Performance‐based contracts in cattle feedlots

Abstract

Feeder cattle markets suffer from asymmetric information as sellers have information that buyers do not. Since buyers cannot fully determine the quality of feeder cattle, they pay for an “average” quality that is only adjusted by observable characteristics. A contract design is introduced that allows buyers to differentiate producers by offering a menu of contracts. The offered contracts contain a premium that is paid when a lot of cattle reach a target performance indicator, such as average daily gain. Results suggest the contract can successfully allow buyers to purchase high‐quality cattle, avoiding purchasing low‐quality cattle.

What is the Cow-Calf Economics of Genetic Panel Scores for Feedlot Traits?

“…The differences in value between these genetic differences are high, especially in bull testing (Vestal et al, 2013). The incomplete adoption of marker panels in bull selection could be due to a market inefficiency due to asymmetric information (Maples et al, 2022), which causes cow-calf producers with better feedlot genetics to not be fully rewarded. Testing for genomic panel scores is now used mostly for breeding animals and even for breeding animals the use of panel scores is not common.…”