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Captive Supplies and Cash Market Prices for Fed Cattle: A Dynamic Rational Expectations Model of Delivery Timing

John Schroeter

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

Abstract: 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.

Keywords: cattle markets; captive supplies; extended path algorithm (search for similar items in EconPapers)
JEL-codes: D40 Q11 (search for similar items in EconPapers)
Date: 2007-01-18
New Economics Papers: this item is included in nep-agr and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Captive supplies and cash market prices for fed cattle: a dynamic rational expectations model of delivery timing (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12710

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