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Uncertainty and Producer Fed Cattle Marketing Decisions: Theory and Evidence

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  • Fausti, Scott W.
  • Lange, Brent

Abstract

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 pricing mechanisms (live wt., dressed wt., and grid) in conjunction with varying degrees of risk aversion across fed cattle producers explains the coexistence of multiple pricing mechanisms. It is also demonstrated that risk and risk preference provides a plausible explanation for the structure of the fed cattle market and for the variability in slaughter volume across marketing channels. Empirical evidence is provided in support of the supposition that carcass quality uncertainty plays a role in grid market share variability.

Suggested Citation

  • Fausti, Scott W. & Lange, Brent, 2011. "Uncertainty and Producer Fed Cattle Marketing Decisions: Theory and Evidence," Economics Staff Papers 102692, South Dakota State University, Department of Economics.
    • Handle: RePEc:ags:sdsusp:102692
    DOI: 10.22004/ag.econ.102692
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    References listed on IDEAS

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    1. Fausti, Scott W. & Diersen, Matthew A. & Qasmi, Bashir A. & Li, Jing, 2010. "Value-Based Marketing: A Dsicussion of Issues and Trends in the Slaughter Cattle Market," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 27(1-2), pages 1-22.
    2. Fausti, Scott W. & Qasmi, Bashir A., 2002. "Does The Producer Have An Incentive To Sell Fed Cattle On A Grid?," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 5(1), pages 1-17.
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    4. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A. & Li, Jing & Lange, Brent, 2011. "The Affect of Animal Gender on Fed Cattle Producer Marketing Behavior," 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas 98541, Southern Agricultural Economics Association.
    5. Anderson, John D. & Zeuli, Kimberly A., 2001. "The Revenue Risk Of Value-Based Pricing For Fed Cattle: A Simulation Of Grid Vs. Average Pricing," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 4(3), pages 1-12.
    6. Ted C. Schroeder & Jennifer L. Graff, 2000. "Estimated Value of Increased Pricing Accuracy for Fed Cattle," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 22(1), pages 89-101.
    7. White, Brad J. & Anderson, John D. & McKinley, W. Blair & Parish, Jane, 2007. "Factor Price Disparity and Retained Ownership of Feeder Cattle: An Application of Feedlot and Carcass Performance Data to Farm-Level Decision Making," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(1), pages 1-15, April.
    8. Schultz, Robert W. & Marsh, John M., 1985. "Steer And Heifer Price Differences In The Live Cattle And Carcass Markets," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 10(1), pages 1-16, July.
    9. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A., 2008. "Grid Marketing and Beef Carcass Quality: A Discussion of Issues and Trends," Economics Staff Papers 37149, South Dakota State University, Department of Economics.
    10. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    11. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A., 2008. "Grid Marketing and Beef Carcass Quality: A Discussion of Issues and Trends," Economics Staff Papers 37149, South Dakota State University, Department of Economics.
    12. Merle D. Faminow & Monica de Matos & R.J. Richmond, 1996. "Errors in slaughter steer and heifer prices," Agribusiness, John Wiley & Sons, Ltd., vol. 12(1), pages 79-87.
    13. Scott W. Fausti & Dillon M. Feuz, 1995. "Production Uncertainty and Factor Price Disparity in the Slaughter Cattle Market: Theory and Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 533-540.
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