CATTLE FEEDER BEHAVIOR AND FEEDER CATTLE PLACEMENTS

Cattle feeders appear irrational when they place cattle on feed when p rojected profit is negative. Long futures positions appear to offer su perior returns to cattle feeding investment. Cattle feeder behavior su ggests that they believe a downward bias in live cattle futures persis ts and that cattle feeders use different expectations than the live ca ttle futures market price when making placement decisions. This study examines feeder cattle placement determinants, comparing performance o f expected hedgeable profit with past actual profit in explaining feed er cattle placements. Past actual profit is a more important placement determinant than expected profit based upon the live cattle futures m arket, even though hedgeable profit provides a superior forecast of fu ture profit. In addition, potential deterrents to cattle feeders' use of futures as a substitute for cattle ownership are discussed.