The live cattle futures market and daily cash price movements

A theoretical model with comparative statics is presented that is tested empirically to determine the effects of the live cattle futures market on the distribution of daily cash prices and the speed of cash price adjustments. This study goes beyond past research by examining daily prices, rather than weekly or monthly. There is a focus on the effect of the futures market on the standard deviation and first-order autocorrelation of daily cash prices. The results of both the theoretical and empirical models support the hypothesis that the existence of the live cattle futures market is coincident with increased short-run price volatility and improved cash market efficiency. While past research suggesting that futures markets may reduce long-run price variability by improving intertemporal allocation of supply is convincing, the findings of this study can explain why futures markets are perceived negatively.