Economic Loss to Pickett Verdict

[Econ101]

The real loser in the Pickett verdict was the U.S. economy with its dead weight losses.

The question put was,"Did IBP/Tyson use its market power to decrease the price of all cattle for packer benefit by breaking any of the economic rules of the Packers and Stockyards Act of 1921?" The jury of 12 were to decide the answers to that question after assessing the credibility of the witnesses and the proof offered. The jury said yes. The jury thought the cattlemen's economist was credible and awarded the verdict of 1.28 billion in actual damages over the time period in question.

This case has more to do with the exercise of market power (purchasing power) to lower prices for merchants than efficiencies gained in a particular marketing mode. In economics there are what are called dead weight losses to producers and consumers when market power is excercised. You can look this up in any good textbook with monopsony models. Market power moves are slides down the supply curve to the left and down. They change the demand curve equilibrium to either a higher point leftward and upward on the demand curve when monopsonists or oligopsonists pocket the profits or they have the potential of buying more market power if they share these ill gotten gains with consumers. When they share these gains with consumers they purchase a compettitve edge against competitors they often buy more market power. When all competitors are doing the same, an act of collusion, they are buying barriers to entry to any new entrants who do not come down to that same level. It is similar to cheating in class. Cheating in a classroom did not make the class any smarter, it just made hard for those not cheating in class to compete.

Any time a business justification for breaking Section 202 a, b, or c is used in the argument the argument is just an excuse to exercise market power. They may sound like good excuses but they are still just excuses.

It is interesting that the argument on page 18 of the 11th circuit appeals court was used incorrectly. The appellate judges, Carnes, Cox, and Mills all showed their ignorance of economic concepts by quoting the absolute defense the Robinson-Patman Act gives to a merchant. "The Robinson-Patman Act recognizes an exception and provides an absolute defense if a merchant's lower price to a purchaser "was made in good faith to meet an equally low price of a competitor."

Since cattle ranchers are on the other side of the merchant, the merchant's purchasing side, this economic concept would provide an absolute defense if a merchant paid a higher price to a seller if it was "made in good faith to meet an equally high price of a competitor."
In the Pickett case the prices in the "captive supply" were dependent on the cash market, not on the prices other competitors paid for the products in their captive contracts. If that were the case then the captive contracts would not be dependent on the cash price but on a negotiated price with competitors involved in increasing the price. Since even the court agreed in the ruling that the total market was artificially lowered and the defendents claimed that competitors engaged in the same activity, all of the competitors should be liable also. In other words, if you are stealing from the market by breaking the economic rules set forth in Section 202 then you can not claim as a defense the fact that others are stealing too. Thus, the defense is erroneous.

It should be noted that marketing agreements, however beneficial to either side, were not the issue. The issue was whether the use of marketing contracts pushed down the cash price. The jury found that it did. All of the arguments for marketing agreements are esoteric to that question.

More later but post and I will rely.

 

[Anonymous]

Another volly of statements and theories with no supporting evidence specific to the case.

WHERE'S THE SMOKING GUN??????

It doesn't exist.

1. Feeders have many marketing options.

2. Packer profits reported to GIPSA do not reveal any proof of market manipulation.

3. All the major packers are in competition for the same cattle.

4. Live cattle prices track with boxed beef prices and always have.

5. Reported profits for the 5 major packers through the nineties revealed $3.88 per head. "LIONS, TIGERS, AND BEARS OH MY!'

6. Tyson, who has the most market power, still has less than 40% of the total market share.

7. Smaller less efficient packing companies who needed larger profit margins to stay operable were replaced by the larger more efficient packers who could pay more for cattle.

8. If market manipulation was possible, why only periodically? When packers are experiencing losses, is that when they have periods of "generosity" and pay more for cattle out of the goodness of their hearts?

9. The $1.28 "BILLION" dollars in damages was more than ibp's total profits for the period of "alleged" market manipulation which is just one more example of the insanity of this case.

