Consumer willingness -to -pay for flavor in beef steaks: An experimental economics approach

The primary objective of this dissertation was to determine consumers\u27 preferences and willingness-to-pay (WTP) for flavor in beef steaks. Two hundred and forty-eight consumers in Chicago, IL and San Francisco, CA participated in an experimental economics laboratory procedure. A sealed-bid, fourth-price auction was used to measure consumers\u27 WTP for flavor by comparing: (1) highly marbled USDA Choice versus low marbled USDA Select beef, and (2) U.S. corn-fed beef versus Argentine grass-fed beef. The data elicited in these experiments was used to conduct three analyses. The first analysis examined consumers\u27 flavor preferences and WTP for beef steaks. Twenty-nine percent of the consumers were willing-to-pay more for the Choice steak than the Select steak, however, 13.7% of the consumers were willing-to-pay more for the Select steak. Sixty-two percent of the participants were willing-to-pay more for the domestic steak, and 23% of the participants were willing-to-pay more for the Argentine steak. The results did not allow identification of different consumer segments that prefer specific flavors of beef. However, one commodity-type of beef product will not meet the demands of all consumers. The second study expanded upon the taste panel research and examined the relationship between consumers\u27 expected steak quality from visual appraisal, and the quality that is actually experienced by consumers when consuming a steak. On average, consumers were willing-to-pay more for the low marbled Select steak than for the high marbled Choice steak after visual evaluation of the steaks. A discrepancy existed between consumers\u27 visual and taste preferences. Only 7.9% of the participants preferred the same steak in the visual and taste evaluations. The third analysis extended the knowledge and understanding of experimental auctions by exploring the factors influencing both individual demand and market price in a sealed-bid, multi-unit auction. The auction market price was a function of the number of panelists and panelists\u27 tastes and preferences, rather than the “wealth effect.” The experimental auction proved to be a valuable mechanism for measuring consumers\u27 WTP

A Risk-Return Comparison of Various Retained Ownership Programs Using Alternative Pricing Strategies

The risk-return tradeoffs for various retained ownership programs in conjunction with several pricing/hedging strategies were examined. E-V analysis, and first and second degree stochastic dominance were used to determine risk efficient retained ownership and marketing strategies. From a risk standpoint, it appears that hedging may not always provide the most efficient outcome for producers. The risk efficient marketing strategy varies depending upon the specific retained ownership program. Recent changes to the Chicago Mercantile Exchange Feeder Cattle Futures Contract were examined to analyze feeder cattle basis risk in selected markets for two different weight categories of feeder cattle to determine if changes in the contract have altered producers\u27 ability to hedge feeder cattle. Based on the results, hedging effectiveness has been enhanced for 700-800 pound feeder cattle. The most recent change to the feeder cattle contract significantly increased the basis variability for 500-600 pound feeder steers in all markets studied. A regression analysis was used to find predictive seasonal basis patterns, which accounted for much of the increased variability. In most markets the feeder cattle contract can still be used to effectively hedge lighter weight (500-600 pound) feeder steers

Ranchers Diverse in Their Drought Management Strategies

Portions of the western U.S. are experiencing the worst drought in 80 years (Piechota et al. 2004). Figure 1 indicates that Wyoming has experienced multiple periods where precipitation was below normal for consecutive years, with the most recent period being between 2000 and 2005. Average annual precipitation has been trending downward since 1895 when official records were kept. Moreover, research suggests that drier summers could become more common as the global climate changes (Hengeveld 2000). The most recent period of drought has reduced range productivity, lowered irrigation water supplies and ultimately forced some ranchers to reduce herd sizes. Many producers culled their herds at a time when cattle prices were below the cyclic peak (between the years of 2000 to 2004), resulting in lower sales revenue. They also incurred higher feed costs to maintain the remaining herd. Together, these factors contribute to reduced profitability. Additionally, breeding livestock purchased now to restock drought liquidated herds would be done so at or near the peak of the most recent cattle price cycle. Current forecasts suggest that cattle prices are likely to start their cyclical decline within the next two years (Livestock Marketing Information Center 2006). Livestock purchased now or in the next several years would likely generate negative returns throughout their productive life, even if a ranch had the available feed resources, causing restocking to be less desirable at this time (O’Neill et al. 1998). The economic consequences of restocking at this point in time coupled with smaller herd sizes from drought liquidation puts ranchers in a weaker financial position to survive the downside of this most recent price cycle. The combined effect of these events has concerned many ranchers, and they are turning to professionals from land grant universities and elsewhere for help or they are selling off their ranches altogether