Captive supplies are defined in the study as cattle that packers own or contract to purchase two weeks or more prior to slaughter. Captive supplies may serve a useful economic function for participants by improving orderly marketing, which can generally increase market efficiency by smoothing price and quantity variabilities that can disrupt planning and decisionmaking by firms. The greatest concern about the use of captive supply arrangements is the potential to be used in a manner that enhances the ability of packers to use market power.
On an annual basis, use of captive supplies has been relatively low and stable compared to the total number of cattle slaughtered, and does not appear to be increasing. Captive supply arrangements vary considerably among packers--ranging from no or infrequent use, to extensive use. The researchers found that prices in the spot market tended to be lower on days when packers increased the rate of slaughter from their inventory of forward contracted or marketing agreement cattle. However, the size of the price differences were generally very small. Overall, captive supplies tended to have a moderating effect on cattle prices. Packers paid $1.75-$2.00 per cwt less (liveweight prices) for cattle purchased through forward contracts than for cattle obtained through the spot market. On the other hand, packers paid higher delivered prices for cattle obtained through marketing agreements.
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Last udpated 11/2/06
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