10. Judge Strom called the plaintiff's star witness "nuts" due to his never ending theories without supporting evidence.

11. The plaintiffs and their witnesses had entered into "captive supply arrangements" with the major packers exposing the hypocrisy.

12. If the packing industry was really controlled, how did Armour, Wilson, Swift, Cudahey, and Morris beceome ibp, Monfort, Excel, Smithfield, and National become Tyson, Excel, Smithfield, USPB, and Swift & Co.

If the industry is controlled, WHY DO THE NAMES KEEP CHANGING?

Once again, the obvious is simply too obvious for the run of the mill packer blamer.


Theories never won a court case only tangible evidence does.

Econ 101, you have nothing here but unsupported theories.

That's what Taylor had too unless you are he.



NEXT!



~SH~

 

[Econ101]

I do not need a smoking gun. I am from Texas. Please stay on the subject or go talk to your brother. If you do not know economics then go talk on someone else's topic. Everything after a jury verdict is what you claim I am doing.

Just to show a little good faith I will answer all your items:

1. Feeders may have many marketing options but that still does not answer my question: Did the marketing agreements that were based on the cash price lower the price paid to producers? 12 men and or women thought so.

2. Packer profits reported to GIPSA are not relevant to the above question. Market power plays can be given to the consumer and have to be given to the consumer if all others are doing the same market power plays. It does not excuse the conduct, it just means the common denominator has been dropped. This does create a barrier to entry for other people who do not do this type of manipulation but it does not excuse it. The similar example would be students who are cheating on a part of a test, say number 9. If you were a new student and you did not cheat on number 9 then you are at a competitive disadvantage to all the other students. If you do cheat on number nine you are not at a comparative disadvantage relative to other students but you are still a cheater.

3. So what? If they are not really competing it is called collusion. In this case the defense was that others were doing the same thing. This is not a defense for cheating but a defense for why your punishment for cheating on number 9 of the test should be the same for all who cheated on number 9 of the test. They are two different things entirely.

4. So what? What is your point? This may be a topic for further discussion.

5. What is your point? In supply demand equilibruims the profitabilty of an operation is of litle worth. How much did cattlemen make per head in real profit? It is not the business of economists unless there are deadweight losses to society through the use of market power. Market power and its manifestations are the real problem which is what the P&S act is about.

6. 40% is a lot of market power in any market. Compare that to the ranchers. Who has more market power? This is a very bad point if you are Tyson.

7. Were these smaller packing plants really less efficient or did they just not use market power like the others did? Industrialization in the last century created comparable advantages with efficiencies but they were turned into market power abuses by breaking all of the economic concepts of the Sherman, the Clayton, the Robinson-Patman, the P&S and other laws that were made to stop the dead weight loss these market power plays had on our society.

8. Market manipulation does not have to follow any certain time line. All persons and corporations are oportunists and sometimes the opportunity is better than others. In my example of students cheating, maybe the next test they did not cheat on number nine. If they cheated on the test any of the times they took the test, even if it was only 3 out of 10 it does not follow that they did not cheat those 3 times because they did not cheat all of those 10 years.

9. Many times the monopolistic characteristics of industry have not lead to increased profitability. The natural run is for those who worship market power to continue until only a few are left that will play ball with them and increase profits afterwards. If everyone is cheating and no extrodinary gains are present, it does not mean that everyone is not cheating.

10. When my grandfather was 81 we still loved him even though he was not cognizant enough to carry on a lengthy or complicated discussion. I think that case is apparent in the late Senator Strom Thurmand's case also. 12 people were to decide the case, Judge Strom (not to be confused with Senator Strom Thurmand) was just to set up the rules. He did that and the jury did their part.

11. Who cares who came up with "captive supply arrangements?" If these arrangements led to market manipulation it does not matter who came up with them. I do not like to haggle over the price of a car with someone so I bought my last two on ebay. If the bidding was rigged on ebay and was a result of unlawful market manipulation I am still entitled to damages. It does not matter that I do not like to haggle over the price of a car and so I bought them over ebay. If I was not the one who benefited nor created the unlawful scam on ebay I am not at fault if I bid innocently on that particular auction.

