Fabricated Cut Beef Prices as Leading Indicators of Fed Cattle Price

Temporal relationships are investigated among fabricated cut prices, carcass value, and fed cattle prices. Also, linkages between fed cattle and wholesale beef prices are examined using vector autoregression (VAR) techniques. Results, using daily prices over the 1980-85 period, suggest that fabricated cut prices and cattle prices are related to the imputed carcass value, carcass quote, and fed cattle prices. In addition, three fabricated cuts dominate as leading indicators of fed cattle prices and of most fabricated cut prices. They are strip loin and bottom and top round prices.-VAR models outperform the univariate and random-walk models in forecasting ability. Key words: beef prices, cattle prices, forecast, leading indicators. From a derived demand perspective, beef pric-es may be useful to infer future changes in fed cattle prices. Carcass quotes are no longer sup-ported because of low volume and the in-creased occurrence of formula pricing (Ray). Estimates are that over 90 % of all carcass trades are made by formula (Burke). This has resulted in a "thin " market for beef carcasses (Hayenga and Schrader). A thin market may result from low volume and a small proportion of nego-tiated and publicly reported trades (Hayenga). A compelling alternative to the carcass price as a reference price for processed beef is the imputed carcass value (ICV) or the "boxed beef cut-out " price reported by the U.S. De-partment of Agriculture (USDA) Market News Service. The ICV is a weighted average price computed by the USDA based upon individ-ual boxed beef prices. ' In contrast to the lo