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Do we need the captive supply Reform act ?

Do we need the captive supply reform act

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HAY MAKER

Well-known member
Cow-Calf Weekly


Captive supplies have been a major concern and a divisive issue in the beef industry for two decades. Issues related to captive supplies contributed to producer support for mandatory price reporting (MPR), which requires packers to report their livestock purchases to USDA. The resulting Livestock Mandatory Reporting Act began in April 2001.


One immediate effect of MPR was to create new data series on prices and quantities of fed-cattle procurement, some of which pertain to captive supplies. Data compiled by Oklahoma State University agricultural economist Clem Ward over the first three years of MPR provides insight into packer procurement and pricing methods.

Debate over livestock procurement practices came to a head in Pickett v. IBP. An Alabama jury found that cattle feeders selling on the open market lost $40/animal — totaling $1.28 billion from 1994-1999. The jury attributed the losses to IBP's (now Tyson Foods) manipulation of the markets due to the use of captive supply in violation of the Packers and Stockyards Act. The trial court judge subsequently overturned the jury's verdict, but not its finding about the impact of captive supplies on cattle markets.

the 11th U.S. Circuit Court of Appeals affirmed the judge's action, but went on to say that the plaintiffs did not present any evidence from which “a reasonable jury” could conclude that Tyson lacked pro-competitive justifications in its purchasing agreements.

Captive supplies are usually considered slaughter livestock committed to a specific meatpacker two weeks or more in advance of slaughter. The three most common captive supply procurement methods are:


marketing/purchasing agreements,
forward contracts, and
packer ownership/feeding.

Moreover, “sweetheart deals” between select feeders and some packers have long been thought to unfairly harm smaller or “independant” cattle feeders.

Until recently, however, there was limited marketing data and information on how packers procured fed cattle and how their buying practices hindered the process of price discovery.

“A common element of procurement methods is that packers have a portion of their slaughter needs purchased two weeks to several months prior to the livestock being slaughtered,” Ward says. “A key issue is whether captive supplies can be used as leverage by packers to pay lower prices for fed cattle purchased in the cash market.”

Knowing the extent of each of the marketing or procurement methods is important, but more important is a comparison of prices among those methods.

Before MPR


Prior to 2001, official data on captive supplies came from USDA Grain Inspection, Packers and Stockyards Administration (GIPSA). In 1988, GIPSA began requiring packers to report monthly procurement of fed cattle by captive supply methods. In 1994, USDA Agricultural Marketing Service began reporting data on non-cash market shipments of fed cattle.

This series, called additional movement, became a proxy regarding the extent of captive supplies.

Although it included shipments of cattle that constituted captive supplies, Ward says it also included shipments of cattle priced by methods not defined as captive supplies. These would include cattle priced on a grid but not part of a marketing agreement or contract.

GIPSA data show annual average captive supplies ranged from 17.5% to 24.9% of fed cattle slaughter for the four largest beef packers between 1988 and 1998. Marketing agreements and forward contracts accounted for 13.7-19.3%; and packer feeding, 3.2-5.6% during that period.

For 1999-2001, total captive supplies for the four largest packers as defined by GIPSA were 32.4-42.9%. Marketing agreements and forward contracts increased to 24-32%, while packer feeding increased to 8.4-10.9%. GIPSA cautions that the audited figures for 1999-2001 are not comparable to previous year figures.

After MPR


Is there more information available on the volume of captive supplies since MPR?

“Yes,” Ward says. “MPR provides additional data with which to study the contentious issue of captive supplies and their market impacts.”

Also, he adds, more price information by procurement method is available since MPR was established. This availability enables tracking prices by procurement method and making comparisons that were not previously possible.

In studying pricing data over the three-year period since MRP was initiated, Ward has found:


Negotiated pricing on average accounted for 46.1% of fed cattle marketing (Figure 1). Generally, negotiated pricing can be interpreted as cash market pricing, though grid base prices are also determined by negotiation.

Formula pricing averaged 43.3% of fed cattle procurement and was the most used method in 2001 and 2002, declining sharply to 34% in 2003. Cattle feeders who responded to a 2002 survey indicate most formula price arrangements are tied to the cash market — either a quoted market price or a plant average price.

Packer ownership of livestock, one of the most discussed components of captive supplies and a frequent target for legislative reform, accounted for 7.1% of total fed cattle procurement.

Forward contracting, which consists mostly of basis contracts between packers and cattle feeders, averaged 3.5% of packers' procurement. Most forward contracts for fed cattle are basis contracts.


MPR has provided some information from weekly data on captive supplies that wasn't available previously and is much more timely than GIPSA's monthly or annual reports. Ward cautions that the data on captive supplies using MPR doesn't exactly match the definition GIPSA has used for captive supplies.

Level of captive supplies


For any given week, data after MPR show the percentage of negotiated pricing was as low as 24.5% and as high as 76.9%. Formula pricing also varied from week to week, ranging from 22.1% to 64.8%.

