Uncertainty and Producer Fed Cattle Marketing Decisions: Theory and Evidence

Scott Fausti and Brent Lange

No 102692, Economics Staff Papers from South Dakota State University, Department of Economics

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.

Keywords: Demand and Price Analysis; Livestock Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 29
Date: 2011-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:sdsusp:102692

DOI: 10.22004/ag.econ.102692

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