Factor Price Disparity in the Feeder Cattle Market and Retained Ownership Decision Making: An Application of Farm-Level Feed-Out Data

This study uses farm-level data from a university feed-out program to evaluate how the value of feeder cattle ultimately realized through finishing and grid pricing differs from their market value at public auction. Results indicate that uncertainty related to feedlot performance, final carcass merits, and fed cattle prices likely contribute to significant risk premiums in the feeder cattle market. This is consistent with the theory of factor price disparity. This result indicates that producers of cattle with known feedlot performance and/or carcass potential may be better off retaining ownership of their calves or marketing them in a way that communicates the information that is known about their potential performance directly to the buyer.