July 2012 Volume 3 Issue 3

ConneCting LivestoCk ProduCers with eConomiC researCh

This publication seeks to facilitate a wider distribution of peer-reviewed journal article information on economic issues of interest to modern livestock producers and other industry decision makers.

1. Feeder Cattle Price Differentials at Oklahoma Auctions

Summary: A recent study conducted at Oklahoma State University examined price differentials of feeder cattle sold in Oklahoma auctions in late 2010. The authors estimated a host of premiums and discounts for cattle varying in several characteristics. The study found vaccinating and weaning calves to result in premiums of $1.44/cwt and $2.05/cwt, respectively. The study also found hide color, breed, lot size, and body condition to influence prices. Implications: This study is an addition to the growing literature assessing price premiums and discounts for cattle possessing different attributes. It is important for producers to not only appreciate the value of understanding current estimates of sales price premiums and discounts, but to also have a firm understanding of how expensive it is for their own operation to produce cattle positioned to garner identified premiums. The comparative position of each operation must be assessed to find the best mix of attributes worthy of pursuit.

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2. Calf Prices in Video Auction Markets

Summary: Using Superior Livestock Auction transaction data spanning from 2001 to 2010, researchers at Kansas State University recently examined the value of several value-added management practices for cow-calf producers. The studys findings include estimating calves sold with certified health program claims to garner premiums of $7/cwt to $10/cwt and those enrolled in age- and source-verification programs to sell for $1/cwt to $2/cwt higher. Implications: The common discussion of how beef exports reflect the area of most promising growth for the U.S. beef industry requires updated assessments of how cattle producers may be encouraged to adopt production practices in line with expanding exports. As part of this assessment, producers need estimates of premiums realized by providing cattle carrying exportfriendly claims such as age- and source-verification. This study provides such estimates and warrants attention by any producer interested in adopting the evaluated practices. As noted in the Oklahoma based study above, prudent comparison to an operations own cost of raising cattle carrying these claims is also important as these costs vary across operation situations.

3. Leveraging Futures Markets in Longer-Term Forecasts

Summary: A recent study conducted at Iowa State University derived an approach to generate longer-term futures market curves that may provide price forecasts of commodities at maturity dates beyond those currently provided by existing futures market contracts. The derived method leverages existing shorter-term futures market information and typical seasonality patterns to produce forecasts over a longer time horizon. In an application to lean hogs and soybeans, the authors found their approach to hold promise and provide plausible results. Implications: This study combines the literatures assessment that futures markets provide more accurate projections of commodity prices than competing approaches and recognition of need for price forecasts which span beyond the time periods covered by most agricultural commodity futures markets. While this study leaves notable work for future research it does offer a new approach to an important predicament. Given the constantly changing and cumulative nature of research insights and developments, producers are encouraged at this point to basically be aware of the possibility of similar approaches being refined and perhaps even adopted more in the future. To motivate this further, producers are encouraged to recognize the value of improved longer-term price projections in enhancing decisions they may make such as adopting price risk management strategies, insurance products, etc. which inherently reflect price forecasting approaches available to entities offering these products.

References:
1. Williams, G.S., K.C. Raper, E.A. DeVuyst, D. Peel, and D. McKinney. (2012). Determinants of Price Differentials in Oklahoma Value-Added Feeder Cattle Auctions. Journal of Agricultural and Resource Economics. 37:114-127. Available at: http://ageconsearch. umn.edu/bitstream/122309/2/DeVuyst,%20pg.%20114-127.pdf 2. Zimmerman, L.C., T.C. Schroeder, K.C. Dhuyvetter, K.C. Olson, G.L. Stokka, J.T. Seeger, and D.M. Grotelueschen. (2012). The Effect of Value-Added Management on Calf Prices at Superior Livestock Auction Video Markets. Journal of Agricultural and Resource Economics. 37:128-143. Available at: http://ageconsearch. umn.edu/bitstream/122317/2/Schroeder,%20pg.%20128-143.pdf 3. Jin, N., S. Lence, C. Hart, and D. Hayes. (2012). The Long-Term Structure of Commodity Futures. American Journal of Agricultural Economics. 94:718-735. Available at: http://ajae.oxfordjournals.org/content/94/3/718.short

Glynn Tonsor Kansas State University Department of Agricultural Economics 342 Waters Hall Manhattan, KS 66506-4011 785.532.6702 www.agmanager.info