CATTLE FEEDER BEHAVIOR AND FEEDER CATTLE PLACEMENTS

Cattle feeders appear irrational when they place cattle on feed when projected profit is negative. Long futures positions appear to offer superior returns to cattle feeding investment. Cattle feeder behavior suggests that they believe a downward bias in live cattle futures persists and that cattle feeders use different expectations than the live cattle futures market price when making placement decisions. This study examines feeder cattle placement determinants, comparing performance of expected hedgeable profit with past actual profit in explaining feeder cattle placements. Past actual profit is a more important placement determinant than expected profit based upon the live cattle futures market, even though hedgeable profit provides a superior forecast of future profit. In addition, potential deterrents to cattle feeders' use of futures as a substitute for cattle ownership are discussed.
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Citation

Kastens, Terry L.; Schroeder, Ted C., CATTLE FEEDER BEHAVIOR AND FEEDER CATTLE PLACEMENTS, Journal of Agricultural and Resource Economics, Volume 19, Issue 2, December 1994, Pages 337–348

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