Selectivity Bias and Cattle Price in the Cattle Procurement Market

We examine selectivity bias in the US cattle procurement market. We hypothesize that feedlots optimize profits by selecting specific cattle to sell either in the cash market or through alternative marketing agreements. High-quality cattle are more likely to be sold in the alternative market as prices are not fully calculated until after harvest, allowing carcass quality premiums to be added. Consequently, it is assumed that low-quality cattle are sold in the cash market to avoid potential carcass discounts. Depending on a feedlotÕs size, relationship with packers, and marketing costs, these selection assumptions may not be accurate and bias prices.