Price Variation in Direct and Terminal Markets for Cattle and Hogs: An Illinois Case

The increasing importance of direct, as opposed to terminal, livestock markets is well-known. During the 1961-78 period, the nalion's share of cattle purchased through direct channels rose from 38% to 73-4%, and the nation's share of hogs sold directly rose from 59.6% to 73.8%. Pecuniary advaniages of direct marketing explain this trend. Changes in the structure of the livestock production and slaughter industries often permit traders to reduce procurement costs through direct purchases. Among these changes are the decentralization of packing firms and the emergence of larger production units. But there is concern regarding the price discovery implications of the trend to direct marketing. This is refìected in research on marketing alternatives for agricuhure and in concern about "thin" markets (Hayenga). The markelìng alternanves and thin markets literature is ultimately concerned with the performance consequences of vertical coordination alternatives. While that literature identifies several performance dimensions by which to compare these aliernalives, the development of operational performance measures has been slow. Day-to-day price variation was used to compare performance in Illinois direct and terminal markels for slaughter cattle and hogs. This involved (a) the development of a working hypothesis, (b) the collection of data with which to test the hypothesis, and (c) the analysis and interpretation of these data.