Economic Evaluation of an Alternative Marketing System for Feeder Cattle in Alabama

The marketing system for cattle in the United high costs and low prices because of thin country States has evolved with shifts from delivery to auction markets, a group of livestock producers large terminal centers, to more decentralized formed a market board association in 1973. The markets. Because of innovations in transportaobjective of the market board was to supply tion and processing technology, these structural healthy, farm-fresh cattle at least cost direct to changes have created a need for greater vertical feedlots. In 1981, 6 market boards, composed of coordination between different stages in the cat86 producers, sold cattle valued at approximately tie marketing channels (Rhodes, p. 174; Spor$7 million. Sales occur during April and May at leder, p. 101). Improved coordination requires locations central to each group of producers. appropriate market information about product Cattle are auctioned by lots, with producers supsupplies and the form of cattle preferred by buyplying a description of each lot to the buyers beers (Purcell, 1973, 1980). fore a sale. Buyers have the opportunity to visit a Alabama is a major supplier of stocker and farm to inspect the cattle before a sale. After the feeder cattle to feedlots in the Southwest, Midsale, the seller and buyer sign a sales contract west, and North Central regions of the United and agree on the form of payment and the time States. A need for greater coordination between when cattle are to be picked up at the farm. cattle producers and cattle feedlot owners in various regions has become particularly evident. METHODOLOGY Most cattle are traded through small country auction markets, which can be thin markets having M b limited trading volume and illiquidity (Hayenga). action mars The limited volume of cattle can lead to inthe two market channels comparedin this study creased costs to buyers, who must visit several o coare bees from 15 country auction markets to assemble enough catsales were collected from 1979 to 1981 tie for a truckload to ship to a feedlot. Also, thin Prces receed b prodcers eac markets can result in the inaccurate or sluggish b sle were compared to the respective adjustment of cash prices, as supply and/or deweekly average market price for the Montmand relationships change (Henderson and gomery auction market reported by the Alabama Baldwin). Department of Agriculture and Industries. In the This research focuses on evaluation of the perMontgomery market, there are two separate aucformance of an alternative market system for tion facilities that operate daily. The Montfeeder cattle that has developed in Alabama. The gomery market is a delivery point for the Chicago study measures the differences in prices received Mercantile Exchange's futures contracts on by producers selling in a special market board feeder cattle, and the market price is considered sale, compared to auction market sales. The representative of national prices. Data on marketing charges and fees were colstudy examines whether market boards have reData on marketing charges and fees were collected from the two auctions in Montgomery. Esduced the joint costs incurred by sellers and letedromh auctionsMontgomery. Esbuyers of feeder cattle, compared to the auction tima o rn e and tan tn costs in market system. Relative to opportunities for auction markets were obtaine in iscussons umarket system. Relative to opportunities forma with order buyers in these markets. A questionfurther increases in market efficiency, informam i tion on cattle sold in both market boards, as well naire was maid to producers in the association as auction markets, is examined. A better underto estimate their marketing costs. Statistical standing of marketing factors affecting price remethods were used to test for differences beceived would improve coordination between tween the two market channels To evaluate charactenstics that influence the buyers and sellers in the Alabama feeder cattle To evaluate characteristics that influence the market. price of cattle, producers' description of 383 lots of cattle were regressed on price received for DESCRIPTION OF MARKET BOARDS each lot for the period of 1979-81. Producers provided information on lot size, breed type, esIn response to a need to offset the effect of timated delivery weight, sex, grade, time of sale,