Progress 10/01/01 to 09/30/07
Outputs
A key focus of objective one was to determine the value of preconditioning feeder calves. Data were used from public markets, one in Missouri for two preconditioning sponsors, eight in Oklahoma for a single preconditioning sponsor, and one in Oklahoma for a single preconditioning sponsor. Price premiums were common but varied relatively widely after accounting for numerous factors affecting feeder calf sale prices. After examining actual producer costs associated with preconditioning in one study and considering the premiums and other benefits received from preconditioning programs (marketing heavier calves and marketing into the upward portion of the seasonal price pattern), it can be concluded preconditioning is a reasonable but not guaranteed means of increasing net returns for cow-calf producers. Another study under objective one identified several factors that affect cowherd costs, production, and profits from Standardized Performance Analysis (SPA) data. Results
indicated several factors under producers' control were important, thus clearly showing the importance of management for each performance measure. Production practices were significantly different for larger producers more dependent on cattle for income than for small producers less dependent on the cattle enterprise. Various aspects of price discovery and grid pricing were a focal point for objective two and several studies. Alternative theories of price discovery models were developed and models estimated with the same data in each. Grid pricing was incorporated into the Fed Cattle Market Simulator (FCMS). Data from the simulator at an agribusiness workshop enabled estimating price discovery and pricing choice models for two divergent supply scenarios. Results showed the importance of the interrelationship between cattle quality and pricing methods and how those interrelationships differ depending on supply conditions. Data from four previous grid pricing studies were used to study
pricing signals from grid pricing vs. alternative pricing methods. Pricing accuracy increased with grid pricing in that carcass quality became more important than weight alone. Carcass quality signals were stronger for the lower end of the cattle quality spectrum than for the upper end. Under objective three, one study estimated price effects from a meatpacking plant opening and another meatpacking plant closing. Differences in impacts relative to those expected related to the market environment surrounding each event. U.S. and Canadian cattle feeders face similar meatpacking market structures. Survey data in each country also confirmed similar marketing and pricing practices as well as in perceptions of pricing issues and policy alternatives. Results confirm a significant degree of market integration between the cattle feeding industries in both countries. One anticipated means of increasing beef demand is expanded branded beef programs. A study of retail beef products, including
branded products, revealed estimated values of retail beef attributes. While some branded beef was found in Oklahoma and Colorado, the anticipated price premiums associated with branded beef were not as clear as expected.
Impacts
Structural changes in the livestock sector have left thousands of livestock producers searching for ways, either individually or collectively, to remain profitable and survive these uncertain changes. This research will generate information enabling individual livestock producers and groups of producers to make informed marketing-related decisions as they adjust to a changing market environment.
Publications
- J.D. Donnell. "Age and Source Verified Preconditioned Feeder Cattle: Costs and Value." Master of Science thesis, Oklahoma State University. May 2007.
- J.M. Dutton. "Estimating the Value of Brand and Attributes for Retail Fresh Beef Products." Master of Science thesis, Oklahoma State University. July 2007.
- C.E. Ward, J.G. Carlberg, and A. Brocklebank. "Comparing Canadian and U.S. Cattle Feeding Pricing Practices and Perceptions of Pricing Issues." Current Agricultural, Food, and Resource Issues. (2007):Accepted.
- CE. Ward, C.D. Ratcliff, and D.L. Lalman. "Price Premiums from a Certified Feeder Calf Preconditioning Program." Journal of the Society of Farm Managers and Rural Appraisers. (2007):43-53.
- M.K. Vestal. "Production Practices and Management Intensity of Oklahoma Cow-Calf Producers Across Income and Herd Size." Master of Science thesis, Oklahoma State University. July 2007
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Progress 10/01/05 to 09/30/06
Outputs
One value-added marketing alternative for cow-calf producers is preconditioning. Another step is to guarantee calves are source and age verified. Data from two sales (2005 and 2006) in which calves raised under the Beef Production System of the Noble Foundation were studied to estimate the value of age and source verified, preconditioned calves. Models indicated buyers paid a price premium in one of the two sales. Research is continuing with two sales scheduled for fall 2006. Previous research has not considered how price discovery and pricing method choice varies under alternative supply conditions. Data from an experimental market, the Fed Cattle Market Simulator, was used to determine supply effects on price discovery and pricing choice. Models showed differences under alternative supply conditions. Higher quality cattle marketed via grid received higher prices in both lower and higher supply conditions. Having lower quality cattle in either supply period increased
the probability of cattle being marketed (purchased) on a live weight basis. High and low supply periods affected the importance of certain variables in the price discovery process and the choice of pricing methods. One reason for implementing mandatory price reporting was the belief by some that formula priced fed cattle received higher prices than cattle purchased by negotiated pricing. Data from mandatory price reports showed little difference in prices paid for fed cattle between procurement by negotiated prices and formula prices. However, larger differences were noted between forward contract prices and negotiated prices due largely to the nature of when price is actually discovered with forward contracts.
