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

John Schroeter and Azzeddine Azzam

Staff General Research Papers Archive from Iowa State University, Department of Economics

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.

Date: 2004-07-01
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Published in Agribusiness: An International Journal, Summer 2004, vol. 20 no. 3, pp. 347-362

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Journal Article: Captive supplies and cash market prices for fed cattle: The role of delivery timing incentives (2004)
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