EXPECTATIONS, FUTURES PRICES, AND FEEDLOT BEHAVIOR

This paper attempts to improve our understanding of the effects of market prices on cattle marketing decisions, using futures prices as measures of unobserved price expectations. This approach has been used successfully in explaining feeder cattle placements, but not in marketings. Our aim is to provide empirical evidence on an unresolved issue in cattle marketing, the differential effects of the current price and near-term price expectations. When the cash price of fed cattle rises, the higher returns from current sales encourage increased marketings; yet, if the price is expected to remain high it may pay to feed cattle longer, holding them back from current marketing. By estimating marketings as a function of cash and futures prices simultaneously we hope to separate these two effects