Pass-through in United States beef cattle prices: a test of Ricardian rent theory |
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| Authors: | Huan Zhao Xiaodong Du David A Hennessy |
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| Institution: | (1) School of Global Studies, Social Science and Planning, RMIT University, Melbourne Victoria, Australia;(2) School of Economics and Political Science, University of Sydney, New South Wales 2006, Australia;(3) School of Geography and Environmental Science, Monash University, Victoria 3800, Australia |
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| Abstract: | Feeder cattle are fattened to become fed live cattle 6 months later, and the feeder cattle stock is fixed in the short-run.
Efficiency in competitive markets suggests feeder cattle prices should fully reflect feed prices and information on future
fed cattle prices. Employing a long time series (1979–2004) of feeder cattle futures, live cattle futures, and local corn
prices, we test whether complete pass-through occurs. For fed cattle futures prices, we find about 93% of complete pass-through
to present feeder cattle prices. The corresponding negative effect of a corn price increase is about 87% of complete pass-through.
In contrast with imperfectly competitive agricultural land rental markets, the results support the hypothesis of Ricardian
rent extraction by the scarce asset owner in feeder cattle markets. |
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