An analysis of feeder steer-heifer price differentials in the U. S

Because of a prevalent concern that feeder heifer prices are often bid below their true value, particularly in Virginia, a study was made of factors affecting price differentials between steers and heifers, and of variations in these differentials across regions and over time. The fall market sex price differential for feeder calves in Virginia (1964 through 1976) was compared to the differential in five other regions: the Corn Belt, the Southeast, the Plains, the Mountain States, and California.

A cross-section time-series model was designed in which sex price differentials across years and regions were regressed against hay prices, short-term feeder cattle price expectations, the corn price, the fed cattle sex price differential, and the heifer-steer proportion on feed. In addition to these economic variables, five regional zero-one intercept shifters were included; all explanatory variables accounted for 84.8 percent of the variation in the feeder sex price differential, while the economic variables alone accounted for 71.6 percent of the variation across regions and over time.

Based upon this research, the steer-heifer feeder price differential in Virginia may be expected in most years to exceed the sex price spread in other markets; however, the estimated effect of the economic variables was not sufficient to entirely account for the higher Virginia sex price differential. One possible reason is that some relevant economic variable(s) were excluded; or pricing distortions may exist due to a lack of price information or due to imperfections in the grading system.