Impacts
Structural changes in the livestock sector have left thousands of livestock producers searching for ways, either individually or collectively, to remain profitable and survive these uncertain changes. This research will generate information enabling individual livestock producers and groups of producers to make informed marketing-related decisions as they adjust to a changing market environment.
Publications
- H.C. Johnson and C.E. Ward. "Impact of Beef Quality on Market Signals Transmitted by Grid Pricing" Journal of Agricultural and Applied Economics 38,1(2006):77-90.
- F.B.Norwood, C. Winn, C. Chung, and C.E. Ward. "Designing a Voluntary Beef Checkoff." Journal of Agricultural and Resource Economics 31,1(2006):74-92.
- J.G. Carlberg, C.E. Ward, and R.B. Holcomb. "Success Factors for New Generation Cooperatives." International Food and Agribusiness Management Review 9,1(2006):62-81.
- H.C. Johnson and C.E. Ward. "Market Signals Transmitted by Grid Pricing" Journal of Agricultural and Resource Economics 30,3(2005):561-79.
- C.E. Ward. "Price Discovery and Pricing Choice under Divergent Supply Scenarios in an Experimental Market for Fed Cattle." Journal of Agricultural and Resource Economics 30,3(2005):580-96.
- C.E. Ward and J.T. Hornung. "Price Effects from an Anticipated Meatpacking Plant Opening and Unexpected Plant Closing." Journal of Agricultural and Resource Economics 30,3(2005):469-79.
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Progress 10/01/04 to 09/30/05
Outputs
Cow-calf SPA (standardized performance analysis) data were used to study costs, production, and profitability of cowherd operations in the southern plains for the period 1991-2001. Models estimated clearly indicated the importance of management on all three dependent variables, i.e., costs, production, and profits. Grid pricing of fed cattle conveys considerably more information to sellers than either live weight or dressed weight pricing. Research on transmitted market signals used four sets of carcass data from Iowa, Kansas, Nebraska, and Oklahoma, each of which was used for other grid pricing research. With grid pricing, as expected, weight represents a smaller percentage of the transmitted price signal and quality and yield grade comprise a larger percentage. Quality and yield grade price discounts in grids have a significant effect on price signals from buyers to sellers but price premiums had a very small effect. One reason many producers supported legislation
to implement mandatory price reporting for livestock and meat was the expectation of accessing additional data and information on captive supplies. Research showed that data are available now on packer purchases by procurement method from the new mandatory price reports that was not available with voluntary price reporting. Along with volume of purchases, additional price information is available making comparisons of prices by procurement methods possible.
Impacts
Structural changes in the livestock sector have left thousands of livestock producers searching for ways, either individually or collectively, to remain profitable and survive these uncertain changes. This research will generate information enabling individual livestock producers and groups of producers to make informed marketing-related decisions as they adjust to a changing market environment.
Publications
- R. Ramsey, D. Doye, C.Ward, J. McGrann, L. Falconer, and S Bevers. 2005 "Factors Affecting Beef Cow-Herd Costs, Production, and Profits." Journal of Agricultural and Applied Economics. 37,1:91-99.
- C.E. Ward. 2005. "Beef Packers Captive Supplies: An Upward Trend? A Pricing Edge?" Choices. 20,2:167-71.
- J.T. Hornung And C.E. Ward. 2005. "Positive Market Effects from a Meatpacking Plant Opening: Perceptions and Reality." Current Agriculture, Food & Resource Issues. 6:40-49.
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Progress 10/01/03 to 09/30/04
Outputs
Meatpacking plant closings create potential problems for livestock producers. Conversely, new meatpacking plants often seem an easy solution to marketing problems experienced by livestock producers. One issue that has not received much attention is how markets respond to packing plant openings and closings and what the impacts are on prices and competition. Research examined two cases; an expected hog slaughter plant opening and an unexpected fed cattle slaughter plant closing. Perceived impacts from affected hog producers and cattle feeders were solicited. These were compared with price impacts estimated with public data. In the plant opening case, hog prices increased when the plant opened, both in absolute terms and relative to comparison markets. In the plant closing case, there was relatively little impact on fed cattle prices when the plant closed. One key difference between the two cases was the packing capacity in the affected region before the plant event.
