Procurement Price Relationships for Fed Cattle and Hogs: Importance of the Cash Market in Price Discovery

Abstract

Reduced reliance on cash markets for fed cattle and hogs raises questions about the role of cash prices in price discovery. Weekly data from mandatory price reports were used to determine whether cash market prices were cointegrated with and exhibited Granger causality with other procurement prices. Cash prices were cointegrated with all but one cattle and one hog procurement price series over the 2001-2010 period. Cash market prices Granger cause all other procurement prices and bidirectional causality was found in some but not all cases. Results for three 3-year subperiods showed some decline in cointegration and causality for hogs. The cash market remains important for price discovery but continuing market thinness, especially in hogs, raises questions regarding viability of the cash market in the future. [EconLit Citations: Q13, Q18] C 2012 Wiley Periodicals, Inc.

Risk and marketing behavior: pricing fed cattle on a grid

“…Agricultural economists have developed a sizeable literature looking at economic issues associated with the adoption of grid pricing. These issues include price discovery, price transmission and transparency, production technology adoption, producer incentives (disincentives) to adopt grid marketing, slaughter volume marketing patterns, price risk associated with marketing on a grid relative to selling cattle at an average price by the pen, and the effect of heterogeneous carcass quality on agent marketing behavior (DeVuyst et al., ; Fausti et al., ; Feuz, ; Feuz et al., ; Harri et al., ; Johnson and Ward, ; Koontz et al., ; Lee et al., ; McDonald and Schroeder, ; Schroeder and Graff, ; Ward, ; White et al., ; Whitley, ).…”