Feeder cattle price differentials: how much did they change over time?

Results from mathematical models of feeder cattle price/characteristics using data collected in Kansa s and Missouri in 1986/1987 and from 1993 using the same data collection and modeling procedures indicate that the implicit values of many feeder cattle characteristics changed over time. Characteristic values often changed whether their value was measured in dollars per hundredweight or as a percentage of the mean feeder p rice during the data collection period. Directional impacts of characteristics on feeder cattle price were generally consistent from 1986/1987 to 1993. These results imply that, as market conditions change, new feeder cattle price/characteristic relationships need to be estimated.


Introduction
Prices paid for lots of feeder cattle vary because of changin g market conditions and also because of differences in their physical characteristics .Price differences associated with changes in various physical characteristics are referred to as implicit values of those characteristics .This study examined whether implici t values of feeder cattle characteristics vary over time, when the characteristics are measured and modeled in the same manner for the same geographical area.Previously, it has been difficult to determine whether changes in feeder cattle ch aracteristic values across studies were attributable to structural changes in demand for feeder cattle characteristics, difference s in data collection and modeling procedure s, or geographical differences.Many feeder cattle buyers and sellers use publicly available research results on characteristic values to improve their management and marketin g decisions.If characteristic values change a ppreciably over time, estimates should be updated periodically and cattle market participants should be wary of relying on dated characteristic-value information.frame size, muscling, fill, condition, horns, health, uniformity, and average weight per head).Data rec orded for each lot also included the time of sale, lot size, market location, and feeder-cattle futures pr i ce.The settlement price for nearby feeder-cattle futures contract from the day prior to the sale was recorded for cattle sold before 1 p.m., and the c urrent day's closing price was recorded for cattle sold after 1 p.m.

Experimental Procedures
The data set consisted of information collected on 38,788 lots of steers and heifers weighing between 300 and 899 lb for a total of 362,858 head.Forty-four percent of the lots were sold in 1986/1987 and 56 percent were markete d during 1993.Cattle prices were substantiall y higher during 1993 than in 1986/1987.For example, the mean price for a 700-79 9 lb steer in the 1993 data was $81.35 per hundredweight compar ed to a mean price in the 1986/1987 data of $63.46 per hundredweight , a 28% price increase for that weight class.Fifty-five percent o f the cattle were steers and 45% were heifer s in 1986/1987 compared to 54% steers an d 46% heifers in 1993.During 1986/1987 , 58% of the cattle were sold in the fall and 42% in the spring, whereas 49% of the cattle were sold in the fal l and 51% in the spring during 1993.
Deman d for a lot of feeder cattle will be affected by each l ot's physical traits.Therefore, feeder-cattle price was modeled as a function of the physical characteristics possessed by the particular lot and the fund amental market forces reflectin g feeder-cattle supply and demand changes over the observed ti me period.Feedercattle futures prices were used to capture the effect of chang es in fundamental market forces.Separate models were estimated for steers weighin g 300-599 lb, steers weighing 600-899 lb, heifers weighing 300-599 lb and heifers weighing 600-899 lb.

Results and Discussion
Selected results from the four steer models are reporte d in Table 1.Heifer models are not reported to conserve space, so the discussion will focus primarily on the steer models results.All parameter estima t es represent price changes from a reference lot of uniform, heavily muscled , Hereford steers in good health, averag e condition and fill, without horns, and sold during the first quarter of the sale at auction market 1.The steer and heifer models explained 59 to 74% of the variation in feedercattle prices.Statistical test s indicated that the feeder-cattl e price/characteristics relationship did change from 1986/1987 to 1993, but that the degree of change varied by characteristic.
The impact of lot size was more pronounce d in 1993 than in 1986/1987 (Figure 1).During 1986/1987, h eavyweight steers received the highest lot-size premium when sold in lots ranging from 60 to 70 head.In 1993, buyers preferred c attle sold in slightly larger lots as the highest lot-size premi um occurred for lots of 65 to 75 head.More importantly, the price premiu m associated with each lot size was larger in 1993 than in the previous time period.For example, at a lot size of 65 head, the lotsize premium for heavyweight steers was $6.37 per hundredweight in 1993 compared to $4.16 in 1986/1987.
Lot-siz e premiums for lightweight steers increased more markedly f r om 1986/87 to 1993 than those for heavyweight steers (Figure 2).During both time periods, lot sizes of 4 0 to 50 head received the highest lot-size premiums, with the highest occurring at 43 head in 1993 vs. 46 head in 1986/1987.At a lot size of 45 head, the ma ximum lot-size premium for steers weighing 300-599 lb in 1993 was $11.52 vs. $6.27 in 1986/1 987.These results indicate that buyers still prefer to buy lighter-weight cattle in smaller lot sizes than heavyweight cattle and that they were willing to pay much larger premiums in 1993 than in 1986/1987 to buy cattle in truckload lots.
Feeder-cattl e buyers prefer heavy-muscled cattle.Consequently, light-and mediummuscled cattle were discounted compared to heavy-muscle d cattle.The discounts for medium muscling changed little o ver the 6 years betwee n samples, but the discount for lightmuscle d animals increased sharply for both lightweight and h eavyweight steers measured in both dollars per hundredweight and as a percentag e of the averag e price.For example, the percentage discount for heavy weight lightmuscled steers increased fro m 7% in 1986/1987 to 19% in 1993.This shift in discounts could be indicative of increasing concern by feedercattle buyers about carcass quality.
Feeder-cattl e buyers tend to prefer cattle classified in the upper medium or large frame categories .Steers in the lower medium category in both weight classes received discounts compared to large framed steers, but the discounts were smaller in 1993 than in 1986/1987 .Lightweight, small-framed feeder steers were discounted between $9 and $10 per hund redweigh t in both time periods, but the discoun t for heavyweight small-framed feeder steers more than doubled from 1986/1987 to 1993.This shift in d i scounts could indicate that feeder-cattl e buyers became more concerned about purchasing feeder cattle that will produce carcasse s desired by packers and that will perform wel l when placed on a finishing ration.

Figure 1 .
Figure 1.Lot Size Impact on Prices for 600-to 899-lb Steers

Figure 2 .
Figure 2. Lot Size Impact on Prices for 300-to 599-lb, Steers

Table 1 . Estimated Premiums and Discounts Associated with Feeder Steer a Characteristics, Fall 1986/Spring 1987 and 1993 b
All premiums and discounts are relative to the reference lot of heavily muscled Hereford steers in a healthy condition, average fill and condition, large frame size, without horns, in a uniform lot, and sold during the first quarter of the sale at market 1.The seven markets from which data were collected in 1986/1987 were Dodge City, Fort Scott, Russell and Salina, Kansas.The eight markets from which data were collected in 1993 were Dodge City, Junction City, Manhattan, Oakley, P arsons, Pratt and WaKeeney, Kansas, in addition to Joplin, Missouri.