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Pass-Through in United States Beef Cattle Prices

Author

Listed:
  • Zhao, Huan
  • Du, Xiaodong
  • Hennessy, David A.

Abstract

Feeder 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.

Suggested Citation

  • Zhao, Huan & Du, Xiaodong & Hennessy, David A., 2009. "Pass-Through in United States Beef Cattle Prices," Hebrew University of Jerusalem Archive 52085, Hebrew University of Jerusalem.
    • Handle: RePEc:ags:hebarc:52085
    DOI: 10.22004/ag.econ.52085
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    References listed on IDEAS

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    2. 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(3), pages 1-13, December.
    3. Steven T. Buccola, 1980. "An Approach to the Analysis of Feeder Cattle Price Differentials," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 574-580.
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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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