Effects of Differences in Video and Traditional Markets on Feeder Cattle Prices

Few decisions are more important to feeder cattle producers than how to market their product. This study uses the hedonic pricing model to show which method of marketing results in higher prices (traditional auctions or video board sales) and which characteristics of cattle, conditions of sale, and market conditions result in price premiums and discounts.

The two equations used were estimated by ordinary least squares in the SAS Reg procedure with 3131 observations over the 1996-2007 period. Model I (47 independent variables) was developed to estimate implicit values of various animal attributes, conditions of sale, and market conditions on the Tennessee Livestock Producers (TLP) video board sale. The dependent variable was sale price for each lot. Model II (36 independent variables) specified the ratio of TLP sale price to Tennessee auction market average price as a function of various animal attributes and conditions of sale.

Lot characteristics that had significant positive implicit prices included: steers, larger lots, medium and large frame number 1 muscling, existence of a health program, animals penned the night before weighing, higher live cattle futures prices, and the fall season. Lot characteristics that had significant negative implicit prices included: mixed gender, fleshiness, higher weights, larger weight range, Charolais cross, longer distance to feedlot area, higher corn prices, and the spring season.

TLP sale price exceeded Tennessee auction average price for similar cattle by 9 percent on average over the 12 years. The amount by which TLP price exceeded auction price was significantly positively affected by number of head in the lot, indication that animals were PVP certified, longer distance from farm to weigh point, allowance of pencil shrink, and allowing buyers to choose a load from a larger group of animals. The price difference was significantly negatively affected by the fact that the lot was of mixed gender, weight range for the lot was wide, the lot contained a larger percentage of animals that were not black or black baldy, animals showed substantial “ear”, animals had been fed supplement or were “home raised”, and location of animals was farther from typical feedlot areas.