An Econometric Model of Pacific Northwest Feeder Cattle Basis

An Econometric Model of Pacific Northwest Feeder Cattle Basis
Author: Cynthia Ann Vanderpool
Publisher:
Total Pages: 200
Release: 1981
Genre: Beef cattle
ISBN:

Fluctuating feeder cattle prices have a direct affect on the revenue variability of feeder cattle producers. Hedging in the commodity futures market is a marketing strategy which can, if properly used, reduce the financial risk of feeder cattle producers. If the closing basis value is known when a hedge is placed, a price can be established for the feeder cattle in advance. This fact prompted research in determining the factors which affect nearby feeder cattle basis in the Pacific Northwest. This research is an attempt to identify factors which influence the feeder cattle basis through their influence on the prices which compose the basis -i.e., the cash and futures prices. The feeder cattle cash price has been established as a function of the factors affecting the profit of feedlot operations. Controversy exists on the factors which influence the futures price of livestock products; however, the use of technical indicators is well established in the literature. For the purposes of this research feeder cattle basis is developed as a function of the profit factors and a lag-trend indicator along with dummy variables which influence feeder cattle futures contracts over time. The profit factors include expected slaughter price, corn price, and interest rate values. These profit factors are expected to influence the cash price of feeder cattle. The lag-trend indicator is a calculated trend of the basis over the past two time periods and is expected to represent the analysis made by traders in both the futures and cash markets of past events or prices. This analysis by traders in the futures market will be similar to their use of technical indicators. In specifying the model, two methods of analyzing the expected affects of the profit factors on the basis are acknowledged. In this research, the profit factors are assumed to influence only the cash price. Therefore, the effect of the factors on basis is hypothesized by making assumptions about the price movement of the feeder cattle futures price. The analyses produce various hypotheses about the expected effects of the profit factors on basis. The empirical results produce evidence that the estimated equations explain a good proportion of the Pacific Northwest basis of feeder cattle for light and heavy weight categories. After a close analysis of the profit factors, corn price is concluded to have a positive influence on 500-600 pound feeder cattle basis and a negative influence on 700-800 pound feeder cattle basis. However, due to the inability of the methods to hypothesize the effect of slaughter price on basis and/or to hypothesize, with consistency, the correct signs of the estimated interest rate coefficient, conclusions are not made about their influences on the basis. Feeder cattle producers can apply the information produced in this research in making hedging decisions. However, a thorough knowledge and analysis of hedging theory and market conditions should be undertaken first. Since a predicted closing basis is needed by feeder cattle producers to establish a "locked-in" cash price, further research in developing a forecasting model of feeder cattle basis is warranted.

Economic Considerations for Expanded Feeding of Livestock in the Pacific Northwest

Economic Considerations for Expanded Feeding of Livestock in the Pacific Northwest
Author: Paul Randolph Grimshaw
Publisher:
Total Pages: 296
Release: 1971
Genre: Feeds
ISBN:

