Academic journal article Journal of Agricultural and Resource Economics

Calf and Yearling Prices in the Western United States: Spatial, Quality, and Temporal Factors in Satellite Video Auctions

Academic journal article Journal of Agricultural and Resource Economics

Calf and Yearling Prices in the Western United States: Spatial, Quality, and Temporal Factors in Satellite Video Auctions

Article excerpt

Introduction

The U.S. cattle market is evolving rapidly, causing changes in the factors that influence cattle prices (MacDonald and McBride, 2009). In particular, the cattle-feeding and meat-processing sectors have become increasingly consolidated (Morrison Paul, 1999, 2000; Ward, 2002; U.S. Government Accountability Office, 2009) and concentrated geographically in the central portion of the country, where five states market about 80% of all fed cattle in the United States (Johnson and Becker, 2009).

Table 1 provides additional detail on the regional distribution of calves, cattle on feed, and steer and heifer slaughter in the United States. Beef cattle production is a minor industry in the Northeast but is important elsewhere. By a considerable margin, the greatest intensity of cattle on feed and slaughtered is in Federal Region 7, consisting of Iowa, Kansas, Missouri, and Nebraska. The second greatest intensity is Federal Region 6, primarily in Oklahoma and Texas. By contrast, calf inventory is much more diffuse among the ten Federal regions, with the Southeast (Region 4) and the West, especially Region 9 (Arizona, California, Hawaii, and Nevada) having a large calf inventory relative to cattle on feed or slaughtered.

Location may thus place cattle producers in the West and Southeast at a disadvantage, relative to their counterparts in the Midwest, due to costs of transporting cattle to feeding and processing facilities (Clary, Dietrich, and Farris, 1986; Goodwin and Schroeder, 1991; Andersen et al., 2002) and, possibly, due to less competition among buyers to procure cattle in these regions (Cothern et al., 1991; Andersen et al., 2002; Johnson and Becker, 2009).1,2 For example, the number of feedlots in California declined from over fifty to just a handful over a three-decade period (Andersen et al., 2002).

Evidence suggests that western and southeastern ranchers receive lower prices relative to their Midwest counterparts (Blank, Forero, and Nader, 2009; Zimmerman et al., 2012), but to date there has been no quantification of the magnitude of such discounts as a function of cattle's distance from the Midwestern hub of feeding and processing and no determination of whether lower prices are solely due to spatial factors or also involve elements of imperfect competition.

In addition, the livestock sector has become increasingly vertically coordinated and focused on a broad array of quality considerations that involve not just physical characteristics of the animal but also how it was raised and what inputs it received (Sexton, 2013). Emerging quality attributes, such as whether an animal was raised in a humane manner and under "natural" conditions are so-called "credence attributes" that cannot be observed directly by buyers, making certification of these attributes an important consideration (Roe and Sheldon, 2007).

This paper investigates spatial, quality, and temporal factors impacting the pricing of calves and yearlings in the western United States using data from a satellite video auction and a hedonic regression framework. Video auctions operate much like traditional auctions but have the potential to generate a much larger pool of potential buyers from across the country. Video auctions also provide rich data on the characteristics of cattle offered in lots for sale, making these markets well suited to analyzing the marginal valuation of animal characteristics and attributes following the hedonic framework.3 Cattle sold in video auctions are located at ranches across multiple states, so video-auction data also provide an opportunity to analyze sales by producers at different locations, examine spatial pricing patterns, and test hypotheses pertaining to regional price differences.

Early studies of satellite video auction markets focused on market definition and competitive behavior of buyers (Bailey, Brorsen, and Fawson, 1993; Bailey, Brorsen, and Thomsen, 1995; Fawson, Bailey, and Glover, 1996; Brorsen, Von Bailey, and Thomsen, 1997) and price differences between video and conventional auctions (Bailey and Peterson, 1991; Bailey, Peterson, and Brorsen, 1991). …

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