/year and the CTAP prioritizing forage production was valued at $233 per ha/year. Nonetheless, a basic technical assistance program for cattle production using the IP alternative was valued at $128, but when including the CTAP, the value increased to $262. Adopting conservation practices in the form of compensation payments for not grazing portions of their land in the SP was valued by ranchers at an average of $8 and $10 in the IP. Our findings show that decisions to adopt conservation oriented rangeland practices and policies are not strictly based on monetary payments for ecosystem services alone, but also on technical support.     

Expected Utility,Risk, and Marketing Behavior: Theory and Evidence from the Fed Cattle Market

The effect of carcass quality uncertainty on the structure of the slaughter cattle market is investigated. A theoretical extension of the “Theory of Factor Price Disparity” is provided. It is demonstrated that the coexistence of a risk premium wedge between marketing channel (live weight, dressed weight, and grid) pricing mechanisms, in conjunction with varying degrees of producer risk aversion or producer perception of carcass quality uncertainty, contributes to the coexistence of multiple marketing channels. It is also demonstrated that risk and risk preference provide the linkage between carcass quality uncertainty and producer marketing decisions. We demonstrate how this linkage can affect the structure of the fed cattle market and the variability in slaughter volume across marketing channels. We also confirm the linkage between value‐based production techniques that increase seller information on carcass quality and seller increased usage of grid pricing regardless of actual carcass quality. Empirical evidence is provided in support of the supposition that carcass quality uncertainty plays a role in grid market share variability.     

Economic Replacement of a Heterogeneous Herd

A model was developed to determine the optimal slaughter weights of pigs with heterogeneous growth raised in a 1,000 head barn and marketed in truckload groups. Under commonly used revenue schemes, which include discounts for weight and leanness, the optimal strategy was to market one or two truckloads of the heaviest animals, to wait several days, and then to market the rest of the herd. This multiple marketing strategy allows the producer to avoid some sort losses for heavy animals, but only modestly extends the grow/finish period, reflecting the dominance of the opportunity cost of facilities in the herd replacement decision.     

Market and Cost Structure in the U.S. Beef Packing Industry: A Plant-Level Analysis

A resurgence of consolidation in the U.S. meat packing industry in the past few decades has stimulated academic and policy debate. Issues raised include the role of cost economies in driving these patterns, and the effects on the agricultural sector (cattle producers) from market power. Here, plant level cost and revenue data for U.S. beef packing plants are used to estimate a cost-based model incorporating cattle- and output-market pricing behavior. The robust results indicate little market power exploitation in either the cattle input or beef output markets, and that any apparent evidence is counteracted by cost efficiencies such as utilization and scope economies.     

The genetic and economic impact of the CIMMYT wheat breeding program on local producers in the Yaqui Valley,Sonora Mexico

This article quantifies the productivity gain from CIMMYT‐released semidwarf bread wheat (Triticum aestivum) cultivars over time, using test plot data from Mexico's Yaqui Valley. Previous studies have shown a deceleration in irrigated wheat yield growth since the 1980s, which could be due to slowing increase in genetic potential. Our results suggest that CIMMYT cultivars contributed a 0.46% annual increase (about 38 kg/ha annually) to wheat yields in the Yaqui Valley, which raised local wheat producers’ revenue by an average of $4 million annually for the period 1990 to 2002, and by approximately $9 million in 2002.     

Evaluation of the Influence of Agricultural Price Policy on Cotton Production in Côte-d'Ivoire

In this paper the impact of the cotton pricing policy of the marketing board of Côte-d'Ivoire is investigated. A theoretical model is developed to derive the price level which maximizes revenue generated from the marketing board's cotton transactions. A dynamic cotton supply function was estimated and used to compute elasticities. The estimates indicate that farmers in the Country response to price changes and that the pricing policy of the marketing board has been consistent with an objective of generating revenue for the government.     

Rotational grazing adoption in cattle production under a cost‐share agreement: does uncertainty have a role in conservation technology adoption?

Rotational grazing has been promoted as a best management practice with environmental benefits and associated higher revenue. Its adoption rate has been relatively low. This study investigates the role of uncertainty in the adoption of rotational grazing with a cost‐share by cattle producers. Mail survey results indicate that 63–71 per cent of cattle producers are uncertain about adoption with a government cost‐share. The study suggests that the possibility of uncertainty should be considered in cases where willingness‐to‐pay is elicited in the context of adoption of technology.     

Abstracts of Second- and Third-Place Undergraduate Papers

Bulls account for half of the genetic input when making improvements in cattle herds. Changing bulls is less costly than changing cows; therefore it is often the case bulls account for more rapid improvements in heritable traits. One of the problems that breeders who supply bulls face is that the attributes of bulls come bundled together so that it is difficult to determine what the value of improvements in a bull might be worth. This research estimates what values beef producers implicitly place on particular characteristics when deciding which bull will best fit the needs of their farm. A hedonic pricing model was estimated using ordinary least squares on actual transaction data and reveals the value buyers of bulls implicitly place on specific traits. For example, a ribeye area of 12.8 in² at the mean sale price reveals a buyer would be willing to pay an additional $80.39 for a bull with an additional square inch. Likewise, a bull with a 1242 lb. 365-day weight at the mean sale price reveals a buyer would be willing to pay an additional $1.83 for an additional pound. Therefore, this research reveals an incentive for producers of bulls to focus on improving the genetic make-up of their bulls they offer for sale.     