The new plant added considerable capacity to an area which was deficit in slaughtering capacity. The loss of capacity when the cattle plant closed still did not create a tight capacity situation and prices adjusted with little noticeable change. Important to cow-calf producers is finding a means of adding value to calves typically sold at weaning. The Oklahoma Quality Beef Network (OQBN) formed in 2001. It is a third-party certification program which establishes a protocol for preconditioning calves and then works with livestock markets to market OQBN-certified calves at public markets. A major question is whether or not OQBN-certified calves receive a premium price to offset the added costs of preconditioning. Research estimated the price premium for 20 sales over three years where OQBN calves were marketed. Price premiums were found between OQBN-certified calves and other levels of management of calves (such as selling calves not weaned and not vaccinated, vaccinated but not weaned,
weaned and vaccinated but not certified, etc.) in some cases. However, the price premiums were not consistent and varied widely from sale to sale. One factor of particular importance is the volume of calves at the sale and the method of handling calves for the sale. Price premiums increased when calves were commingled into larger sale lots and calves followed the OQBN protocol. Captive supplies have been a contentious issue in the livestock industry for over a decade. Producers concerned about captive supplies lobbied for the mandatory price reporting legislation began in 2001. Research is underway to determine what data are available now from the new mandatory price reports and what can this data contribute to estimating the price effects from captive supplies.
Impacts
Structural changes in the livestock sector have left thousands of livestock producers searching for ways, either individually or collectively, to remain profitable and survive these uncertain changes. This research will generate information enabling individual livestock producers and groups of producers to make informed marketing-related decisions as they adjust to a changing market environment.
Publications
- Carlberg, J.G. and C.E. Ward. 2003. "Alternative Theories and Empirical Approaches to Price Discovery: An Application to Fed Cattle." Journal of Agricultural and Applied Economics. 35,:649-61. Avent, R.K. and C.E. Ward. 2004. "Market Valuation of Preconditioning Feeder Calves." Journal of Agricultural and Applied Economics. 36,1:173-83. Hornung, J.T. 2004. "Market Effects from Opening and Closing Meat Processing Facilities." M.S. thesis, Oklahoma State University. Ratcliff, C.D. 2004. "Oklahoma Quality Beef Network: Price Premiums from a Preconditioning Program." M.S. thesis, Oklahoma State University.
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Progress 10/01/02 to 09/30/03
Outputs
Research completed a year ago clearly indicates a movement to grid pricing of fed cattle. However, aspects of current methods of grid pricing have significant weaknesses. This research identified advantages and disadvantages with alternative methods for determining the base price in grids. It addressed implications with current methods of applying carcass premiums and discounts and presented alternative methods. And it reviewed the status of objective measures of carcass grades and yield grades. Continued search for a suitable base price, moving away from formulas tied to the cash market was recommended. Also recommended was smoothing the sometimes large, lumpy differences in carcass value when resulting from small incremental differences in carcass attributes. Further research to arrive at objective measures of determining carcass value is needed. Important to the net grid price for fed cattle are the discounts for Select grade and yield grade 4 carcasses. Research
estimated models to explain the variation in carcass discounts and to predict these price discounts. Results from several econometric models were disappointing, indicating the difficulty predicting carcass discounts apart from the seasonal pattern exhibited by the historical discount series. Here, too, more research is necessary. Generic promotion programs have come under attack in recent years for varying reasons, especially since the U.S. Supreme Court ruled the mushroom promotion program unconstitutional in 2000. At least one U.S. District Court and U.S. Circuit Court of Appeals has ruled that the mandatory programs for beef and pork are unconstitutional. This research addressed the question of what the economic impacts would be with elimination of the beef and pork checkoff programs. Results show that each of the beef and pork checkoff programs have value to producers and consumers and that net social welfare would decline with dissolution of each checkoff program. Sensitivity
analysis indicated the most important variable in determining the size of the loss was the amount of the checkoff assessment. Captive supplies have been a contentious issue in the livestock industry for over a decade. Legislation has been introduced in Congress to eliminate packers owning livestock. The history of proposed regulatory restraints on packer ownership of livestock was reviewed, as was the literature that would help determine realistic estimates of costs and benefits from the proposed legislation. Some benefits can be identified, though the magnitude is not clear. However, there are potential costs as well that might have longer term negative implications. Policymakers must weigh the potential short run positive impacts against the potential longer term negative impacts.
Impacts
Structural changes in the livestock sector have left thousands of livestock producers searching for ways, either individually or collectively, to remain profitable and survive these uncertain changes. This research will generate information enabling individual livestock producers and groups of producers to make informed marketing-related decisions as they adjust to a changing market environment.
