Your abstract submission has been received Click to print this page now. You have submitted the following abstract to 2010 AAEA, CAES, & WAEA Joint Annual Meeting. Receipt of this notice does not guarantee that your submission was complete or free of errors. I ncidence of Agro-Climate Variability Over Grass-Fed Cattle Markets Bruno A. Lanfranco 1 , José Pedro Castaño 2 , María Victoria Zorrilla de San Martín 3 and Juan Manuel Porto 3 , (1)Economía Agropecuaria y Aplicada, Instituto Nacional de Investigación Agropecuaria (INIA) - Uruguay, Montevideo, Uruguay, (2)Unidad de Agroclima y Sistemas de Información (GRAS), Instituto Nacional de Investigación Agropecuaria (INIA) - Uruguay, Montevideo, Uruguay, (3)Facultad de Ciencias Económicas - Universidad de la República (UDELAR), Montevideo, Uruguay Abstract Text: I ncidence of Agro-Climate Variability over Grass-Fed Cattle Markets Background Intra-annual and seasonal climate variability is an important source of economic risk in agricultural production. The effects of this variability over grass fed livestock markets are reflected mainly on the supply side, as production largely depends on water and pastures availability for feeding the cattle. However, as the cattle production process may involve more than one firm in the chain, the effects are also manifested on the demand for feeder cattle. Differences in soils types and climate conditions among regions define different geographic and seasonal production patterns. Productions systems, as well as markets, are well adapted to these permanent conditions. The expected variability determines adjustments in demand and supply that are reflected through short-term price movements. However, the occurrence of unexpected variations, including extreme climate events that depart from the normal behavior, is the cause of further market disequilibrium. Extreme events are hard to predict in length and magnitude, at least with sufficient anticipation or precision, carrying out potential damaging consequences that are sooner or later are also reflected by markets. For instance, the lack of water for pastures and direct animal consumption derived droughts constitutes a severe problem. Cattlemen are forced to sell animals for alleviating grasslands, as they cannot sustain normal stocking rates. On the other hand, water excess from rainfall may turn into floods reducing grazing areas, also affecting stocking rate capacity. Both situations cause excess supply, pushing down livestock prices. In a recent study, Lanfranco, Ois, and Bedat (2006) quantified the incidence of cattle traits, marketing strategies, and market on beef cattle production in Uruguay, where 90% of the animals are raised and fattened under an “open sky” grazing system, from birth to slaughter. Regardless of a number of different variables found to determine the general behavior of cattle prices, the study remarked the existence of important seasonal and regional effects. Although these effects are well known by farmers and other agents of livestock production chain, no study has centered the focus on quantifying their magnitude for grass fed livestock production systems, until now. Lanfranco, Ois and Bedat (2006) found differences between prices paid for different feeder cattle categories, ceteris paribus, depending on their geographic location. They suggested that these differences are possibly masking the effects of a number of relevant variables, such as soil type, rainfall level (both averages and deviations), and prevailing production systems that may define nutritional aspects and cattle management issues. However, in this study, the origin of the cattle was identified using the main political divisions (“departamentos”) of the country, which are not homogeneous and certainly improper for identifying the effects of these variables. In addition, the seasonal effects were considered in terms of averages. Thus, the study was unable to clearly discriminate the effects of agro-climatic variability. In particular, the authors suggested the inclusion of agro-climate variables in future studies, either directly or combined through indexes. This would allow for better capturing micro agro-climatic effects over cattle markets. Objective The objective of this study is the quantification of the effects of intra-annual and seasonal agro-climate variability over market conditions, for “open sky” livestock production systems such as those prevailing in Uruguay. Permanent conditions (soil types, pastures annual average growth cycles) will be discriminated from not permanent conditions (intra-annual and seasonal climate variability), identifying regional patterns using iso-price maps. The magnitude of the effects of the selected variables is reflected by their marginal contribution to the price received by cattle lots in the market at a certain point in time. Almost ten years of available per-lot trading information from live cattle video auctions is utilized to construct confidence intervals over the average price patterns. Information about abnormal intra-annual and seasonal variability, especially the occurrence of extreme events, will be used for monitoring unexpected changes and sudden short term cattle price movements. Data and Methods This study revisits the theoretical model used by Lanfranco, Ois and Bedat (2006), who adapted Ladd and Martin’s (1976) approach about prices and demand for input characteristics to Rosen’s (1974) theory of hedonic prices for differentiated products. As this paper analyzes livestock markets using live cattle video auctions, it recognizes the direct contribution of several previous studies (Sporleder and Mahoney, 1982; Faminow and Gum, 1986; Bailey and Peterson, 1991; Bailey, Peterson, and Brorsen, 1991; Bailey, Brorsen, and Fawson (1993); Dhuyvetter and Schroeder, 1999; Avent, Ward, and Lalman, 2003; Dhuyvetter, 2004), as well as the extensive literature available about cattle trade and traditional and electronic live cattle auctions. The contribution of this paper is given by the direct incorporation of some relevant variables for capturing prevailing agro-climate conditions at the time cattle lots are traded. Two kinds of agro climatic variables were directly introduced in the model in substitution to the dummies used for both season and geographic region. To assess for the permanent effects, a set of binary variables was used to identify each one of the eleven agro-ecological zones (AEZ) present in the country. The AEZ are defined basically according to the prevailing soil groups that, in turn, originate pastures of different quality and production. The temporary effects were captured by three quantitative variables, one for assessing the volume and quality of pastures through the so-called green index, or normalized difference vegetation index (NDVI) while the other two are the percentage of available water (PAW) in the soil profile, with respect to field capacity (100%), and surface runoff (SRW), which is the sum of the unsaturated overland flow (infiltration excess) plus the saturation excess overland flow. Only for the sake of the study, it was assumed that this set of agro-climate variables (AEZ, NDVI, PAW, and SRW), either individually, combined, or interacting with other variables, operate over the livestock market like any other cattle trait, marketing strategy or market condition. Thus, they can be econometrically treated in the same way as the remaining variables in the model. The empirical estimation was performed using a dataset containing information from the three major national video auction cattle markets operating in Uruguay, comprising more than 20,000 lots of feeder cattle (steers, cull cows and heifers) Submission Completed http://aaea.confex.com/aaea/2010am/select/papers/confirmation.cgi 1 de 3 15/01/2010 05:43 p.m.