Pass-Through in United States Beef Cattle Prices
AbstractFeeder cattle are fattened to become fed live cattle six months later. The U.S. feeder cattle industry is intensively competitive, so that market efficiency 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. The results indicate that an increase of a dollar per hundred pounds in the live cattle price leads to an increase of approximately $1.48 per hundred pounds in the feeder cattle price in one month, about 93% of complete pass-through. The corresponding negative effect of a corn price increase is about 87% of complete pass-through. By contrast with agricultural land markets, the results support the hypothesis of Ricardian rent extraction by the scarce asset owner in feeder cattle markets. The results also provide evidence in favor of informational efficiency in futures markets.
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Bibliographic InfoPaper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 09-wp494.
Date of creation: Jul 2009
Date of revision:
feeder cattle; futures market efficiency; live cattle; structural change.;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
This paper has been announced in the following NEP Reports:
- NEP-AGR-2009-07-28 (Agricultural Economics)
- NEP-ALL-2009-07-28 (All new papers)
- NEP-COM-2009-07-28 (Industrial Competition)
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