12. Turnover of names is not a factor in determining if market power was used to create deadweight losses. The facts of the case are. If you had a turnover of cheaters it does not mean that no one cheated. It just means that there are a lot more unethical people out there than the initial group of cheaters.

I can unequivically tell you that I am not Taylor, but I can also tell you that your numbering points do not scare me. I once took my disabled cousin to Reno, Nevada. We were winning a little at the tables. I wanted to go to bed no matter what amount of money we were winning or losing but I could not go to bed until my cousin stopped winning. The hotel gave me a couple of more drinks on the house and brought in another dealer. My cousin, who was calling all the hands, was probably counting cards as I suspect his older brother taught him before the trip. After they brought in the extra decks of cards the odds were not in our favor and we stopped winning. I knew what was going on but I just wanted to go to bed so I lost a few of the hands on purpose.

See how I did that? You are not my cousin and if you can not answer my questions or points then go talk on another forum; my questions may be over your head.

 

[Murgen]

3. So what? If they are not really competing it is called collusion. In this case the defense was that others were doing the same thing. This is not a defense for cheating but a defense for why your punishment for cheating on number 9 of the test should be the same for all who cheated on number 9 of the test. They are two different things entirely

Econ101, if all beef is sold as commodity beef, is there any competition? Or is it a raw product that is valued as such? A producer that produces a superior product should not have any problem with Packers tying up his product. Or should all beef be bought at a certain market price and have the packers profit on averages paid? I would not like to be selling an average product!

In the last 20 years, producers have become accustomed to producing a product that is superior and desired by the consumer ( and paid a premium for it, or are guaranteed a sale). They should get paid for that product. Producers producing a "sub-standard" product should not be paid the same as premium product. Is that not competition?

The same people that are against marketing agreements are not willing to take responsibilty for the product they produce (M'ID). Why is that? That is why we have grid payments. They want to market a product and have everybody compensated the same, independent of quality or Yield. (sounds a little Socialist to me)

Marketing agreements (contracts) are not as you call them a way to manipulate markets, anymore than they are to guarantee product consistency/quality and an available supply of such. (Mush like Ford buys product from individual manufacturers)

Don't push too hard, or you will find that the larger packers will start owning all their own cattle, and the smaller producer providing the quality that the packers are looking for, will cease to excist altogether.

Or is ownership of cattle for a Branded beef product illegal too, in your eyes? The larger packers already have the BBP, and will continue to expand in this market, specs will become tighter and if you don't meet them, you won't get to play!

 

[Econ101]

3. So what? If they are not really competing it is called collusion. In this case the defense was that others were doing the same thing. This is not a defense for cheating but a defense for why your punishment for cheating on number 9 of the test should be the same for all who cheated on number 9 of the test. They are two different things entirely

Econ101, if all beef is sold as commodity beef, is there any competition? Or is it a raw product that is valued as such? A producer that produces a superior product should not have any problem with Packers tying up his product. Or should all beef be bought at a certain market price and have the packers profit on averages paid? I would not like to be selling an average product!

In the last 20 years, producers have become accustomed to producing a product that is superior and desired by the consumer ( and paid a premium for it, or are guaranteed a sale). They should get paid for that product. Producers producing a "sub-standard" product should not be paid the same as premium product. Is that not competition?

The same people that are against marketing agreements are not willing to take responsibilty for the product they produce (M'ID). Why is that? That is why we have grid payments. They want to market a product and have everybody compensated the same, independent of quality or Yield. (sounds a little Socialist to me)

Marketing agreements (contracts) are not as you call them a way to manipulate markets, anymore than they are to guarantee product consistency/quality and an available supply of such. (Mush like Ford buys product from individual manufacturers)

Don't push too hard, or you will find that the larger packers will start owning all their own cattle, and the smaller producer providing the quality that the packers are looking for, will cease to excist altogether.

