Abstract:
The cattle industry in the Pacific Northwest is characterized by a large number of producers. Individual contributions to the market have little effect in moderating potential fluctuations in the prices received for the various classes of cattle. Price volatility is of constant concern to producers in planning future production, with decisions made in the current period affecting future profitability of the enterprise. Information that will assist in developing strategies
to deal with this uncertainty may play a critical role in reducing the risk of continued production. Inherent to this decision making process is a knowledge of the various factors influencing both biological parameters and economic conditions at a future point in time. The econometric models developed in this study attempt to quantify the economic relationships at the
farm level, that affect the price received for the live animal. The economic relationships deemed important in this study are the factors influencing the demand and supply of beef cattle. The supply and demand relationships at the feedlot level are included in a model with coefficients estimated to reflect the individual influence of each variable on the price of slaughter steers for the quarter. A necessary condition of this price formulation process is that current supply and demand levels determine current prices. The slaughter steer prices estimated in this procedure are developed to reflect the fluctuations in the Omaha market. This particular location is considered to more accurately reflect the aggregate data for the U.S. used in the price prediction model. The same strategy of using the Omaha market to reflect U.S. aggregated data is employed in developing a model to forecast utility cow prices. The transition to regional price models for the Northwest was accomplished with little difficulty because of the close historical
relationship between the two regions. This characteristic was specified in the Northwest steer and cow price models by including the Omaha price for the quarter as the determinant of prices in Oregon and Washington. Forecasted prices from one and two quarter Omaha steer and cow price models were then used in estimating future Northwest prices. The steer prices estimated in this study compared favorably with price forecasting models from seven other sources evaluated by Just and Rausser (1981). Using the percent root mean square error statistic as a method of comparison, the values from their study ranged between 9.9 and 12.9 for a one quarter forecast, and 12.4 and 18.9 for a two quarter projection. The percent root mean square error calculated for Northwest steer price forecasts was 10.09 for the one quarter estimates and 11.08 for the two quarter projections. These results proved promising in developing future price projections. The inclusion of this modeling process, as a management tool in developing s-hort run production strategies, may be used advantageously in reducing the risk and uncertainty associated with the price fluctuations in the live cattle market.
