Document Type

Article

Publication Date

4-15-2011

Keywords

grid pricing, national beef quality audit, public livestock price, fed cattle reporting, beef carcass quality

Abstract

The effect of carcass quality uncertainty on the structure of the slaughter cattle market is investigated. A theoretical extension of the “Theory of Factor Price Disparity” is provided. It is demonstrated that the coexistence of a risk premium wedge between pricing mechanisms (live wt., dressed wt., and grid) in conjunction with varying degrees of risk aversion across fed cattle producers explains the coexistence of multiple pricing mechanisms. It is also demonstrated that risk and risk preference provides a plausible explanation for the structure of the fed cattle market and for the variability in slaughter volume across marketing channels. Empirical evidence is provided in support of the supposition that carcass quality uncertainty plays a role in grid market share variability.

Publisher

Department of Economics, South Dakota State University

Series Number

2011-1

Number of Pages

30

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