Wayne D. Purcell

Risk Sharing and Compensation Guides for Managers and Members of Vertical Beef Alliances

Vertical alliances in beef are growing in importance. Alliances struggle with decisions on how to compensate members. Both conceptual development and empirical analysis are needed. A conceptual framework building on transaction cost and principal agent literature is developed and strategies for sharing feeding and packing margins are analyzed. Premiums for high-quality cattle increase revenues to the alliance. Margin and premium sharing interactions are investigated and guidelines are presented. Compensations that provide incentives for improving cattle quality help ensure the success of alliances as vertical coordination and quality control mechanisms. Copyright 2003, Oxford University Press.

Economics of consolidation in the beef sector: research challenges.

In 1980, congressional hearings were conducted regarding the potentially negative dimensions of market power by meatpackers. Concentration levels had increased during the 1970s. Concern was sufficient to prompt the introduction of two pieces of proposed legislation, both of which would have limited the size of packing operations. During the hearings, testimony was replete with dire predictions of what would happen to industry performance if concentration were to increase still further. Parker testified that the research literature documents rapid increases in prices and in profits as the four-firm concentration moves up from 40% to 60% and higher. Viewed in the presence of the content and orientation of those congressional hearings, the happenings later in the 1980s appear incomprehensible. If the important threshold in terms of the four-firm concentration ratio is around 40%, why was the massive consolidation of the beef sector during the 1980s allowed by the regulatory authorities? What research methodology was brought to bear on these issues? Is it adequate? The answers to these related questions are not apparent, but they are clearly important. If the decisions by the regulatory authorities during the 1980s were not based on solid economic research, then important issues confront the profession. Either the research methodology must be modified or the empirical results of our research were ignored. The objective of this paper is to explore the economics of the consolidation in beefpacking, to look at why it occurred and why it was allowed to occur, and to draw inferences about our research efforts. The perspective offered is that of a marketing economist looking ahead to an uncertain future for the beef sector in the 1990s.

Nonparametric Tests of Profit Maximization in Oligopoly with Application to the Beef Packing Industry

In this paper, we develop new, nonparametric methods of testing for static profit maximization given noncompetitive behavior. Repeated application of the test yields “maximum likelihood” estimates of the degree of noncompetitive behavior. Using plant-level data, these newly developed nonparametric methods are employed to test the hypothesis that beef packers are profit maximizers and to measure the extent to which packers influence prices in fed-cattle markets. Copyright 1997, Oxford University Press.

Mean-Variance Analysis Of Alternative Hedging Strategies

Much of the research in commodity hedging has concentrated upon the development of theoretical models describing the optimum position in cash and futures markets. Other studies have shown that the difference between current spot price and futures price represents the market price for storage, processing services, or both. The revenue stabilizing potential of futures markets for commodities with continuous as opposed to noncontinuous inventories has also received attention. However, very little work or literature is publicly available on how different hedging strategies actually would have performed for a particular commodity over time.

An Approach to Research on Vertical Coordination: The Beef System in Oklahoma

Analysis of selected subsystems of the Oklahoma beef marketing system reveals conflicts and inconsistencies in basic interstage relationships. Such conflicts and inconsistencies block realization of higher degrees of interstage or interlevel coordination. Improvement will require a research orientation which isolates such barriers and estimates their impact on system participants.

Recent Changes in Beef Grades: Issues and Analysis of the Yield Grade Requirement

The recent change in beef grades has stimulated discussion and opposition. Changes designed to improve the efficiency of the beef-marketing system are being opposed by groups who adopt a micro perspective. The move to required yield grading continues to draw opposition. Analysis of original data from 118 beef carcasses and data from published studies indicates trimming procedures on fabricated cuts are important determinants of the change in cutability across yield grades. Research designed to investigate the implications of different trimming procedures is needed to clarify the applicability of yield grades.

A QUANTITATIVE APPROACH TO THE FEEDLOT REPLACEMENT DECISION

If all feeder cattle were identical and if all relative prices were constant the feedlot manager would still have an important and difficult decision to make. The decision involves selecting the time at which to replace a pen of cattle on feed with a new pen of feeder cattle such that profit is maximized, over time, to the feeding operation as a whole. Of course, all cattle are far from identical and prices, even relative prices, are never constant. The decision that is not simple with identical cattle and constant prices becomes most difficult with consideration of different types of replacement cattle and varying prices.

A Comparison of Liveweight, Carcass and Lean Meat Criteria for the Feedlot Replacement Decisions

In recent months, several developments have prompted increased interest in the feedlot replacement decision. Among the more important are the high prices for feeder cattle and feed grains, the narrow (and often negative) profit margins confronting the feedlot manager and the increasingly apparent need to produce lean meat with maximum efficiency.

Economic Implications of Nonpar Delivery Points for the Live Cattle Futures Contract

With variable intermarket price relationships between Omaha and the outlying market areas, the use of a single adjustment factor for nonpar delivery points will not significantly improve hedging opportunities. Using the Guymon (Oklahoma) point to illustrate, the need for more sophisticated adjustment procedures or consideration of separate contracts is demonstrated.

Implications of Electronic Marketing for Agriculture: Discussion

There is a consistency in the three papers. The orientation in each is pro-electronic marketing. The authors have been at the forefront of the conceptualization and development of electronic marketing systems across the past ten years. Schrader was candid in noting that electronic marketing has not advanced as far as many proponents had expected. To some extent, we are all groping for the reasons for the lack of more widespread acceptance. An important reason could be our inability to bridge effectively the perceptual gap between the academic and the private sectors. We cannot expect participants to perceive systemwide inefficiencies and problems in a system they use every day. During development phases of the system now operating as National Electronic Marketing Association (NEMA), this truth was obvious. In recent efforts to