For the other two procurement methods, there was considerable week-to-week variation, but the variation was of a much smaller magnitude. The range for forward contracts was 0.2-9.4%, and the range for packer-owned cattle was 2.6-13.6% of total fed-cattle procurement.

Week-to-week variation in negotiated trades and formula-priced trades is extensive, both on a percentage basis and in absolute volume traded.

“At times over the three years, formula pricing exceeded negotiated trades; at other times, the reverse occurred,” Ward says. “The exact reason for the variation or apparent tradeoff between these two pricing methods isn't clear.”

The extent of packer feeding was reasonably stable over the three years, in most weeks 5-10% of total procurement, but exceeding 10% on occasion in 2003.

So, under MPR, what is known about the extent of captive supplies? Some might argue captive supplies constitute the sum of formula pricing, forward contracting and packer-owned procurement by packers.

“For forward contracting and packer ownership, this argument is seemingly clear, though there could be exceptions,” Ward explains. “For formula pricing, the argument is much less clear.”

Many formula-priced trades are associated with supply contracts or marketing agreements. Many of those agreements allow feeders to determine the delivery date for fed cattle one to three weeks prior to harvest, either alone or in conjunction with the participating packer.

But, let's assume this set of three procurement methods comprise captive supplies. They effectively establish a near-maximum extent of captive supplies from the weekly MPR data. Combining data reported earlier, captive supplies accounted for 56.1% of fed-cattle procurement in 2001, 59% in 2002, and 46.1% in 2003.

“Although the level of captive supplies no doubt concerns some,” Ward points out, “there's no apparent upward trend in the percentage based on the first three years of MPR data.”

Pricing/price comparisons


Additional information is available since MPR began for negotiated pricing, formula pricing, and forward contract pricing of fed cattle (Figure 2). Price comparisons are on a dressed-weight basis, and the five-region weighted average price includes prices for all grades of fed cattle purchased from several major cattle-feeding areas — Texas-Oklahoma, Kansas, Nebraska, Colorado and Iowa-Southern Minnesota.

“It could be argued the five-region weighted average price is the most comprehensive and representative of market conditions in the cash market,” Ward says. “We use the five-region weighted average steer price as the base or standard for comparing prices reported by procurement methods.”


Negotiated prices for the three years together averaged 14¢/cwt. above the five-region weighted average price (Figure 3). On an annual basis, negotiated prices averaged as little as 4¢/cwt. higher than the five-region average in 2002 to as much as 29¢/cwt. in 2001.

Formula prices averaged higher than other pricing methods or the five-region average in some years and lower in others. For the three-year average, formula prices were $1.43/cwt. higher than the average for forward contracts, and 7¢/cwt. higher than average negotiated prices.

Forward contract prices varied the most relative to other pricing methods. They were 6¢-91¢/cwt. higher than comparison prices in 2001. However, in 2003, forward contract prices were $6.02/cwt. below negotiated prices and $5.31/cwt. below formula prices. This large price difference is likely related to the nature of pricing basis contracts.


Price data aren't reported for packer-owned cattle, as those cattle are transferred internally from one business area of the company (cattle feeding) to another (slaughter-fabrication).

So what about sweetheart deals between packers and feedlots?

Ward contends, given the reported annual average prices, that although sweetheart deals may exist, there's no significant advantage, on average, with formula prices relative to other procurement methods or the five-region weighted average price.

No distinguishable difference


Comparing each of the price series for pricing methods to the broader weighted average price is important to identify similarities and differences.

“In a comparison of weekly weighted average dressed steer prices vs. negotiated prices for the three years since MPR began,” Ward explains, “there appears to be no distinguishable difference between prices.”

Many MPR supporters presumed a favorable relationship of formula prices existed relative to negotiated prices. Comparing formula prices and forward contract prices with reported negotiated prices, there is a noticeable difference in many weeks (Figure 3).

But, do those who formula price receive preferential prices?

“The answer appears to be ‘yes’ sometimes and ‘no’ sometimes,” Ward says. “Recall that the price difference on average between negotiated and formula prices was just a few cents per cwt. and favored formula prices two of the three years.”

A partial explanation may be that negotiated prices tend to be lower than formula prices on a declining market. Conversely, formula prices tend to trail negotiated prices on a rising market. Many base prices in grids are formula prices tied to last week's cash market — either a reported cash market price quote or the average cost of fed cattle at the packer's plant where the cattle will be harvested.

Therefore, a closer relationship is expected between this week's formula prices and last week's negotiated prices, compared with this week's negotiated prices and this week's formula prices.

In comparing forward-contract prices with negotiated prices, Ward reminds that forward-contract prices deviate sharply from negotiated prices in some weeks.

“With basis contracts, packers bid a futures market basis in the month fed cattle are expected to be harvested, and cattle feeders can pick the fed cattle price anytime before delivery of the cattle,” he says. “Thus, cattle feeders determine when the futures market contract price has peaked for the expiration month just after the cattle will be harvested.”

As a result, this week's reported forward contract prices may or may not be closely aligned with this week's negotiated prices.

