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Captive Supplies and Cash Market Prices for Fed Cattle: The Role of Delivery Timing Incentives

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

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 empriical regularity in the cattle procurement activities of four large packing plants in Texas in the mid-90s.

Suggested Citation

  • Schroeter, John R. & Azzam, Azzeddine M., 2004. "Captive Supplies and Cash Market Prices for Fed Cattle: The Role of Delivery Timing Incentives," Staff General Research Papers Archive 11159, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:11159
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    References listed on IDEAS

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    1. Severin Boreinstein & Andrea Shepard, 1996. "Dynamic Pricing in Retail Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 429-451, Autumn.
    2. Hayenga, Marvin L. & O'Brien, Daniel, 1992. "Packer Competition, Forward Contracting Price Impacts, and the Relevant Market for Fed Cattle," Staff General Research Papers Archive 11603, Iowa State University, Department of Economics.
    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.
    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. 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.
    2. Franken, Jason R.V. & Parcell, Joseph L., 2012. "Evaluation of Market Thinness for Hogs and Pork," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 44(4), pages 1-16, November.
    3. 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), pages 1-11, December.
    4. Claude Ménard, 2017. "Finding our way in the jungle: insights from organization theory," Post-Print hal-04001137, HAL.
    5. Ji, Inbae & Chung, Chanjin, 2016. "Assessment Of Market Power And Cost Efficiency Effects In The U.S. Beef Packing Industry," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 39(Special, ), pages 1-24, December.
    6. 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.
    7. 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.
    8. 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.
    9. Claude Ménard, 2017. "Finding our way in the jungle: insights from organization theory," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04001137, HAL.
    10. 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.
    11. 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.
    12. 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.

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