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Alternative Pricing and Delivery Strategies for Alberta Cattle Feeders

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  • Novak, Frank S.
  • Viney, Bruce
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    Abstract

    This study evaluates the risk and returns to cattle feeding in Alberta from the application of alternative marketing and pricing strategies. Feedlot finishing of 650 pound calves and 800 pound yearlings is modeled over the years from 1980 to 1993. The results of the study are based on the domestic and US marketing of live cattle using traditional cash marketing, futures contracts, put options, and forward production contracting systems. Use of the Western Domestic Feed Barley contract is also simulated. The results showed that barley price changes produced relatively small return changes compared to feeder and fat cattle price changes. An important source of return risk was found to be basis risk. Production contracting strategies which eliminated basis risk were found to provide the best returns in a market based risk-return comparison. The use of put options did not add value to cattle feeding investments.

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    File URL: http://purl.umn.edu/24044
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    Bibliographic Info

    Paper provided by University of Alberta, Department of Resource Economics and Environmental Sociology in its series Project Report Series with number 24044.

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    Date of creation: 1995
    Date of revision:
    Handle: RePEc:ags:ualbpr:24044

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    Postal: 515 General Services Building, University of Alberta, Edmonton, AlbertaT6G 2H1
    Phone: (780) 492-4225
    Fax: (780) 492-0268
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    Web page: http://www.rees.ualberta.ca/
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    Related research

    Keywords: Demand and Price Analysis; Marketing;

    References

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    1. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(01), July.
    2. Brian S. Freeze & A. Gene Nelson & Wesley N. Musser & R. Hironaka, 1990. "Feeding and Marketing Portfolio Effects of Cattle Feeding in Alberta," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 38(2), pages 233-252, 07.
    3. Lapan, Harvey E. & Moschini, GianCarlo & Hanson, Steven D., 1991. "Production Hedging and Speculative Decisions with Options and Future Markets," Staff General Research Papers 10810, Iowa State University, Department of Economics.
    4. Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
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    Cited by:
    1. Steiner, Bodo E., 2007. "Formal beef alliances and alignment challenges: issues in contracting, pricing and quality," Project Report Series 7709, University of Alberta, Department of Resource Economics and Environmental Sociology.
    2. Unterschultz, James R., 2000. "New Instruments For Co-Ordination And Risk Sharing Within The Canadian Beef Industry," Project Report Series 24046, University of Alberta, Department of Resource Economics and Environmental Sociology.

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