Implicit Market Segmentation and Valuation of Angus Bull Attributes
From the Journal of Agricultural and Resource Economics
Beef cattle production in the United States is characterized by diverse production and management systems.
Much of this diversity occurs in the industry’s disaggregated breeding sectors (i.e., seedstock and cow–calf), which are made up of many small, independent producers. The effects of market segmentation on prices in hedonic models have long been discussed in the real estate literature. Despite knowledge of differences in derived demands for bull attributes among bull buyers and models equipped to handle these differences, to date there have been few attempts to identify and estimate attribute valuations across bull buyer segments. More work is needed to identify and understand bull buyer submarkets to improve the accuracy of marginal valuations of bull attributes.
The objective of this study is to identify heterogeneity in bull buyer valuations of bull attributes across latent classes using an FMM. This has important implications for seed-stock producers (i.e., those selling bulls), cow–calf producers (i.e., those buying bulls), and the industry as a whole as they seek to improve the quality and consistency of beef cattle and products. In this study, an FMM approach is applied to identify implicit bull buyer submarkets and examine bull buyers’ heterogeneous derived demands for bull attributes. Results indicate evidence of heterogeneous demands for bull attributes among bull buyers. A three-class FMM is identified as providing the best view of bull buyer heterogeneity. Differences in attribute valuations across latent classes of bull buyers appear to be associated with various aspects of producers’ production and management systems, including, but not limited to, farm goals, labor availability, and end-use marketing arrangements for calves.
By Minfeng Tang, Nathanael M. Thompson, Christopher N. Boyer, Nicole J. Olynk Widmar, Jayson L. Lusk, Terry S. Stewart, Donna L. Lofgren, and Nick Minton
Keywords: beef carcass quality, end-use marketing, finite mixture model
Published May 2023.