Captive Supplies and Cash Market Prices for Fed Cattle: A Dynamic Rational Expectations Model of Delivery Timing
Several empirical analyses of data from fed cattle markets have found a negative correlation between a region's weekly delivery volume of captive supply cattle and contemporaneous price in the local cash market. This negative correlation has been cited as evidence of a causal relationship between the two variables; a relationship in which buyers (beef packing plants) use captive supply procurement as an instrument to depress prices paid to cash market sellers (feeders). This paper investigates circumstances under which this empirical regularity might emerge as a benign artifact of buyer and seller behavior in a fed cattle market in which both sides are price takers. One feature of these markets is that sellers of both marketing agreement (the predominant captive supply procurement method) cattle and spot market cattle have some flexibility in scheduling delivery in order to take advantage of expected price changes. The effect that this type of inter-temporal arbitrage has on the dynamics of price and captive supply is investigated using simulation methods applied to a rational expectations model of delivery timing incentives.
|Date of creation:||18 Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ray C. Fair & John B. Taylor, 1980.
"Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models,"
Cowles Foundation Discussion Papers
564, Cowles Foundation for Research in Economics, Yale University.
- Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-85, July.
- Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear RationalExpectations Models," NBER Technical Working Papers 0005, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:isu:genres:12710. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer)
If references are entirely missing, you can add them using this form.