Ward offers summary observations:


In general, prices for the three procurement methods track each other relatively closely. Each is representative of broad market conditions but not of what migh affect prices within and between weeks. But, less reliance should be placed on forward-contract prices as an indicator of current market conditions compared with either negotiated or formula prices.

No single pricing method has been consistently higher or lower than any other. This seems especially important, given the concerns regarding captive supply prices versus cash market prices.


“Neither of the two pricing methods typically associated with captive supplies is consistently above cash market prices,” Ward concludes. “However, there appears to be differences associated with rising or declining prices that could be important in choosing one marketing method over another.”

WORC says captive supplies suppress all prices


The Western Organization of Resource Councils (WORC) began addressing the issue of captive supplies nearly 15 years ago. In an effort to “restore competition to the livestock market” the Billings, MT-based WORC has offered a proposal requiring:


A fixed base price on contracts and marketing agreements.

Contracts be traded in open, public markets. “No more secret deals.”


This proposal is the basis for the Captive Supply Reform Act, S. 960, introduced in the 109th Congress by Wyoming Sen. Mike Enzi. S. 960 would amend the Packers and Stockyards Act of 1921 to prohibit certain forward contracting practices.

WORC maintains captive supplies hold down all cattle prices in all forms of contracts. Because formula prices are tied to the cash price, all prices — both formula and negotiated — are driven down due to the high levels of captive supplies, WORC says.

“In his research, Clem Ward (see article above) indicates formula contracts, forward contracts and open negotiated contracts all provide approximately the same price for producers,” says Skip Waters, Moorcroft, WY, former WORC chair and a member of WORC's livestock committee. “Through current contracting methods, the packers are able to line up enough supply through formula contracts to affect the cash price, driving it down.”

WORC says Ward's finding sheds even more light on the need for the Captive Supply Reform Act.

“When all contracts are made in an open public market, no one form of contracting will have the ability to hold cattle prices captive,” Waters says, He adds that while Mandatory Price Reporting (MPR) was recognized at the time of its passage as a method to shed light on the issue of captive supplies, it's just one piece of the puzzle.

“Because there's no price associated with packer-owned cattle, the true effects of packer-owned cattle — just one form of captive supplies — on the overall cattle markets isn't revealed with price reporting alone,” Waters explains. “MPR did give us one important piece of information — a more accurate count of other forms of captive supplies such as formula contracts and other forward contracts.”

With Ward reporting that around 50% of fed cattle are captive supplies, WORC says these actual numbers are much higher than either USDA or packers reported prior to MPR.

“It's also interesting to note that Ward found captive supply levels lower since the Canadian border closed,” Waters continues. “That may be because Canadian cattle imported for slaughter were a disproportionately high percentage of captive cattle.”

Or, he adds, because with the limited supply of live fed cattle, more U.S. cattle producers were able to get a fair price in the open cash market and didn't feel compelled to enter into formula agreements.

“It does appear that with lower overall captive supply levels available to packers, cattle prices have increased,” Waters says.
 
A

Anonymous

Guest
No single pricing method has been consistently higher or lower than any other. This seems especially important, given the concerns regarding captive supply prices versus cash market prices.

All credible studies have shown no LONG TERM competitive disadvantage between cash and captive markets yet the packer blamers insist their heartfelt market manipulation conspiracy theories have merit.

Pickett lost, the appeals court upheld judge Strom's decision and the Supreme Court refused to hear the case yet the packer blaming conspiracy theorists come up with more conspiracy theories to justify those decisions. Packer blamers can't accept truth and facts.


~SH~
 

Econ101

Well-known member
~SH~ said:
No single pricing method has been consistently higher or lower than any other. This seems especially important, given the concerns regarding captive supply prices versus cash market prices.

All credible studies have shown no LONG TERM competitive disadvantage between cash and captive markets yet the packer blamers insist their heartfelt market manipulation conspiracy theories have merit.

Pickett lost, the appeals court upheld judge Strom's decision and the Supreme Court refused to hear the case yet the packer blaming conspiracy theorists come up with more conspiracy theories to justify those decisions. Packer blamers can't accept truth and facts.


~SH~

The Pickett case was thrown. The lack of competent oversight by the 11th circuit is very concerning as was their decision. It was and outcome based decision and not a decision that was based on the evidence.

We have some REAL problems with the caliber of judges in that circuit and in the Senate Judiciary Committee in the United States Senate.

SH, your use of the word credible is an oxymoron. I think the moron part was put there just for you.
 

DiamondSCattleCo

Well-known member
The trial court judge subsequently overturned the jury's verdict, but not its finding about the impact of captive supplies on cattle markets.

Apparently SH missed the above point. I've highlighted it to ensure that it doesn't get missed again. [/b]
 

Sandhusker

Well-known member
DiamondSCattleCo said:
The trial court judge subsequently overturned the jury's verdict, but not its finding about the impact of captive supplies on cattle markets.

Apparently SH missed the above point. I've highlighted it to ensure that it doesn't get missed again. [/b]

You think that will do the trick? :lol: :lol: :lol: :lol: :lol:
 
A

Anonymous

Guest
Hayseed,

There is nothing to reform. We don't need the government dictating how cattle will be marketed. If you think Tyson is screwing you, SELL TO SOMEONE ELSE OR SLAUGHTER YOUR OWN CATTLE.