Publications
- Hogan, R.J., Jr. 2003. "Genetics, Carcass Discounts, and Grid Pricing in the Fed Cattle Market and Welfare Impacts of Beef and Pork Checkoff Programs. Ph.D. dissertation, Oklahoma State University. Ward, C.E. 2003. "An Appraisal of Expected Impacts from the Proposed Ban on Packers Owning Livestock." Virginia Tech University, Research Institute on Livestock Pricing. www.aaec.vt.edu/rilp/
- Hogan, R.J., Jr., C.E. Ward, J.N. Trapp, D.S. Peel, S.R. Koontz. 2003. Economic Components of the Fed Cattle Market Simulator: the Packer-Feeder Game. Oklahoma Agricultural Experiment Station, Bulletin B-817.
- Carlberg, J.G. and C.E. Ward. 2002. Applying Game Theory to Meatpacker Behavior in an Experimental Market: Implications for Market Regulation. Virginia Tech University, Research Institute on Livestock Pricing, Research Bulletin 2-2002.
- Schroeder, T.C., C.E. Ward, T.L. Wheeler, J. Mintert, and J.S. Drouillard. 2003. "Improving Fed Cattle and Carcass Value Determination." Kansas State University, Department of Agricultural Economics, Research report for the Livestock & Meat Industry Council.
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Progress 10/01/01 to 09/30/02
Outputs
Feeder cattle buyers typically pay price premiums for larger frame size and heavier muscled feeder calves. This research estimated performance and net return differences related to three frame sizes (small, medium, and large) and two muscling levels (1 and 2) of purchased feeder cattle through the stocker, feedlot, and carcass phases. Results indicated some performance differences in some areas (feedlot feed conversion, slaughter weight, ribeye area, and yield grade) but not others (stocker and feedlot average daily gain, and quality grade). No significant net return differences related to frame and muscling were found. Limited previous research showed small price premiums paid by buyers for preconditioned calves. Two data sets, one time series and one cross sectional, were used to estimate the market value of feeder calf preconditioning programs. Feeder cattle buyers paid price premiums ranging from $1.96 to $3.36/cwt. This premium was less than the amount needed to
offset the added costs of preconditioning. However, supplementing the gain from a price premium is selling more pounds of healthier calves, thus making preconditioning cost effective. A survey of cattle feeders in four major cattle feeding states (TX, KS, NE, IA) showed clearly that grid pricing is rapidly replacing live weight pricing of fed cattle. Two efforts were made to enhance learning about grid pricing. First, grid pricing was incorporated in the Fed Cattle Market Simulator for three genetic types of cattle (high quality, low yielding; medium quality, medium yielding; low quality, high yielding). Second, a grid pricing calculator (spreadsheet) was developed to assist producers learn the implications of feeding cattle for alternative grids and for purchasing feeder cattle that will perform differently in carcass form. Preliminary analyses indicates recommendations regarding how to price cattle depends both on cattle genetics and market conditions. Evidence from research studies
over the past 25 years indicates a small negative impact on slaughter livestock prices from increased consolidation and concentration in beefpacking. This research developed and estimated a game theoretic model of industry conduct and supergame strategies in a dynamic oligopsony. The estimation used three semesters of data from the Fed Cattle Market Simulator. Evidence of tacit collusion was found for each of the three years. However, it was found that specific market conditions either helped or hindered packers' ability to tacitly collude.
Impacts
(N/A)
Publications
- Avent, R.K. Market Value, Feedlot Performance, and Profitability of a Preconditioned Calf. M.S. thesis, Oklahoma State University, August 2002.
- Baggett, H.B. IV. Differences in Profitability and Performance Due to Variation in Frame Size and Muscle Score in Stocker and Feeder Cattle. M.S. thesis, Oklahoma State University, May 2002.
- Carlson, J.G. Beef Packer Conduct, Alternative Approaches to Price Discovery, and Success Factors for New Generation Cooperatives. Ph. D. dissertation, Oklahoma State University, May 2002.
- Schroeder, T.C., C.E. Ward, J. Lawrence, and D.M. Feuz. Fed Cattle Marketing Trends and Concerns: Cattle Feeder Survey Results. Kansas Agricultural Experiment Station and Cooperative Extension Service, MF-2561, June 2002.
- Ward, C.E. Grid Pricing Calculator. Oklahoma State University, Cooperative Extension Service, Facts F-577, August 2002.
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Progress 10/01/00 to 09/30/01
Outputs
This project was new on October 1, 2001, therefore no progress to report for this period.
Impacts
(N/A)
Publications
- No publications reported this period
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