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Captive supplies and cash market prices for fed cattle: The role of delivery timing incentives

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Author Info

  • John R. Schroeter

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

  • Azzeddine Azzam

    (Department of Agricultural Economics, University of Nebraska, 103E H. C. Filley Hall, Lincoln, NE 68583-0922., E-mail: aazzam@unlnotes.unl.edu)

Abstract

The use of non-cash methods of procuring fed cattle for slaughter has led to concern about the effect of these so-called “captive” supplies on cash market prices. Some empirical evidence suggests that there is a negative short-run relationship between the two: Cash market prices tend to be low in weeks in which captive supply shipments are high. We advance a different perspective on the relationship between captive deliveries and cash prices, arguing that the incentives that influence cattle delivery-scheduling decisions could lead to a negative relationship, not between the contemporaneous levels of captive shipments and price, but between the volume of captive deliveries, on the one hand, and an ex ante expectation of a week-to-week price change, on the other. Econometric testing provides some evidence of this empirical regularity in the cattle procurement activities of four large packing plants in Texas in the mid-1990s. [EconLit citations: Q130, L140.] © 2004 Wiley Periodicals, Inc. Agribusiness 20: 347-362, 2004.

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Bibliographic Info

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

Volume (Year): 20 (2004)
Issue (Month): 3 ()
Pages: 347-362

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Handle: RePEc:wly:agribz:v:20:y:2004:i:3:p:347-362

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

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  1. Borenstein, S. & Shepard, A., 1993. "Dynamic Pricing in Retail Gazoline Markets," Papers 93-22, California Davis - Institute of Governmental Affairs.
  2. Azzeddine Azzam, 1998. "Captive Supplies, Market Conduct, and the Open-Market Price," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 76-83.
  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, vol. 81(2), pages 347-358.
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Cited by:
  1. 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 56282, Southern Agricultural Economics Association.
  2. 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., vol. 26(1), pages 1-24.
  3. Ward, Clement E., 2005. "Supply Effects on Price Discovery and Pricing Choice for Fed Cattle," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19034, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  4. Anderson, John D. & Hudson, Darren & Harri, Ardian & Turner, Steven C., 2007. "A New Taxonomy of Thin Markets," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34826, Southern Agricultural Economics Association.
  5. John M. Crespi & Richard J. Sexton, 2004. "Bidding for Cattle in the Texas Panhandle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 660-674.
  6. Ji, In Bae & Chung, Chanjin, 2012. "Causality Between Captive Supplies and Cash Market Prices in the U.S. Cattle Procurement Market," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), December.

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