Blamers........


Conman: "The Pickett case was thrown. The lack of competent oversight by the 11th circuit is very concerning as was their decision. It was and outcome based decision and not a decision that was based on the evidence."

WHAT WAS THAT EVIDENCE THAT THE DECISION SHOULD HAVE BEEN BASED ON ?????

Let's hear it cheap talker!

You've danced around backing that allegation many times and you'll dance around it again BECAUSE YOU DON'T KNOW!!!!

Taylor's "UNTESTED THEORIES" are not evidence.

Tyson occasionally dropping their price in the cash market to reflect their purchases in the formula market is not market manipulation but rather a normal supply and demand reaction because Tyson is not "THE" MARKET, TYSON IS "A" MARKET WITHIN "THE" MARKET.

If Tyson could manipulate the markets and the markets are not competitive as you would suggest, what factors allow them to manipulate the market at some times and not at others???

Obviously, nobody can deny that prices move higher at times so common sense would tell you that if there is market manipulation, there must be factors that allow the market to be manipulated at some times and not at others. Nobody with any intelligence can explain that with any degree of intelligence. That leaves you out Conman!

What's at issue here is whether or not dropping your price in the cash market to reflect your purchases in the futures market is market manipulation.

According to Judge Strom, the 11th circuit, and the Supreme Court, it's not.

What the hell is the alternative? FORCE EVERYONE INTO A SOCIALIZED CATTLE MARKET WHERE EVERY ONE BRINGS THE SAME PRICE AND THE LMA CARVES THEIR COMMISSION DOLLARS OFF THE TOP???

Over my dead body!


Rod: "The trial court judge subsequently overturned the jury's verdict, but not its finding about the impact of captive supplies on cattle markets."

Nobody argues that there is times when Tyson drops their cash price to reflect their purchases in the captive market. WHAT'S AT ISSUE HERE IS WHETHER THIS PRACTICE IS OR IS NOT "MARKET MANIPULATION" AND A VIOLATION OF THE PSA.

The jury said YES!
Judge Strom said NO!
The 11th circuit said NO!
The Supreme Court said NO!

You think a jury knows more about the intent and interpretation of the law than Judge Strom, the 11th Circuit, and the Supreme Court???

If the Juries interpretation of the law stood, you could never alter the price you paid for livestock to reflect previous purchases because that would be the same damn thing.

The market manipulation conspiracy theory was a bullsh*t conspiracy theory that was justifiably shot down in flames. You will not prove otherwise but "even steers can try".


~SH~
 

HAY MAKER

Well-known member
SH.............(What the hell is the alternative? FORCE EVERYONE INTO A SOCIALIZED CATTLE MARKET WHERE EVERY ONE BRINGS THE SAME PRICE AND THE LMA CARVES THEIR COMMISSION DOLLARS OFF THE TOP??? )


OK SH maybe I am not interpreting the Captive supply Reform Act correctly ? What part of it do you deem socialized ?...........good luck
 
A

Anonymous

Guest
The elimination of common fat cattle selling practices with a non negotiated weekly weighted average base price. Those who don't like captive supply arrangements with non negotiated base prices should sell strictly in the cash market rather than forcing everyone to sell under the same "socialist" marketing scheme they deem approprite for others.

This law is "socialism" through and through. Typical "I KNOW WHAT'S BEST FOR YOU" arrogant attitudes of the blaming segment of our industry!

SAVE THE FEEDING INDUSTRY FROM THEIR OWN MARKETING ALTERNATIVES.


~SH~
 

HAY MAKER

Well-known member
SH it has been proven packers violated the trust of the cattle man by manipulating prices.Therefore that trust is now gone,in its place we have the Captive Supply Reform Act..........you call that socialism or anything you want ,I call it fairness and about time,funny how that works SH, you abuse something and it gets taken away................good luck

PS if you call honest trading in an open market socialism,all I can say is there sure are alot of socialists around.
 

Econ101

Well-known member
SH, I stopped holding classes for gopher trappers some years ago as I saw it a waste of time and energy.

Please ask someone who cares about your idiot questions.
 

DiamondSCattleCo

Well-known member
~SH~ said:
Rod: "The trial court judge subsequently overturned the jury's verdict, but not its finding about the impact of captive supplies on cattle markets."

Nobody argues that there is times when Tyson drops their cash price to reflect their purchases in the captive market.

SH, have you read any of the documents regarding this case? Its my understanding that the plaintiffs were arguing that captive markets has a OVERALL depressive effect on the cash market. While the judges didn't agree with manipulation, they did agree that captive markets were a bad thing.

So are you saying the judges, which you so often like to quote as being totally right about overturning the case, was not competent enough to determine the depressive effect? What then makes you think the judge was competent enough to overturn the jury findings?

And yes, SH, captive markets do need to be regulated to protect the rest of us from the idiots who sign cash market basis forward contracts. You're slowly destroying the fat market for others, all for your own personal gain.