Several agricultural and related industry groups in the Pacific Coast states have expressed concern about the competitive position of these states in the production of feed grains and livestock products. This study was directed toward the investigation of these concerns. In order to permit the real world situation, with its accompanying multivariable reality, to be reduced to workable size, a linear programming model was designed. The 48 contiguous states were divided into five regions with smaller regions in the western United States to permit a more detailed analysis of the West. The quantities of feed grains produced in each state were determined and summed for the states in a region. The quantities of fed beef, pork, broilers, turkeys, eggs, and milk (the products of the major grain consuming classes of livestock) demanded in each state were computed. A matrix of transportation costs between regions was developed for feed grains and for the livestock products of the model. Regional weighted average prices received by farmers for each feed grain and for each livestock product were determined. The model was then utilized to indicate production of all the livestock products required for consumption by region at the least cost of producing the products. Optimal solutions were obtained using 1968 and 1969 relative prices and these solutions were analyzed. The analysis indicates that generally the states which are deficit in beef, pork, broiler, and egg production have a slight economic advantage in producing these products for local consumption until the locally produced feed supply is utilized. Each region in the model produced the milk consumed in that region. Region I (Oregon and Washington) has traditionally been self-sufficient in turkey production, and Region III (California) has been a turkey exporting state. According to the model, both of these regions should import the turkey consumed in the region to derive optimum economic benefits. These conclusions are based on the relative prices and transportation costs that existed in 1968 and 1969. After the solutions were obtained, the price of wheat in Region I was varied using a parametric procedure available with the linear programming package. Results of this analysis using 1968 and 1969 relative prices were described. The parametric analysis indicated that at the 1968 price of wheat in Region I more than twice the quantity of wheat allocated to livestock feeding in the basic model could have been economically utilized and would have reduced costs of producing the livestock products consumed in Region I. The 1969 wheat price in Region I was sufficiently low that the parametric analysis indicated an allocation of over four times the quantity used in the basic model for livestock feeding. The basic model utilized 1,043,000 tons of wheat for livestock feeding. It can be concluded from the analysis that Region I could have utilized much larger quantities of wheat for livestock feeding than was allocated for feeding in the basic model. Based on the relative feed ingredient costs that existed in 1968, Region I producers of pork, broilers, eggs, and milk are competitive with other regions in supplying the quantities of these products demanded for regional consumption. The 1969 relative prices made Region I even more competitive in producing pork, broilers, eggs, and milk, and added beef production as an economically advantageous alternative. These conclusions are based only on feed ingredient and transportation costs. If non-feed costs and relative feeder cattle costs for beef production are included, Region I producers appear to have a slight margin for producing beef, for local consumption until locally produced feed supplies are exhausted.

Masters Theses in the Pure and Applied Sciences

Masters Theses in the Pure and Applied Sciences
Author: Wade Shafer
Publisher: Springer Science & Business Media
Total Pages: 335
Release: 2012-12-06
Genre: Science
ISBN: 1461337003

Masters Theses in the Pure and Applied Sciences was first conceived, published, and disseminated by the Center for Information and Numerical Data Analysis and Synthesis (CINDAS) * at Purdue University in 1957, starting its coverage of theses with the academic year 1955. Beginning with Volume 13, the printing and dissemination phases of the activity were transferred to University Microfilms/Xerox of Ann Arbor, Michigan, with the thought that such an arrangement would be more beneficial to the academic and general scientific and technical community. After five years of this joint undertaking we had concluded that it was in the interest of all con cerned if the printing and distribution of the volume were handled by an international publishing house to assure improved service and broader dissemination. Hence, starting with Volume 18, Masters Theses in the Pure and Applied Sciences has been disseminated on a worldwide basis by Plenum Publishing Cor poration of New York, and in the same year the coverage was broadened to include Canadian universities. All back issues can also be ordered from Plenum. We have reported in Volume 26 (thesis year 1981) a total of 11 ,048 theses titles from 24 Canadian and 21 8 United States universities. We are sure that this broader base for these titles reported will greatly enhance the value of this important annual reference work. While Volume 26 reports theses submitted in 1981, on occasion, certain univer sities do report theses submitted in previous years but not reported at the time.

A Short Run Price Forecasting Model for Slaughter Steers and Slaughter Cows in the Pacific Northwest

A Short Run Price Forecasting Model for Slaughter Steers and Slaughter Cows in the Pacific Northwest
Author: Stephen Paul Reed
Publisher:
Total Pages: 258
Release: 1982
Genre: Beef cattle
ISBN:

