Causal Relationships in the Fed Cattle Market

Thomas Spreen and J Shonkwiler

Journal of Agricultural and Applied Economics, 1981, vol. 13, issue 1, 149-153

Abstract: The production process of transforming a 600–700 pound feeder steer into a slaughter animal typically requires four to six months. Conceptually, there should exist some relationship between the prices of feeder calves and slaughter cattle prices. In one view, since the feeder calf constitutes the costliest input in the production of the slaughter animal, the prices of fed cattle should be temporally connected to the cost of the feeder animals. This view suggests that feeder calf prices should lead slaughter prices by the length of the production process (Trierweiler and Hassler). In another view, the price of feeder calves is determined by the interaction of the supply of and derived demand for feeder cattle by feedlot operators. It is presumed that the derived demand for feeder cattle is related to feedlot operators' expectations of future fed cattle prices. If their expectations are strongly influenced by current fed cattle prices, then a relationship is suggested whereby slaughter and feeder prices vary concomitantly.

Date: 1981
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