Rod
 
A

Anonymous

Guest
Hayseed: "SH it has been proven packers violated the trust of the cattle man by manipulating prices."

Bring that proof Hayseed, I want to read it.

Talk is cheap!

I'd like to know what it is you think you know that Judge Strom, the 11th circuit court of appeals and the Supreme Court missed.

Watch this...............


Conman: "Please ask someone who cares about your idiot questions."

As expected! Like I said, you're just smart enough not to incriminate yourself by answering questions and revealing how much you don't know.


Rod: "SH, have you read any of the documents regarding this case?"

Yes I have Rod!


Rod: "Its my understanding that the plaintiffs were arguing that captive markets has a OVERALL depressive effect on the cash market. While the judges didn't agree with manipulation, they did agree that captive markets were a bad thing."

That's was one of the plaintiff's arguments but they could not prove that. The "CASH MARKET" includes all fat cattle marketing options. All would have had to be negatively impacted by one packer lowering their cash price to reflect their formula purchases. Do you actually believe that happened? MORE IMPORTANTLY, IF YOU DO BELIEVE THAT, CAN YOU PROVE IT?? I'm sure the Pickett plaintiffs would love to hear what you had to say since they couldn't prove it.

A bad thing for who? The guy who sold in the cash market or the guy who sold under a formula or forward contract? Please answer that question Rod?

What's the alternative? A "socialized" system of cattle marketing where all cattle are treated the same regardless of their quality merits? The LMA would certainly like that so they could carve their commission dollars off the sales of those cattle. I believe that's the LMA's real motive behind this entire issue. They would like nothing more than to gain another shot at selling those cattle and carving more money out of the pie.

If feeders don't like the "non negotiated" weekly weighted average base price, they can sell through Angus Gene Net to Swift & Co. on a negotiated base price formula. Nobody is forced to sell into any market grid or pricing arrangement.

All the studies I have read on captive supplies show just what you would expect them to show. Sometimes the captive cattle sell for more than the cash cattle and sometimes they sell for less than the cash cattle. To suggest that captive markets have an OVERALL or LONGTERM negative affect on the market is nothing more than a baseless conspiracy theory. If that was true, nobody would sell in the cash market. It holds no water because every feeder has numerous options to sell to.

For every time there was downward pressure on the market due to captive supply cattle, there was a time when the cash market was higher than the formula market.

You need to keep in mind that Tyson is not the only player in the market. For this theory to have merit would require that Tyson, Excel, and Swift all had the same levels of captive supplies at the same time so all of them dropped their prices simultaneously to reflect those previous purchases.

What's the chances of that happening Rod?

Tyson is not "THE MARKET", Tyson is "A MARKET" within "THE MARKET".

If feeders don't like Tyson's offer, they can sell to Excel, or Swift, or USPB, or Greater Omaha, and the list goes on.

Let's address the first problem in the case Rod, the courts did not even correctly define captive supply cattle. Captive supply cattle, as defined by GIPSA, are those cattle that are owned or otherwise controlled by packers for more than 14 days prior to slaughter. This was the same language used by the packer blamers in the Johnson Amendment.

Formula cattle, that are not owned by packers for more than 14 days prior to slaughter are not captive supply cattle yet this case included formula cattle in their definition.

Rod, just think about this for a minute, if captive supply cattle are sold at a higher price than cash markets, did the feeder who sold the captive cattle at a higher price gain or lose in the transaction?

So whose side should carry more weight here, the feeder who sold for a higher price in the formula market or the feeder who sold for a lower price in the cash market WHEN BOTH MARKETS WERE AVAILABLE TO BOTH FEEDERS???

One person's gain becomes another's loss. Is that market manipulation?

That's no different than an order buyer in the sale barn paying less money because he felt he paid too much money for the cattle he bought on Superior Livestock. If one is considered market manipulation, the other has to be too because it's no different.

Nobody stated captive supplies were a "BAD THING", the court simply acknowledged that there was times when the formula cattle price had a negative impact on TYSON'S cash market, WHAT THEY DIDN'T TELL YOU IS THAT JUST AS OFTEN, THE OPPOSITE IS TRUE. What they also didn't tell you is that Tyson's cash market is not "THE CASH MARKET".

I believe you are a smart enough guy to understand this "one person's gain being another person's loss" aspect of the cattle trade and it's only a loss of you refuse to excercise or explore any other markets besides one.


Rod: "So are you saying the judges, which you so often like to quote as being totally right about overturning the case, was not competent enough to determine the depressive effect? What then makes you think the judge was competent enough to overturn the jury findings?"

I have never said the judges are "totally right" about overturning the case, I simply haven't seen anything to suggest that they were wrong.

The issue was not whether ONE PACKER'S captive cattle occassionally are priced higher than THAT PACKER'S cash cattle market creating a depressive affect on THAT PACKER'S cash price , the issue is whether or not that fact is market manipulation, meaning the entire fat cattle market.