Or is ownership of cattle for a Branded beef product illegal too, in your eyes? The larger packers already have the BBP, and will continue to expand in this market, specs will become tighter and if you don't meet them, you won't get to play!

Scary isn't it? Is that not what is happening to the hog market right now and what has already happened to the poultry market? Do you see any similarities? If you want to see real government sanctioned GIPSA and USDA backed market plays just look at the poultry. The judgement on Pickett came from poultry cases that recently made case law. Their incorrect arguments were part of an effort that took out the words "whatsoever" in the act for a 5 year period. The any "business justification" came out of the frauds in those markets where they really have total market power and the act is being ignored altogether. If the beef people are not careful they too will be shackled like the hog industry but in a different way some smart economist will figure out. It is just a matter of time.

The any "business justification" reasoning, if it stands, will result in much greater market power abuses the likes of which you have not seen.

On your other point on marketing agreements: I do not oppose any differences in price based on the actual yield and quality. When a cattle buyer goes and looks at a herd of 20 or even 200 head he knows the quality of that pen or herd and his bid price reflects the good bad and the ugly in that bunch. The marketing agreements that have those aspects are not an issue to the question of whether there is an economic deadweight loss due to market power. It is just a red herring; a way to divide ranchers over the issue and every seasoned cattle buyer knows it or he isn't worth his salt. Again, the issue is whether the use of marketing contracts or of "captive supply" drove down cattle prices due to market power, not due to differences in quality of the two. If the captive supply price was based on the cash price there was a possibility of manipulation. The jury of 12 said the evidence convinced them that it did happen.

Since the Pickett plaintiffs claimed that their herds were equal or superior to the captive supply herds in the way of having more prime cattle, it would be interesting to note if in the captive contracts that type of cattle were paid higher as an incentive to have more of them. Much of the court's brief was argued that Tyson wanted a different type of cattle than what was in the cash market. The Pickett plaintiffs argued that their cash cattle were of better quality but they still got a lower price. That is a question that could be answered by the captive supply agreements evidence and other evidence presented and judged by a jury, not by some judges sitting in a courtroom going over the case withought listening to the evidence. Does anyone know the answer to that question?

 

[Murgen]

Scary isn't it? Is that not what is happening to the hog market right now and what has already happened to the poultry market? Do you see any similarities

When it comes to poultry and pigs, the buyer knows what he is getting, a consistent product. That's what he is paying for.

With beef, we have an advantage, there are preferences, and they are paid for. Cargill's grid is very different from Laura's Lean, compared to other Branded Beef Porducts.

If beef wants to sell commodity, then continue down the road of spot markets. If you want to diversify your product and get paid for what you produce, then continue down the road of contracts and BBP.

When a cattle buyer goes and looks at a herd of 20 or even 200 head he knows the quality of that pen or herd and his bid price reflects the good bad and the ugly in that bunch

Does he, or does it take the removal of hide to determine what he really has? Paying on the grid is a benefit to both buyer and seller her. It promotes genetic advanement and actual performance.

The Pickett plaintiffs argued that their cash cattle were of better quality but they still got a lower price

I can argue anything is of better quality, but the proof is in sales and then re-sales. If their cattle are of better quality, then why not sign a contract and "lock them in". If they are what is wanted,. they will be bought year after year. Or is hiding behind a hide, the safer way to go? Reputation, that's what sells, not what they say after the fact!

 

[Econ101]

Differentiation and consumer catering are essential to the niche markets and all of those efforts help in making a much more resiliant and dynamic market. All of those efforts are to be applauded as they provide economically viable competition to the stated benifits of "economies of scale" that the big boys provide.

Again, marketing arrangements or captive supply that accentuates effiencies of doing business are not the issue in the deadweight losses of the exercise of marke power. Those are just the vehicles for the excuses. Economic analysis of the data and careful observations of the facts will yield the answer to whether the decreases in the cash price were a result of market manipulation and therefore need to be corrected by some legal remedy. The wholesale use of those issues to excuse the illegal act will not provide efficient markets. Any "business justification" should not be used as an excuse to illegal activity. Defenses of 1) My competitor does it so I have to do it and 2) I have a business justification of cheating someone else because it makes me more money are not valid defenses. They are excuses but not valid defenses.

