Bargaining Power and Contracting Agreements within the Fed Cattle Market: An Experimental Simulation Approach

Abstract

This thesis consists oftwo separate essays. The first essay is titled "Bargaining Power in the BeefIndustry." This essay seeks to determine how bargaining power shifts between feedlots and processing plants under changing market conditions. A simulated fed cattle market was used to evaluate fed cattle transactions that took place under changing supply and demand conditions. Analysis of this information allowed for the creation of a bargaining power index and statistical modeling. This process identified which side (feedlots or processors) maintained thl: majority of bargaining power under continuously changing market conditions. Primary contributions of this essay are isolating the changing nature of bargaining power in the beef industry, which has not been completed to this extent in previous research. Also, the experimental de ign of this study potentially has benefits to further study in the areas of price discovery and price determination. The data analyzed in this essay were generated by students of the Agricultural Economics Course 3990 at Oklahoma State University. The experimental design included three one semester sets of transaction specific and supply and demand information. The second essay, titled "Contracting in the Beef Industry" seeks to determine the effects of increasing levels of contracting between feedlot producers and beef packers on cash transaction prices. The primary focus of this essay is to identify trends in cash price receipts that occur as levels of contracting increase. A second issue identifies volatility characteristics that are associated with high levels of contracting. Simulated fed cattle transaction information allowed for regression and statistical analysis which concluded this research. Data for this study were generated from a one semester controlled study in the Agricultural Economics Course 3990. Systematic levels of contracting were implemented in order to evaluate the effects on cash price. This information was then compared to three previous semesters in which mandatory contracting was not involved.