Packer Procurement, Structural Change, and Moving Average Basis Forecasts: Lessons from the Fed Dairy Cattle Industry

Changing market fundamentals have made fed dairy cattle basis more variable. Our study estimates empirical models of fed dairy basis and utilizes tests that endogenously identify structural breaks following one large packer's decision to exit the fed dairy cattle market. We quantify the impact and find sale type, cattle weight, seasonality, ground beef prices, by-product values, and fed cattle slaughter capacity utilization to be important basis determinants, although the impact of some of these factors has changed over time. Finally, we assess multiyear moving average basis forecast accuracy and draw implications for formulating basis expectations.