The any "business justification" excuse is the one that is the most troubling. Can a person violate a law if he has a "business justification?" If I steal from you can I say in my defense that "I had a business justification so I should not have to return what I stole."? This would revert us all back to the law of the jungle and our nation went through that period in the late 1800s and the early 1900s. Do we have to repeat the same mistakes just because some judge does not understand the issues? Upton Sinclair wrote "The Jungle" in response to the problems in the meat packing industry and we got the Packers and Stockyards Act of 1929. Do we have to go through the same thing just because some judge does not understand the history or the slippery slope? The rules were all worked out and written down the last time the U. S. went through this and the judges still think they have to change it. They have shown their ignorance of the principles involved by their 33 page judgment and the inconsistencies I have pointed out with one quick reading of the filed copy. These judges are not interpreting the law and the reasons for its existence, they are adding new words to give it a different and economically incorrect interpretation. In doing so they are making case law that will be hard to achieve economic justice. This judgement is not a victory for our country. It is a victory for corporatism.

 

[Murgen]

This would revert us all back to the law of the jungle and our nation went through that period in the late 1800s and the early 1900s. Do we have to repeat the same mistakes just because some judge does not understand the issues? Upton Sinclair wrote "The Jungle" in response to the problems in the meat packing industry and we got the Packers and Stockyards Act of 1929. Do we have to go through the same thing just because some judge does not understand the history or the slippery slope?

If they think they should change it, then fine, change it, until then, they are stilll governed under the law of 1929. If RCALF wants the laws changed, let them do that, but to fight xcisting laws, is futile.

Hell, what are you doing using references to laws that are over almost 90 years old.

 

[Anonymous]

Econ. 101: "I do not need a smoking gun. I am from Texas."

What the heck does where you are from have to do with your ability to present facts vs. theories in the Pickett debate?

I am from SD. Now that we have our introductions out of the way, why don't you present some facts rather than baseless theories?

You do need a "smoking gun" if you are going to back your market manipulation theories. Theory is not going to earn anyone a conviction in a lawsuit over market manipulation as the Pickett plaintiffs clearly found out.

Econ. 101: "If you do not know economics then go talk on someone else's topic."

If you don't understand cattle marketing, you have no business talking about Pickett vs. ibp.

Econ. 101: 1."Feeders may have many marketing options but that still does not answer my question: Did the marketing agreements that were based on the cash price lower the price paid to producers?"

The fact that feeders have the cash market available to them as an option to "captive supply arrangements" is very relevant. If they believe "captive supply arrangements" manipulate the markets, DON'T ENTER ONE. Pretty common sense woudn't you say?

Did the marketing agreements that were based on the cash price lower the price paid to the producer? It can go either way.

First of all 75% of all TRUE captive supply arrangements are forward contracts. That price is based on the futures market, not the cash market.

Now if you are talking about formulas or grid pricing, which are not TRUE captive supplies, some of them establish their base price on the weekly weighted average of the cash price the week prior. That price may be higher or lower than this weeks price.

So the correct answer to your question is it can go either way depending on this weeks market compared to last weeks.

The bottom line is that feeders have a choice between the weekly weighted average of the week prior on the formula or selling those cattle in this weeks cash price. NOBODY IS FORCING EITHER SITUATION.

Econ 101: 2. "Packer profits reported to GIPSA are not relevant to the above question. Market power plays can be given to the consumer and have to be given to the consumer if all others are doing the same market power plays. It does not excuse the conduct, it just means the common denominator has been dropped. This does create a barrier to entry for other people who do not do this type of manipulation but it does not excuse it."

First of all, there is no manipulation. This "market manipulation" theory of yours is nothing more than a baseless conspiracy theory until you prove otherwise.

