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Captive supplies and the spot market price of fed cattle: The plant-level relationship

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  • John R. Schroeter

    (Department of Economics, Iowa State University, 260 Heady Hall, Ames, Iowa 50011-1070. E-mail: johns@iastate.edu)

  • Azzeddine Azzam

    (Department of Agricultural Economics, University of Nebraska-Lincoln, Lincoln, Nebraska. E-mail: aazzam@unlnotes.unl.edu)

Abstract

Numerous articles in the agricultural economics literature investigate the empirical relationship between the spot market price of fed cattle and the volume of packers' precommitted, or “captive,” supplies of cattle. In this article, we use an extensive data set on the cattle procurement activities of four large packing plants in the Texas Panhandle from early 1995 through mid-1996 to examine this relationship at the plant-level. We find evidence to support the hypothesis that plants that anticipate near-term future deliveries of captive supply cattle that are high relative to their regional-market rivals' degrees of reliance on captive supplies tend to pay spot market prices that are below average. The effect, while statistically significant, is relatively small in magnitude, however. [EconLit citations: Q130, L200] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 489-504, 2003.

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File URL: http://hdl.handle.net/10.1002/agr.10070
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 19 (2003)
Issue (Month): 4 ()
Pages: 489-504

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Handle: RePEc:wly:agribz:v:19:y:2003:i:4:p:489-504

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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References

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  1. Schroeter, John R, 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 158-62, February.
  2. Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 24(01), July.
  3. Stephen R. Koontz, 1999. "Marketing Agreement Impacts in an Experimental Market for Fed Cattle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 81(2), pages 347-358.
  4. Azzeddine Azzam, 1998. "Captive Supplies, Market Conduct, and the Open-Market Price," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 80(1), pages 76-83.
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Cited by:
  1. Park, Moon-Soo & Love, H. Alan & Jin, Yanhong H., 2006. "Contract Pricing and Packer Competition in Fed Cattle Market," 2006 Annual meeting, July 23-26, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 21356, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. John M. Crespi & Richard J. Sexton, 2004. "Bidding for Cattle in the Texas Panhandle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 86(3), pages 660-674.
  3. Muth, Mary K. & Liu, Yanyan & Koontz, Stephen R. & Lawrence, John D., 2008. "Differences in Prices and Price Risk Across Alternative Marketing Arrangements Used in the Fed Cattle Industry," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 33(01), April.
  4. Yanyan Liu & Mary K. Muth & Stephen R. Koontz & John D. Lawrence, 2009. "Evidence of the role of marketing arrangements and valuation methods in improving beef quality," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(2), pages 147-163.
  5. Ward, Clement E., 2005. "Supply Effects on Price Discovery and Pricing Choice for Fed Cattle," 2005 Conference, April 18-19, 2005, St. Louis, Missouri, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 19034, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  6. Stephen R. Koontz & John D. Lawrence, 2010. "Impacts of alternative marketing agreement cattle procurement on packer costs, gross margins, and profits: evidence from plant-level profit and loss data," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 26(1), pages 1-24.
  7. Schulz, Lee L. & Schroeder, Ted C. & Ward, Clement E., 2011. "Trade-Related Policy and Canadian-U.S. Fed Cattle Transactions Basis," Staff General Research Papers, Iowa State University, Department of Economics 35143, Iowa State University, Department of Economics.
  8. Koontz, Stephen R. & Muth, Mary K. & Lawrence, John D., 2007. "Impacts of Alternative Marketing Agreement Cattle Procurement Volumes on Packer Costs: Evidence from Plant-Level P&L Data," 2007 Conference, April 16-17, 2007, Chicago, Illinois, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 37559, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  9. Lee, Yoonsuk & Ward, Clement E. & Brorsen, B. Wade, 2010. "Relationships among Prices across Alternative Marketing Arrangements for Fed Cattle and Hogs," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida, Southern Agricultural Economics Association 56282, Southern Agricultural Economics Association.
  10. Lee, Andrew C. & Kim, Man-Keun, 2011. "Captive Supply Impact On The U.S. Fed Cattle Price: An Application Of Nonparametric Analysis," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, Korea Rural Economic Institute, vol. 34(4), October.

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