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Contracting, Captive Supplies, And Price Behavior

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  • Chin, Ming-Chin
  • Weaver, Robert D.

Abstract

Theoretical and simulation results clarify the role of procurement contracting in determining spot price levels and volatility. A generic model determines market share across quality. Actual supply is specified as price dependent and stochastic. Simulation examines the sensitivity of price level and volatility to extent of forward contracting, risk aversion, and ability to adjust spot market demand (recontracting). The results show that as forward contracting increases mean spot price decreases and variance increases. This effect increases as risk aversion decreases and as extent of recontracting adjustment in spot demand decreases.

Suggested Citation

  • Chin, Ming-Chin & Weaver, Robert D., 2002. "Contracting, Captive Supplies, And Price Behavior," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19052, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrtwo:19052
    DOI: 10.22004/ag.econ.19052
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    References listed on IDEAS

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    1. A. M. Azzam & E. Pagoulatos, 1990. "Testing Oligopolistic And Oligopsonistic Behaviour: An Application To The Us Meat‐Packing Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 41(3), pages 362-370, September.
    2. David A. Hennessy & John D. Lawrence, 1999. "Contractual Relations, Control, and Quality in the Hog Sector," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 21(1), pages 52-67.
    3. V. James Rhodes, 1995. "The Industrialization of Hog Production," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 17(2), pages 107-118.
    4. Ward, Clement E. & Koontz, Stephen R. & Schroeder, Ted C., 1998. "Impacts From Captive Supplies On Fed Cattle Transaction Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(2), pages 1-21, December.
    5. 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.
    6. Ted C. Schroeder & Rodney Jones & James Mintert & Andrew P. Barkley, 1993. "The Impact of Forward Contracting on Fed Cattle Transaction Prices," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 15(2), pages 325-337.
    7. 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.
    8. Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(1), pages 1-13, July.
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    Cited by:

    1. A. Ford Ramsey & Barry K. Goodwin & William F. Hahn & Matthew T. Holt, 2021. "Impacts of COVID‐19 and Price Transmission in U.S. Meat Markets," Agricultural Economics, International Association of Agricultural Economists, vol. 52(3), pages 441-458, May.

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