Second, I am not going to assume I know what you mean by "Market Power Play". What do you define as a "market power play"? Between packer and feeder? Between packer and packer? What do you mean by "given to the consumer"? Lowering the price to the feeder so prices to the consumer can be lowered?

Like I said, I am not going to assume to know what you mean.

The bottom line is that The feeder has a choice of how he is going to market his cattle. What is so hard to understand about that? Nobody is forcing anyone to sell cattle one way or the other. If a feeder believes that a captive supply arrangement is market manipulation, DON'T SELL OUTSIDE THE CASH MARKET.

Packer profits are relevant because if packers were truly manipulating markets as you suggest, it would show up in their profitability. Any company's goal is to become more profitable, not pass those profits on in the form of lower prices to the consumer.

The price of boxed beef and beef by products determines the price of fat cattle and it always will. From the point of what price the consumer is willing to pay BECAUSE THE PACKERS SELL IT OR SMELL IT, then you subtract the processing costs, and pay accordingly for the cattle to obtain a small profit and still get the cattle bought against the competition.

Econ. 101: 3: "In this case the defense was that others were doing the same thing."

No, the defense was that it was a method of procuring cattle that was mutually beneficial or the feeders wouldn't enter them would they?

Do you honestly believe you need to save these feeders from themselves?

This ball is in the feeders hands, not the packers hands.

Econ: 4. "So what? What is your point? This may be a topic for further discussion."

The point is that what packers pay for fat cattle is determine by what they get for the boxed beef, not their ability to manipulate the markets.

Econ. 101: 5. "In supply demand equilibruims the profitabilty of an operation is of litle worth. How much did cattlemen make per head in real profit? It is not the business of economists unless there are deadweight losses to society through the use of market power. Market power and its manifestations are the real problem which is what the P&S act is about."

Haha! Ahh....ok?

If a company is not profitable, they are out of business.

If a company is too profitable, it creates the opportunity for new competition.

That is how the free enterprise system works when it is free from government intervention.

Market power and it's manifestations are the "PERCEIVED" problem. There is no "REAL" problem.

I disagree with the basic principle of the PSA. I believe a packer should have the right to chose to do business with whoever they want and what they pay should be nobody's business but their own.

To force packers to buy from everyone under the same pricing scheme does not allow for value based marketing where the better cattle receive a better price. I have no desire to have the value of my cattle downgraded to some standard value that creates a disincentive for better management.

I detest the concept of "socialized cattle marketing".

I promote the concept of "value based marketing".

Econ101: "6. 40% is a lot of market power in any market. Compare that to the ranchers. Who has more market power? This is a very bad point if you are Tyson."

What industry isn't concentrated?

Competition creates concentration.

Look at Coke and Pepsi. How much market share do you think each of them have? Think there isn't competition between those two companies?

Virtually every major industry is concentrated.

Concentration is not unique to the packing industry.

Econ. 101: "7. Were these smaller packing plants really less efficient or did they just not use market power like the others did?"

They were less efficient. For instance, my local locker plant has to pay to have ofal hauled away where larger more efficient plants are utilizing the ofal.

Of course there is laws to address market manipulation because there has been market manipulation conspiracy theorists as long as there has been markets. Doesn't mean they are justified.

Econ. 101: "8. Market manipulation does not have to follow any certain time line. All persons and corporations are oportunists and sometimes the opportunity is better than others."

That's like saying everyone is a crook they just need an opportunity.

Our legal system is not based on the "presumption of guilt". The "presumption of innocense" is a hard concept for most packer blamers to grasp.

Econ. 101: "9. Many times the monopolistic characteristics of industry have not lead to increased profitability. The natural run is for those who worship market power to continue until only a few are left that will play ball with them and increase profits afterwards. If everyone is cheating and no extrodinary gains are present, it does not mean that everyone is not cheating."

Just listen to yourself.

If it walks like a duck and quacks like a duck, it still could be a fox disguised as a duck.

Good grief!

BEWARE OF THE CONSPIRING MIND.

