Agricultural Economics Department

 

Date of this Version

2004

Comments

Published in Agribusiness 20:3 (2004), pp. 347–362; doi: 10.1002/agr.20011 Copyright © 2004 Wiley Periodicals, Inc. Used by permission. http://www.interscience.wiley.com

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.