Interlinked credit and farm intensification: evidence from Kenya

This paper addresses the potential for interlinked credit/input/output marketing arrangements for particular cash crops to promote food crop intensification. Using panel survey data from Kenya, we estimate a household fixed-effects model of fertiliser use per hectare of food crops, using an instrumental variables approach for addressing the endogeneity of participation in interlinked credit arrangements. Results indicate that households engaging in interlinked marketing programs for selected cash crops applied considerably greater fertiliser on other crops (primarily cereals) not directly purchased by the cash crop trading firm. These findings suggest that, in addition to the direct stimulus that interlinked cash crop marketing arrangements can have on small farmer incomes, these institutional arrangements may provide spill-over benefits for the productivity of farmers' other activities such as food cropping.     

Constraints to the sustainability of a ‘systematised’ approach to livestock marketing amongst smallholder cattle producers in South Africa

Commercialization of smallholder agriculture in South Africa is underpinned by reforms to improve livestock off-take in communal areas and engage smallholder farmers with formal markets. To achieve this, Custom Feeding Programmes (CFPs) were established to improve the condition of communal cattle prior to their sale into formal markets and to ‘systematise’ the informal marketing of cattle in communal areas by enabling participants to achieve higher informal market prices. We evaluate the sustainability of eight CFPs located in Eastern Cape Province in terms of their ability to add value to smallholder cattle production and encourage market participation. Communities with CFPs achieved a 16.6% mean cattle off-take rate, substantially higher than in most communal systems. Furthermore, cattle sold through CFPs attained a 17% higher mean selling price than those sold through other marketing channels. However, these benefits were mainly realized by better-off farmers with larger cattle herds and greater ability to transport animals to and from CFPs. More marginalized farmers, particularly women, had low participation. CFPs also face challenges to their sustainability, including inconsistent feed and water supplies, poor infrastructure and high staff turnover. Key to enhancing participation in CFPs, will be improving the way they are supported and embedded within communities.     

COVID-19 and the Canadian cattle/beef sector: Some preliminary analysis

Canada's cattle/beef sector has already weathered a shock after a 2003 case of BSE resulted in closed borders and industry restructuring. Now, the sector has to adjust to similar shocks due to COVID-19. This paper examines the supply chain from the consumer up to the cow–calf producer by considering consumer reactions, labor market constraints, and supply response. A quarterly market model of North American cattle and beef markets is used to examine price and revenue impacts associated with the market disruptions. Depending on the scenario, there is considerable price and revenue suppression at all levels of the market.     

Bidding for Cattle in the Texas Panhandle

Four beef-processing plants in the Texas Panhandle region procure cattle from feedlots in a form of first-price, sealed-bid auction. These auctions have features that distinguish them from standard auctions. Using transactions-level data, we estimated packer bid functions and, via simulations, compared the extant bidding environment to an alternative framework. The simulated auctions on average produced higher seller revenue, more frequent sales to the plant valuing the cattle most highly, and more switching by feedlots among competing packers. We attribute these results to packers' inconsistent bidding on the available lots of cattle and offer alternative explanations for this behavior.     

Abstracts of Second- and Third-Place Undergraduate Papers

The purpose of this project was to determine the significant demographic characteristics affecting consumers' choice to buy fair trade coffee and to assess the existence of a premium for fair trade coffee. Abinary logit and contingent valuation model were used. Certain demographic and attitudinal characteristics, such as being an undergraduate student and frequently purchasing socially responsible goods, were significant in explaining consumers' choice of whether or not to purchase fair trade coffee. A price premium for the average person sampled was identified at $0.18 (CDN) above the average coffee price (assumed to be $1.50/cup (CDN)). This is the first study we found that ascertains an exact willingness to pay for a cup of fair trade coffee. Such information would be useful in marketing fair trade products although further studies with larger and more diverse samples would be useful in increasing the significance of the results.     

Trade Liberalization,State Trader Management Tenure,and Grain Pricing in Botswana

This article examines how trade liberalization and grain marketing board management tenure influenced grain pricing in Botswana. Regression analyses of nominal protection rates (NPRs) and marketing margins (MMs) are used to test the hypothesis that policy reforms influenced grain pricing in the country. Moreover, a comparison of NPRs is undertaken to determine whether management tenure has had an influence on grain pricing. The results indicate that the marketing board switched from taxing to subsidizing consumers following the 1991 policy reform from food self-sufficiency to food security. A reversal occurred after the board's 1997 restructuring, which involved, among other things, closing down Botswana Agricultural Marketing Board's (BAMB's) loss-making units and a change in the composition of BAMB's board of directors. Management tenure at BAMB also had an influence on grain pricing. The period 1989–1997, in particular, was characterized by high consumer subsidization, highest marketing margins, and lowest profits. This could have been avoided had management adopted pricing regime consistent with public policy. This notwithstanding, perennial losses experienced by the marketing board also resulted from fragmented production and low producer market participation.