Many times the monopolistic characteristics of industry are not present because a monopoly is not present.

Econ. 101: "12 people were to decide the case, Judge Strom (not to be confused with Senator Strom Thurmand) was just to set up the rules. He did that and the jury did their part."

The jury didn't do their part. How could they possibly agree that ibp lacked a legitimate business reason for entering into captive supply arrangments WHEN THE PLAINTIFFS TESTIFIED TO THE CONTRARY???

The jury couldn't even understand the most basic of instructions.

Econ. 101: " 11. Who cares who came up with "captive supply arrangements?" If these arrangements led to market manipulation it does not matter who came up with them."

Ok, I'll buy that "IF" these agrements led to market manipulation which has not been proven. The fact remains, feeders have other marketing options. Nobody is forcing feeders to enter into "captive supply" arrangements.

Econ. 101: "I can unequivically tell you that I am not Taylor, but I can also tell you that your numbering points do not scare me."

Hahaha!

What would make you think that I number points to scare anyone. Either you can back your position or you can't. At this point, all you have is speculation, theory, and conjecture.

Econ. 101: "You are not my cousin and if you can not answer my questions or points then go talk on another forum; my questions may be over your head."

Who the hell made you king?

I'll talk wherever I feel like talking and there's not a lot you can do about it is there? You conspiracy theorists sure hate having facts rain on your conspiring parade don't you?

If you want to surround yourself with conspiracy theorist packer blamers, you can go find another forum.

Your questions are over your head.



~SH~

 

[Anonymous]

Econ. 101: "If the beef people are not careful they too will be shackled like the hog industry but in a different way some smart economist will figure out. It is just a matter of time."

Typical "fear mongering" of the doomsday profits.

I'd like to see the day range cows are raised as efficiently in confinement as they are grazing. Now that's funny!

My brother-in-law raises contract hogs and he says he'd never go back to fighting the markets. As it is now, he has far less risk.

Econ. 101: "The any "business justification" reasoning, if it stands, will result in much greater market power abuses the likes of which you have not seen."

More "fear mongering".

If there is a profit for the taking, someone will take it.

The doomsday profits used to say K-Mart was the end of the world then along came Wal-Mart and did it better.

Econ. 101: "When a cattle buyer goes and looks at a herd of 20 or even 200 head he knows the quality of that pen or herd and his bid price reflects the good bad and the ugly in that bunch."

He can present an educated guess and that's about it. The value of an animal is not determined until it's graded for a particular market.

Econ. 101: "The marketing agreements that have those aspects are not an issue to the question of whether there is an economic deadweight loss due to market power. It is just a red herring; a way to divide ranchers over the issue and every seasoned cattle buyer knows it or he isn't worth his salt."

The marketing agreements that are value based are exactly the issue. That's what the plaintiffs were concerned about. It is much easier for the buyer to buy cattle on the grid rather than listening to feeders bitch about the price claiming their cattle are better grading or yielding than they are. Value based marketing removes all doubt.

Econ. 101: "If the captive supply price was based on the cash price there was a possibility of manipulation. The jury of 12 said the evidence convinced them that it did happen."

Judge Strom and the 11th circuit disagreed based on their interpretation of the facts.

Econ. 101: "Since the Pickett plaintiffs claimed that their herds were equal or superior to the captive supply herds in the way of having more prime cattle, it would be interesting to note if in the captive contracts that type of cattle were paid higher as an incentive to have more of them. Much of the court's brief was argued that Tyson wanted a different type of cattle than what was in the cash market. The Pickett plaintiffs argued that their cash cattle were of better quality but they still got a lower price."

Whether or not captive cattle are better quality than cash cattle has a lot to do with the choice select spread at the time and whether or not the cash cattle have been backed up in the feedlot.

When someone says the cash cattle are "higher quality", that might be from a quality grade standpoint of having more marbling due to more days on feed but that might not be from a Yield grade standpoint of carrying more fat to say nothing about how more tonnage on the market leads to lower prices. An additional 30 pounds on each carcass adds a lot of tonnage which leads to lower prices when all other market factors remain the same.

