Asymmetric Information in Cattle Auction: The Problem of Revaccinations

The authors acknowledge the help of Chris Boessen, Glenn Grimes, Joe Horner, Robert Larson, K.C. Olson, and Kurt Richter. This revision is dated July 2004.The paper analyzes the problem of asymmetric information between buyers and sellers in cattle auctions. An illustration is made regarding the vaccinations that the animals receive. Buyers do not know and cannot verify if sellers have vaccinated their animals forcing them to consider revaccination. Revaccination is only a part of the broader problem of information asymmetry that includes other quality issues and costs that can be saved, thereby increasing the welfare of both buyers and sellers. Structural characteristics of ranching, traditions and consumers' preferences are taken into account and a wider approach is attempted to explain the persistence of the problem in light of potential institutional solutions. We argue for a comprehensive empirical study of the incidence and impacts of buyer revaccination.This research was supported in part by the Missouri Agricultural Experiment Station

Agricultural Contracting

The information in this presentation was assimilated during a University of Missouri Outreach & Extension Professional Implementation Experience (Train the Trainer) program held on April 4 and 5, 2000. The information assimilated herein was provided by the individual speakers. Please feel free to use this information for educational and informative uses

Commodity Futures Terminology

This glossary was adapted from the "Commodity Trading Manual," published by the Chicago Board of Trade, Chicago, Illinois, 1994.This guide is intended to provide a basic understanding of commodity futures terminology. Though the terminology of trading agricultural commodities goes far beyond the scope of this guide, this information can be used to build a knowledge base from which a broader understanding of the futures market can be developed

An Introduction to Basis

This guide is one in a series designed to help you better understand available marketing strategies. The focus of this guide is to help agricultural producers and agribusinesses better understand commodity basis. As will be discussed, commodity basis provides a significant amount of information to producers and agribusinesses for making production, forward pricing, hedging, and storage decisions. Many producers believe that understanding basis patterns is the most fundamental means of evaluating marketing decisions. That is, basis tends to follow historical and seasonal patterns, and by understanding these patterns a producer or agribusiness person can make better management decisions and reduce risks involved in those decisions

Long Hedge Example with Futures

This guide describes how to place an input (long) hedge in the futures market to reduce the price risk associated with buying an input

Introduction to Hedging Agricultural Commodities with Futures

Producers of agricultural commodities regularly face price and production risk. Furthermore, increased global free trade and changes in domestic agricultural policy have increased these risks. As the variability of price and production increases, producers are realizing the importance of risk management as a component of their management strategies. One means of reducing these risks is through the use of the commodity futures exchange markets. Like the use of car insurance to hedge the potential costs of a car accident, agricultural producers can use the commodity futures markets to hedge the potential costs of commodity price volatility. However, as with car insurance, where the gains from an insurance claim might not exceed the cost of the cumulative sum of premiums, the gains from hedging might not cover the costs of hedging. The primary objective of hedging is not to make money but rather to minimize price risk, and this includes using hedging to minimize losses. This guide provides an overview to agricultural hedging to aid in evaluating hedging opportunities

Long Hedge Example with Options

This guide describes how to place an input (long)hedge in the options market to reduce the price risk associated with buying an input used in your business. A long hedge in the options market is accomplished by purchasing a call option

Using Commodity Futures as a Price Forecasting Tool

Commodity futures prices can serve as a mechanism for price discovery for either present or expected future prices. A market is defined as efficient if it accounts for all public and nonpublic information in determining an equilibrium price in the market. Commodity futures markets are often considered the most efficient markets in the price discovery process. That is, the price quoted for a commodity on the futures market is thought to be the best measure of the actual price, either current or future. Therefore, if you would like a good predictor of what prices will be four months from now, the deferred (four months out) futures price quote for that commodity may be the best and easiest price forecast

Introduction to Hedging Agricultural Commodities with Options

Producers of agricultural commodities regularly face price and production risk. Furthermore, increased global free trade and changes in domestic agricultural policy have increased these risks. As the variability of price and production increases the variability of revenue, producers are realizing the importance of risk management as a component of their management strategies. One means of reducing these risks is through the use of the commodity futures exchange markets. Like the use of car insurance to hedge the potential costs of an accident, agricultural producers can use the commodity options markets to hedge the potential costs of commodity price volatility. However, as with car insurance, where the payments from a small insurance claim might not exceed the cost of the premiums paid, the gains from hedging agricultural commodities might not cover the costs of hedging. The primary objective of hedging is not to make money. The primary objective of hedging is to minimize risks and this includes using hedging to minimize losses. This guide provides an overview of hedging to aid producers in evaluating hedging opportunities

Interpreting Commodity Futures and Options Price Quotes

This guide is designed to help producers to understand how to interpret commodity price quotes for futures and options. Those not familiar with futures and options price quotes may find the initial process of interpretation both time consuming and frustrating. The example that follows is for cattle but also applies to grains, oilseeds, cotton, rice and hogs