What the judges also realized, after reviewing the evidence, is that just the opposite is true at times. It's an absolute fact that there is times when the cash market is higher than the formula market. Where's the market manipulation in that case? At that time those who sold in the formula market could try to make the same case against the cash market.

The bottom line is that no feeder is forced to sell to any one packer under one marketing arrangement so how can there be market manipulation?

THERE'S NO LOGIC ROD! It's a bullsh*t conspiracy theory that has no basis in fact.

Tyson cannot control what Excel, Swift, and USPB buy their cattle for or how they buy them.

It's a no brainer!


Rod: "And yes, SH, captive markets do need to be regulated to protect the rest of us from the idiots who sign cash market basis forward contracts. You're slowly destroying the fat market for others, all for your own personal gain."

That's total bullsh*t Rod!

What do you consider a "cash market basis forward contract"? Do you even know what you are talking about?

Let's hear it Rod!

A true forward contract is based on the futures market, not the cash market.

If I can lock in a profit on the board with a futures contract and the packer stands the basis risk, who the hell are you or anyone else to tell me I don't have the right to do it? Just because some other blamer decided to gamble on the cash market and that market turned south after I locked in a profit on the board, who the hell are you to tell me I can't do it???

That is the epitomy of arrogance and I can assure you that trying to limit feeders on their marketing options will be a bloody battle in this industry. All based on some wild packer blaming conspiracy theory about captive supplies.

The alternative to the current situation is that all cattle be sold under the same marketing arrangement with no discrimination for quality. I'll fight that "socialism" to the bitter end. I'll be damned if I'll let some packer blaming conspiracy theory result in the limitations of how I can sell fat cattle. The thought of everyone receiving the same price for their cattle under the same marketing arrangement makes my stomach turn. That is truly walking on the fighting side of anyone who is an advocate of a truly FREE MARKET.

Everyone has the same opportunity to sell to any packer they choose under numerous marketing arrangements. Everyone has those options so there can be no manipulation of the ENTIRE market.

How am I destroying the fat cattle market if I sell fats for $85 on a forward contract and the cash cattle market reaches $90 in the cash market when those cattle finish???

Explain the "all for my personal gain" aspect of your statement Rod! That's cheap talk that deserves an explanation. I'd like to hear how I gained if the cash market was $5 higher than my forward contract at the time my cattle finish?

You don't know what the hell you are even talking about.


~SH~
 

Econ101

Well-known member
The first part of the Captive Supply Reform Act should get rid of the captive agency, the USDA. I think most of the industry's problems could be solved if half (the correct half) of the USDA were required to go out and get a real job instead of supporting agribusiness's government branch.

All policy makers in the USDA's regulatory agencies should have to document every time they make a contact with the industry they are supposed to be regulating for future review by a policing agency.

This would go a long way to pulling the rug out from under the people who are cheating producers.
 

HAY MAKER

Well-known member
SH who said any thing about strom,I could'nt care less what he said or how he ruled, there has been countless articles by reputable people posted here including this one. "CAPTIVE SUPPLIES ARE USED TO MANIPULATE PRICES,all with the same results,you refuse to accept the truth,and as long as you have a vested interest in the beef industry I suspect that's where your loyalties will remain..............good luck
 

DiamondSCattleCo

Well-known member
~SH~ said:
That's was one of the plaintiff's arguments but they could not prove that. The "CASH MARKET" includes all fat cattle marketing options. All would have had to be negatively impacted by one packer lowering their cash price to reflect their formula purchases. Do you actually believe that happened? MORE IMPORTANTLY, IF YOU DO BELIEVE THAT, CAN YOU PROVE IT?? I'm sure the Pickett plaintiffs would love to hear what you had to say since they couldn't prove it.

You really need to work on your reading comprehension SH. The Judge never overturned the finding of the jury that captive markets have a depressive effect on the cash market. THATS WHAT THE QUOTE SAID!

The judge only overturned the manipulation portion of the jury findings, NOT the captive supply = bad finding. You'd better re-read the proceedings, SH.

~SH~ said:
A bad thing for who? The guy who sold in the cash market or the guy who sold under a formula or forward contract? Please answer that question Rod?

SH, I already proved to you that cash basis contracts are bad for the industry. You just refused to acknowledge it, so I'm not going to waste my time explaining it to you again.

~SH~ said:
What's the alternative? A "socialized" system of cattle marketing where all cattle are treated the same regardless of their quality merits?

Come on SH, I never once said that grids were bad. But when the grid BASIS is based on next weeks cash price, then it has a net depressive effect on both the cash market AND the cash basis contract. Its not rocket science.

~SH~ said:
To suggest that captive markets have an OVERALL or LONGTERM negative affect on the market is nothing more than a baseless conspiracy theory. If that was true, nobody would sell in the cash market. It holds no water because every feeder has numerous options to sell to.

I recommend you read some real economic studies done on cash basis forward contracts and their net effect on the cash market. Check online, there are many written by fine schools in Europe, mostly with regard to the grain industry, however those contracts are virtually identical to livestock cash basis contracts.

