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Captive Supplies and the Spot Market Price of Fed Cattle: The Plant-Level Relationship

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  • Schroeter, John R.
  • Azzam, Azzeddine M.

Abstract

Numerous papers in the agricultural economics literature investigate the empirical relationship between the spot market price of fed cattle and the volume of packers' pre-committed, or "captive," supplies of cattle. In this paper, 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.

Suggested Citation

  • Schroeter, John R. & Azzam, Azzeddine M., 2003. "Captive Supplies and the Spot Market Price of Fed Cattle: The Plant-Level Relationship," Staff General Research Papers Archive 10082, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10082
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    References listed on IDEAS

    as
    1. 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.
    2. Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(1), pages 1-18, July.
    3. 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 158-162, February.
    4. 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.
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    Cited by:

    1. 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, vol. 33(1), pages 1-18, April.
    2. Brorsen B. Wade & Fain James R. & Maples Joshua G., 2018. "Alternative Policy Responses to Increased Use of Formula Pricing," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-11, January.
    3. 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 37559, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    4. Lee, Jungmin & Chung, Chanjin, 2022. "Impact of Captive Supply on Cash Price in the U.S. Cattle Procurement Market: A Dynamic Modeling Approach," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 45(3), September.
    5. Tian Xia & John M. Crespi & Kevin C. Dhuyvetter, 2019. "Could packers manipulate spot markets by tying contracts to futures prices? And do they?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 85-102, March.
    6. Maples, Joshua G. & Lusk, Jayson L. & Peel, Derrell S., 2019. "Technology and evolving supply chains in the beef and pork industries," Food Policy, Elsevier, vol. 83(C), pages 346-354.
    7. 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, vol. 34(4), pages 1-13, October.
    8. 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.
    9. Kim, Jong-Jin & Zheng, Xiaoyong, 2015. "Effects of Alternative Marketing Arrangements on the Spot Market Price Distribution in the U.S. Hog Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-24, May.
    10. Pozo, Veronica F. & Bachmeier, Lance J. & Schroeder, Ted C., 2021. "Are there price asymmetries in the U.S. beef market?," Journal of Commodity Markets, Elsevier, vol. 21(C).
    11. Key Nigel, 2011. "Does the Prevalence of Contract Hog Production Influence the Price Received by Independent Hog Producers?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-26, May.
    12. Shang, Max Zongyuan & McEwan, Ken, 2017. "The Boundary of the Farm: Homegrown versus Purchased Feed on Ontario Swine Farms," Annual Meeting, 2017, June 18-21, Montreal, Canada 264191, Canadian Agricultural Economics Society.
    13. Max Zongyuan Shang & Ken McEwan, 2021. "The make‐or‐buy decision of feed on livestock farms: Evidence from Ontario swine farms," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(3), pages 353-368, September.
    14. Christopher C. Pudenz & Lee L. Schulz, 2024. "Multi‐plant coordination in the U.S. beef packing industry," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(1), pages 382-415, January.
    15. 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.
    16. Christopher N. Boyer & Charles C. Martinez & Joshua G. Maples & Justin Benavidez, 2023. "Price ranges from fed cattle negotiated cash sales," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1659-1671, September.
    17. Schulz, Lee L. & Schroeder, Ted C. & Ward, Clement E., 2011. "Trade-Related Policy and Canadian-U.S. Fed Cattle Transactions Basis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(2), pages 1-13, August.
    18. 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., vol. 25(2), pages 147-163.
    19. Hildebrand, Kayla & Chung, Chinjin, 2023. "Selectivity Bias and Cattle Price in the Cattle Procurement Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(3), September.
    20. 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.
    21. 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.
    22. 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 21356, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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