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Pass-through in United States beef cattle prices: a test of Ricardian rent theory

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  • Huan Zhao
  • Xiaodong Du

    ()

  • David Hennessy

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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File URL: http://hdl.handle.net/10.1007/s00181-010-0339-x
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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 40 (2011)
Issue (Month): 2 (April)
Pages: 497-508

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Handle: RePEc:spr:empeco:v:40:y:2011:i:2:p:497-508

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Related research

Keywords: Cattle futures; Feeder cattle; Live cattle; D4; Q13;

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References

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  1. Marcus Asplund & Richard Friberg, 2001. "The Law of One Price in Scandinavian Duty-Free Stores," American Economic Review, American Economic Association, vol. 91(4), pages 1072-1083, September.
  2. Jose Manuel Campa & Linda S. Goldberg, 2006. "Pass-through of exchange rates to consumption prices: what has changed and why," Staff Reports 261, Federal Reserve Bank of New York.
  3. David Aadland & DeeVon Bailey, 2001. "Short-Run Supply Responses in the U.S. Beef-Cattle Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 826-839.
  4. Anderson, John D. & Trapp, James N., 2000. "The Dynamics Of Feeder Cattle Market Responses To Corn Price Change," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(03), December.
  5. Jose Manuel Campa & Linda S. Goldberg, 2006. "Pass Through of Exchange Rates to Consumption Prices: What has Changed and Why?," NBER Working Papers 12547, National Bureau of Economic Research, Inc.
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Cited by:
  1. Latruffe , Laure & Ay, Jean-Sauveur, 2013. "The Empirical Content of the Present Value Model: A survey of the instrumental uses of farmland prices," Factor Markets Working Papers 165, Centre for European Policy Studies.

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