~SH~ said:
So whose side should carry more weight here, the feeder who sold for a higher price in the formula market or the feeder who sold for a lower price in the cash market WHEN BOTH MARKETS WERE AVAILABLE TO BOTH FEEDERS???

And something that you seem to be unable to comprehend is that if all or a substantial portion of the feeders went to cash basis formula to sell, then the cash market would be depressed. Since their own formula is BASED on the cash market, this is an overall net depressive effect.

~SH~ said:
What do you consider a "cash market basis forward contract"? Do you even know what you are talking about?

A cash market basis contract is a formula contract in which the grid basis is not negotiated, but rather is directly, or a function of, the cash market price of livestock.

~SH~ said:
A true forward contract is based on the futures market, not the cash market.

There are cash market basis forward contracts. There was just a thread on here stating that over 40% of the contracts that are signed these days are cash market basis contracts.

I don't have a problem with negotiated base prices, and I don't even have much of a problem with futures bases. I've specifically stated this in the past. But when a producer signs a contract stating they will deliver animals in 7 days or 2 weeks or 2 months, and the basis is the following weeks cash market price, that producer is an idiot, and he's destroying the market for everybody, not just the cash guys.

Rod
 

HAY MAKER

Well-known member
DiamondSCattleCo said:
~SH~ said:
That's was one of the plaintiff's arguments but they could not prove that. The "CASH MARKET" includes all fat cattle marketing options. All would have had to be negatively impacted by one packer lowering their cash price to reflect their formula purchases. Do you actually believe that happened? MORE IMPORTANTLY, IF YOU DO BELIEVE THAT, CAN YOU PROVE IT?? I'm sure the Pickett plaintiffs would love to hear what you had to say since they couldn't prove it.

You really need to work on your reading comprehension SH. The Judge never overturned the finding of the jury that captive markets have a depressive effect on the cash market. THATS WHAT THE QUOTE SAID!

The judge only overturned the manipulation portion of the jury findings, NOT the captive supply = bad finding. You'd better re-read the proceedings, SH.

~SH~ said:
A bad thing for who? The guy who sold in the cash market or the guy who sold under a formula or forward contract? Please answer that question Rod?

SH, I already proved to you that cash basis contracts are bad for the industry. You just refused to acknowledge it, so I'm not going to waste my time explaining it to you again.

~SH~ said:
What's the alternative? A "socialized" system of cattle marketing where all cattle are treated the same regardless of their quality merits?

Come on SH, I never once said that grids were bad. But when the grid BASIS is based on next weeks cash price, then it has a net depressive effect on both the cash market AND the cash basis contract. Its not rocket science.

~SH~ said:
To suggest that captive markets have an OVERALL or LONGTERM negative affect on the market is nothing more than a baseless conspiracy theory. If that was true, nobody would sell in the cash market. It holds no water because every feeder has numerous options to sell to.

I recommend you read some real economic studies done on cash basis forward contracts and their net effect on the cash market. Check online, there are many written by fine schools in Europe, mostly with regard to the grain industry, however those contracts are virtually identical to livestock cash basis contracts.

~SH~ said:
So whose side should carry more weight here, the feeder who sold for a higher price in the formula market or the feeder who sold for a lower price in the cash market WHEN BOTH MARKETS WERE AVAILABLE TO BOTH FEEDERS???

And something that you seem to be unable to comprehend is that if all or a substantial portion of the feeders went to cash basis formula to sell, then the cash market would be depressed. Since their own formula is BASED on the cash market, this is an overall net depressive effect.

~SH~ said:
What do you consider a "cash market basis forward contract"? Do you even know what you are talking about?

A cash market basis contract is a formula contract in which the grid basis is not negotiated, but rather is directly, or a function of, the cash market price of livestock.

~SH~ said:
A true forward contract is based on the futures market, not the cash market.

There are cash market basis forward contracts. There was just a thread on here stating that over 40% of the contracts that are signed these days are cash market basis contracts.

I don't have a problem with negotiated base prices, and I don't even have much of a problem with futures bases. I've specifically stated this in the past.
But when a producer signs a contract stating they will deliver animals in 7 days or 2 weeks or 2 months, and the basis is the following weeks cash market price, that producer is an idiot, and he's destroying the market for everybody, not just the cash guys.
Rod

Which is exactly what the "Captive supply Reform Act will fix.........good luck
 
A

Anonymous

Guest
Rod: "You really need to work on your reading comprehension SH. The Judge never overturned the finding of the jury that captive markets have a depressive effect on the cash market. THATS WHAT THE QUOTE SAID!"

The judge only overturned the manipulation portion of the jury findings, NOT the captive supply = bad finding. You'd better re-read the proceedings, SH."

The issue is whether or not that OCCASSIONAL depressive affect IN TYSON'S MARKET is a PSA violation and market manipulation. That is the issue. Judge Strom said it was not. The 11th Circuit said it was not. The Supreme court upheld that decision. That's all that matters.

Tyson is not "THE" market. Tyson is "A MARKET" within "THE MARKET".

If Tyson has enough captive cattle to drop it's cash price, that has a depressive affect on "TYSON'S MARKET", not "THE CASH MARKET".

