Document Type

Article

Publication Date

4-15-1994

Keywords

cattle markets, slaughter cattle, livestock marketing

Abstract

Incomplete and varying degrees of information on product quality creates risk in a market transaction. Numerous researchers have documented that market participants will react differently in the presence of risk depending upon their attitudes toward risk. Many of these studies have classified agricultural market participants according to the Arrow-Pratt risk aversion coefficient into three general categories of risk averse, risk neutral, or risk preferring (Raskin and Cochran, Wilson and Eidman, King and Robinson) and have found individuals in all three categories. The U.S. slaughter cattle market is currently operating in an environment where the amount of information available on product quality varies depending upon the marketing method used. There are presently three main cash marketing methods. available to producers in the US: (1) live weight; (2) dressed weight (in-the-beef); and (3) dressed weight and grade (grade and yield). The information differential generates uncertainty (risk). It follows that the degree of risk associated with each of these marketing methods varies with the amount of information available on product quality. In a recent paper by Feuz, Fausti, and Wagner it was reported that producers' profits differed between the live, in-the-beef, and grade and yield marketing methods for slaughter cattle. They indicated that profits on average were highest with grade and yield marketing and lowest with live wejght marketing. They also found that the variance in producer profits (risk) were greatest for grade and yield and smallest for live weight marketing. The objectives of this research are to determine: 1) what effect the risk associated with incomplete information across marketing methods is having on the market price for slaughter cattle; and 2) what effect product quality uncertainty is having on buyer and seller behavior. The accomplishment of these objectives should · provide additional insight into the U.S. slaughter cattle market and be particularly valuable to those looking to modify the existing marketing methods or create new value based marketing methods.

Publisher

Department of Economics, South Dakota State University

Series Number

94-4

Number of Pages

20

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