An Econometric Analysis of the Relationship Between Alberta and United States Livestock Markets

This study uses Vector Autoregressions to investigate and measure the relationship between Alberta slaughter steer prices, United States - Canada exchange rates, Texas slaughter steer prices, nearby live cattle futures prices and live animal exports to the United States (in dollars). The general conclusions are that the exchange rate has a relatively smaller impact on Alberta slaughter steer prices than do U.S. steer markets. Shocks to the exchange rate result in a smaller change to Alberta prices than equally likely shocks to the U.S. futures price. Typically over 1 month periods the U.S.-Canada exchange rate does not play a big role in changing Alberta prices. This may be due to the relative stability of the exchange rate over shorter time periods relative to U.S. cattle prices. Live animal exports are more sensitive to changes in other variables not included in our model than to U.S steer prices, Alberta steer prices or exchange rates. These results have possible implications for Alberta cattle feeder investors. The stronger influence of the futures prices on Alberta prices suggest that Alberta investors first look at the futures market for the price information that most strongly influences the Alberta market. The close relationship of the Alberta market and the futures market implies that the futures market can be used by Alberta cattle investors for risk management. There still exist local Alberta factors that contribute to price risk but the U.S cattle market is the major source of price risk.