Captive supplies and cash market prices for fed cattle: The role of delivery timing incentives

Abstract

AbstractThe 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. [EconLit citations: Q130, L140.] © 2004 Wiley Periodicals, Inc. Agribusiness 20: 347–362, 2004.