In the quote you are referring to "THE CASH MARKET" is "TYSON'S CASH MARKET", not the cash market as a whole. BIG DIFFERENCE!

What you fail to understand is that there is many times when the cash market is higher than the captive supply market both within Tyson's market and the cash market as a whole.

You can't just look at the times when the formula market is higher and reach a sound conclusion.

Nobody is arguing that there is times when Tyson drops their cash price to reflect their formula and captive supply purchases which has a depressive affect on TYSON'S CASH MARKET, the issue is whether or not that practice is market manipulation.


Rod: "SH, I already proved to you that cash basis contracts are bad for the industry. You just refused to acknowledge it, so I'm not going to waste my time explaining it to you again."

No you presented your opinion. You PROVED nothing of the sort. What's best for the market is for the feeders themselves to decide how to market their cattle rather than market manipulation conspiracy theorists deciding for them.

The feeding industry does not need you to save them from themselves. They should determine what is best for themselves, NOT YOU!


Rod: "Come on SH, I never once said that grids were bad. But when the grid BASIS is based on next weeks cash price, then it has a net depressive effect on both the cash market AND the cash basis contract. Its not rocket science."

AT TIMES! There is just as many times when next week's cash price is higher than this week's cash price making this week's formula cattle, which are based on next week's cash price, worth more than this week's cash cattle.

You're right, it's not rocket science. Next week's cash price could be higher due to increased boxed beef prices.

You can't have market manipulation with captive supply cattle when the feeder has the choice of how to market their cattle.


Rod: "I recommend you read some real economic studies done on cash basis forward contracts and their net effect on the cash market. Check online, there are many written by fine schools in Europe, mostly with regard to the grain industry, however those contracts are virtually identical to livestock cash basis contracts."

We are not discussing the grain industry, we are discussing the livestock industry. I don't care about creating "ILLUSIONS" of things that appear similar.

I have seen many good studies conducted on captive supply cash arrangements and most conclude that for every time there is a depressive afffect, there is a time when just the opposite occurs.


Rod: "And something that you seem to be unable to comprehend is that if all or a substantial portion of the feeders went to cash basis formula to sell, then the cash market would be depressed. Since their own formula is BASED on the cash market, this is an overall net depressive effect."

How do you explain those weeks where Tyson has a high percentage of their needs tied up with cash basis formula cattle and next week's cash market is higher due to an increase in boxed beef prices.

HOW DO YOU EXPLAIN THAT IN LIGHT OF YOUR "THEORY" ROD?????


It's a damn fact! How do you explain it?

You are the one who has the comprehension problem here, not me. You can't face reality and would rather delve in "THEORIES". That's why Taylor, and his theories, was the key witness in the Pickett trial. The plaintiffs couldn't use real life examples because they would have been torn to shreds with actual purchases so they relied on "UNTESTED THEORIES" to create an "ILLUSION OF MANIPULATION".


Rod: "A cash market basis contract is a formula contract in which the grid basis is not negotiated, but rather is directly, or a function of, the cash market price of livestock."

The grid is already determined prior to the sale Rod. The grid BASE PRICE is the issue here, not the grid itself. The grid BASE PRICE may or may not be negotiated. Those who want a negotiated base price can sell on Angus Gene Net where sellers have the option of negotiating the base price if they don't like the non negotiated base price.


Rod: "There are cash market basis forward contracts. There was just a thread on here stating that over 40% of the contracts that are signed these days are cash market basis contracts."

When most feeders discuss "FORWARD CONTRACTS", they are referring to "FUTURES FORWARD CONTRACTS" not formula pricing based on next week's cash price. Common terminology considers a "FORWARD CONTRACT" to be a "FUTURES BASED FORWARD CONTRACT" which can be traded well in advance of the week that seperates formula based pricing.


Rod: "I don't have a problem with negotiated base prices, and I don't even have much of a problem with futures bases. I've specifically stated this in the past. But when a producer signs a contract stating they will deliver animals in 7 days or 2 weeks or 2 months, and the basis is the following weeks cash market price, that producer is an idiot, and he's destroying the market for everybody, not just the cash guys."

First off, how many guys do you know that sell cattle on the formula and deliver them 2 months later?

Second, why is the guy an idiot if he realized a profit?

How is he destroying the market for everybody else if everybody else has the same formula pricing or forward contract option that he did?


ONCE AGAIN,

How do you explain those weeks where Tyson has a high percentage of their needs tied up with cash basis formula cattle and next week's cash market is higher due to an increase in boxed beef prices.


The best markets are those with many options. Guys like you want to restrict those options and "socialize the market" so everyone gets the same price. That's bullsh*t!



~SH~
 
A

Anonymous

Guest
Conman,

I thought you said you were not going to respond to any of my posts???

Here it is one day later and you're back to lying again.


Competition is enhanced with more marketing alternatives.

Competition is restricted with less marketing alternatives.

It is you that is opposed to competition by restricting marketing alternatives based on conspiracy theories that cannot be supported by fact.


~SH~
 
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