The cattle industry in the Pacific Northwest is characterized by a large number of producers. Individual contributions to the market have little effect in moderating potential fluctuations in the prices received for the various classes of cattle. Price volatility is of constant concern to producers in planning future production, with decisions made in the current period affecting future profitability of the enterprise. Information that will assist in developing strategies to deal with this uncertainty may play a critical role in reducing the risk of continued production. Inherent to this decision making process is a knowledge of the various factors influencing both biological parameters and economic conditions at a future point in time. The econometric models developed in this study attempt to quantify the economic relationships at the farm level, that affect the price received for the live animal. The economic relationships deemed important in this study are the factors influencing the demand and supply of beef cattle. The supply and demand relationships at the feedlot level are included in a model with coefficients estimated to reflect the individual influence of each variable on the price of slaughter steers for the quarter. A necessary condition of this price formulation process is that current supply and demand levels determine current prices. The slaughter steer prices estimated in this procedure are developed to reflect the fluctuations in the Omaha market. This particular location is considered to more accurately reflect the aggregate data for the U.S. used in the price prediction model. The same strategy of using the Omaha market to reflect U.S. aggregated data is employed in developing a model to forecast utility cow prices. The transition to regional price models for the Northwest was accomplished with little difficulty because of the close historical relationship between the two regions. This characteristic was specified in the Northwest steer and cow price models by including the Omaha price for the quarter as the determinant of prices in Oregon and Washington. Forecasted prices from one and two quarter Omaha steer and cow price models were then used in estimating future Northwest prices. The steer prices estimated in this study compared favorably with price forecasting models from seven other sources evaluated by Just and Rausser (1981). Using the percent root mean square error statistic as a method of comparison, the values from their study ranged between 9.9 and 12.9 for a one quarter forecast, and 12.4 and 18.9 for a two quarter projection. The percent root mean square error calculated for Northwest steer price forecasts was 10.09 for the one quarter estimates and 11.08 for the two quarter projections. These results proved promising in developing future price projections. The inclusion of this modeling process, as a management tool in developing s-hort run production strategies, may be used advantageously in reducing the risk and uncertainty associated with the price fluctuations in the live cattle market.

An Evaluation of Strategies for Hedging Feeder Cattle in the Pacific Northwest

An Evaluation of Strategies for Hedging Feeder Cattle in the Pacific Northwest
Author: Andrew Leo Gatti
Publisher:
Total Pages: 248
Release: 1984
Genre: Beef cattle
ISBN:

Over the past decade, feeder cattle backgrounders in the Pacific Northwest have been subject to sharp price fluctuations for their output. The result has been variable profits and losses. This situation creates a need for management and marketing techniques which can provide Pacific Northwest cattle ranchers with protection against price risks while enhancing the profitability of their operations. Recent economic literature has shown hedging with futures contracts to be an effective tool for mitigating risk and/or increasing the net revenues of cattle producers in a number of regions of the United States. The objective of this research was to determine whether hedging with futures contracts could have increased the profitability of Pacific Northwest feeder cattle production while decreasing the effects of price volatiliy. To realize this objective, the economic performance of alternative hedging strategies were evaluated for several methods of feeder cattle backgrounding indigenous to the Pacific Northwest region. Four hedging strategies - routine, moving average, profit objective, and triangular probability distribution - were evaluated for hedging the output of four simulated production systems. The mean and standard deviation of annual net returns were computed for each hedging strategy to serve as measures of profitability and risk, respectively. The results of not hedging were also obtained to provide a basis for comparing alternative hedging programs. Sample t and F tests were conducted to determine whether there were statistically significant differences between the means and standard deviations of the unhedged and hedged positions. Dominant hedging strategies were then identified for each production system. Based on the results of the mean-variance analysis, it appears that the use of selective futures market hedging strategies would have provided greater and more stable levels of profit compared to the net incomes obtained without hedging. Sample t and F tests, using 80 and 90 percent levels of significance respectively, showed that hedging could have significantly decreased the variability of the producer's flow of income without significantly changing the operation's average profitability. Moving average, profit objective, and triangular probability distribution strategies were dominant, increased average profitability, and significantly lowered risk for at least one production system each. Overall, moving average strategies generated the highest mean profits with the greatest risk. Profit objective strategies generally resulted in lower mean profit than moving average strategies but with less risk. The risks and returns from hedging with triangular probability distribution strategies were usually between the moving average and profit objective procedures. Strategies which performed well in this study should also perform well in the future if conditions in the feeder cattle markets do not vary substantially from those of the previous decade. Thus, hedging with futures market contracts may provide the Pacific Northwest feeder cattle producers with protection against price risk and enhanced profitability.