Structure and price formation in the store cattle industry : a thesis presented in partial fulfilment of the requirements for the degree of Master of Agricultural Science in Agricultural Economics and Marketing at Massey University
Substantial increases in overseas beef prices in recent years have made the farming of beef cattle increasingly important to the New Zealand economy. This study describes the place cf the store cattle sector within the cattle industry and investigates price formation in the store cattle market. The specific aims of the study were : 1. To identify and describe the various channels and institutions involved in store cattle marketing. 2. To investigate the process of price formation for store cattle on an annual basis. 3. To study the relationship of the prices of various classes of store cattle to each other and to the meat exporters' beef schedule. 4. To investigate the inter-regional price differences for classes of store cattle in relation to the transport cost differentials between regions. Over the period 1965 - 1971 there was a 41% increase in total cattle (beef) numbers in the North Island. Also there was an increase in the proportion of younger steers in the herd at the expense of breeding cows and older steers. Over the same period the number of dairy calves bred and retained for beef purposes increased from approximately 180,000 to 460,000. The rearing of calves from the dairy herd suitable for beef production has made possible a far greater expansion of beef production than would have been possible from the traditional beef herd alone. The structural changes in the traditional beef herd may be disguised by the presence of dairy beef animals suitable for beef purposes that are classified as beef cattle in the agricultural production statistics. Present data limitations made it impossible to investigate the spatial nature of the North Island store cattle industry in the spatial equilibrium framework used by Judge and Wallace. However a statistical model was formulated to analyse store market prices for different classes of stock within a regional framework on a per head and per lb liveweight basis. The factors influencing the price of store cattle included in the analysis were beef schedule price (OxGAQ), seasonal conditions, class of store cattle, and region cf origin. Although the node1 did indicate regional differences, no systematic or identifiable regional pattern of store cattle prices was apparent for individual classes of stock. However the results obtained for the per lb liveweight model were consistent with the conclusions of recent theoretical beef investment models, namely : 1. The store value of an animal on a per lb basis is greater than its slaughter value at any age prior to slaughter, and equal to it at slaughter. The per lb store value of a steer is larger for younger classes of steers and declines with age. 2. Changes in seasonal conditions have a greater impact on the price of younger classes of store cattle. 3. The beef schedule price coefficients for individual classes of steers on a per lb basis indicate that a unit change in the beef schedule price has a greater effect on the store cattle prices of younger classes of cattle. This is in direct contrast with the beef schedule price coefficients for the per head model where, as the age of the store animal increases changes in the beef schedule are reflected in greater increases in store prices. 4. The elasticity of store cattle prices with respect to the beef schedule price, is greater than unity for all cattle in the herd below the optimum slaughter age and declines monotonically towards unity as the animal approaches this slaughter age. The elasticities suggest that the optimum slaughter age for store cattle in the North Island is approximately 2½ years. The investigation of the regional differences of store cattle prices for selected pairs of regions indicated that regional price differences in excess of the transport costs between pairs of regions exist. This suggests that it would be profitable for traders to transfer additional store cattle from the surplus store cattle breeding regions to the growing and finishing regions.