I'm looking forward to hearing everyone else's thoughts.
Ranchers Say Secret Cattle Deals Cost Millions
For immediate release: For further information contact:
September 8, 1998 Tom Breitbach: (406) 485-3483
John Smillie: (406) 252-9672
A controversial cattle marketing practice costs farmers and ranchers tens
of millions of dollars each year, according to an economic analysis
released by an organization of family farmers, ranchers and consumers
today. The Western Organization of Resource Councils (WORC) said the
analysis gives Secretary of Agriculture Dan Glickman the evidence he needs
to restrict the use of the marketing practice, called "captive supplies" by
The analysis, prepared for WORC by agricultural economist Catherine Durham
of Oregon State University, uses information in a study done for USDA to
estimate how much the use of captive supplies lowered prices paid to cattle
producers. The total impact of captive supplies on cattle prices was
between $51.9 million and $527 million, according to Professor Durham's
analysis. The difference in the numbers depends on which of several models
in the USDA study is used, and on other assumptions needed to make the
"USDA officials have denied that there is evidence of harm to cattle
producers from captive supplies," said Tom Breitbach, a Circle, Montana,
farmer speaking for WORC. "This analysis by Dr. Durham shows there is
evidence of significant harm to producers. If USDA won't act with this
evidence, what on earth good is it?," Breitbach asked.
Eighteen months ago, the United States Department of Agriculture asked for
public comment on a "petition for rulemaking" filed by WORC. The petition
asked USDA to limit the use of "captive supplies" of cattle by beef
packers. Cattle that packers own and feed in their own feed lots are called
"captive" because the packers control them. Packers also sign contracts
with feedlot owners to buy some or all of their cattle, which are also
called "captive." Many farmers and ranchers say that beef packers' use of
captive supplies limits open competition and lowers the price they get for
their cattle — without lowering the price of beef to consumers.
At WORC's request, Professor Durham analyzed implications of a report
prepared for USDA's Grain Inspection, Packers and Stockyards Administration
(GIPSA), "Short-Run Captive Supply Relationships with Fed Cattle
Transaction Prices" (Ward, Koontz, and Schroeder). She calculated the
effects of captive supply on the price of cattle from the information in
GIPSA's report, and translated these into total market effects, based on
total slaughter in 1993, the year for which GIPSA collected and analyzed
"Generally, studies of the impact of captive supply on cattle prices have
shown a significant, negative impact on price," Professor Durham said.
"This impact is often described as small. While no study has provided a
definitive answer to the question of the extent of the impact of captive
supplies on cattle prices, the estimates of price impact available from
different studies may be used to provide an indication of the total impact.
The report made by Ward, Koontz and Schroeder for GIPSA recognizes that
the results for captive supply utilization are statistically significant,
but they did not provide an estimate of the degree of that effect. I have
used information from this GIPSA study, and an earlier study by Schroeder,
Jones, Mintert, Barkley, to estimate the impact of captive supplies on
"The GIPSA study by Ward, Koontz and Schroeder study found different
impacts on price from different kinds of captive supplies," said Professor
Durham. "The study also modeled the relationship between spot prices and
captive supply in four different ways to see if any appeared more
informative." Interpreting the results conservatively, she said, "two of
the four models indicated that the impact on cattle prices was 21.3 cents
per hundredweight in 1993, the other two models indicated 33 and 55 cents
per hundredweight, respectively."
"Since the total inspected slaughter in 1993 was 33.3 million head, and the
average dressed weight was 731 pounds, the total impact of captive supplies
on prices paid to producers was $51.9 million (in the first two models used
in the GIPSA study), or between $80.5 million and $134 million (in the
"These estimates of total impact of captive supplies on producer prices
would be much greater if we use a less conservative assumption, that the
larger impact on price shown for marketing agreement cattle should also be
used in estimating the total impact. Under this assumption, using the first
model, the use of captive supplies lowered the price received in the
average cattle transaction by more than two dollars per hundredweight. With
these assumptions the total impact of captive supplies on prices would have
been $527 million in 1993," Professor Durham said.
In her analysis, Professor Durham also calculated the impact of captive
supplies on price from a 1990 study by Schroeder, Jones, Mintert, and
Barkley (1990), which found a drop in cattle prices of 2.8 cents per
hundredweight for every one percent increase in captive supplies. Based on
the captive supply levels in that study, she estimated that "the total
effect of captive supplies on cattle prices would be a loss of $57.4
million, if applied to total US slaughter."
"However, captive supply use is much higher now," Professor Durham said.
"In the first week of July this year, captive supplies deliveries reported
by the Agricultural Marketing Service were 42% of total deliveries... If
this 2.8 cent impact found in the 1990 study is valid under more recent
conditions then an annual slaughter of 33.3 million head at an average
liveweight of 1116 pounds, gives the total impact of captive supplies on
prices paid to cattle producers at $405 million per year."
"While these measures vary," Professor Durham concluded, "these studies and
others have shown a significant impact, and captive supply levels have
continued to rise."
# # #
Note to Editors: Catherine Durham is an Assistant Professor in the
Department of Agricultural and Resource Economics at Oregon State
A copy of a statement by Professor Durham describing her analysis is
available by contacting WORC. Phone: (406) 252-9672; FAX: (406) 252- 1092;
e-mail: <email@example.com>; or visit WORC's website at <www.worc.org>.
News releases and further information about the Western Organization of
Resource Councils and the petition for rulemaking are also available on
WORC's web site.
-- John D. Smillie
Western Organization of Resource Councils
2401 Montana Avenue, #301
Billings, MT 59101
See WORC's web page: http://www.worc.org
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