The term "higher quality" is subjective.

It's a moot point anyway. The bottom line is that each packer has to procure so many cattle by any method they deem necessary but the feeder still has a choice between the various marketing options.



~SH~

 

[Anonymous]

Again, marketing arrangements or captive supply that accentuates effiencies of doing business are not the issue in the deadweight losses of the exercise of marke power. Those are just the vehicles for the excuses. Economic analysis of the data and careful observations of the facts will yield the answer to whether the decreases in the cash price were a result of market manipulation and therefore need to be corrected by some legal remedy. The wholesale use of those issues to excuse the illegal act will not provide efficient markets. Any "business justification" should not be used as an excuse to illegal activity. Defenses of 1) My competitor does it so I have to do it and 2) I have a business justification of cheating someone else because it makes me more money are not valid defenses. They are excuses but not valid defenses.

The any "business justification" excuse is the one that is the most troubling. Can a person violate a law if he has a "business justification?" If I steal from you can I say in my defense that "I had a business justification so I should not have to return what I stole."? This would revert us all back to the law of the jungle and our nation went through that period in the late 1800s and the early 1900s. Do we have to repeat the same mistakes just because some judge does not understand the issues? Upton Sinclair wrote "The Jungle" in response to the problems in the meat packing industry and we got the Packers and Stockyards Act of 1929. Do we have to go through the same thing just because some judge does not understand the history or the slippery slope? The rules were all worked out and written down the last time the U. S. went through this and the judges still think they have to change it. They have shown their ignorance of the principles involved by their 33 page judgment and the inconsistencies I have pointed out with one quick reading of the filed copy. These judges are not interpreting the law and the reasons for its existence, they are adding new words to give it a different and economically incorrect interpretation. In doing so they are making case law that will be hard to achieve economic justice. This judgement is not a victory for our country. It is a victory for corporatism.

What is your proof that illegal market manipulation occured?

YOU HAVE OFFERED ABSOLUTELY NOTHING BUT THEORIES!

More importantly, if market manipulation was occuring are you packer blamers really so arrogant as to assume that you need to save the feeders from themselves?

When you guys try to regulate the feeding industry on how they will market their cattle, you "socialized marketing advocates" are going to be in for a bloody fight. Write it down!



~SH~

 

[the chief]

SH: Who the hell made you king?

I believe you did, GOD! :lol:

 

[Econ101]

Hey, slow down there fella. I just wanted to have a serious discussion with the real issues instead playing with a bunch of fish. Just because I show you I want the red herrings out of the way in this argument doesn't mean I don't want to discuss the real issues that were faced in the jury room. We need to keep coming back to the real issues in the case but let me toss some more fish over first.

Your numbering system wasn't a bad idea; I just didn't want you to think it scared me. I will use your numbering system again when available.

Your first point: I don't believe that R-calf wants the laws changed. They just want them enforced as written. No more writing by the courts, just literal interpretation. Nothing more, nothing less. The problem comes in when some people need more than what is written down to understand the issues. R-calf probably believes it is too hard for some people to distill the truth so take the issue potential for abuse away. With the economic losses due to the cost of justice in their situation on the Pickett case they are probably right. That is another forum altogether.

The United States uses for its basis laws that are over 2000 years. All of the laws I referenced have to do with the same issues that were raised, with disastrous results for our economy, over 100 years ago. People who can not get along always need laws to keep the crooked in check from their own greed. If you doubt me look at Enron, WorldCom, Adelphia, etc.

Finding that equilibrium point of market supply and demand curve without deadweight losses to the economy is what has made our economy the best in the word. That was the intent of the laws I mentioned.

Point two: Glad to make your acquaintance. The smoking gun was the evidence presented at the trial, not the theories I propose. They just help someone like you to look at the real issues instead of all the fish swimming around trying to dart away from the evidence. The evidence that was presented to the jury was that the packers used their purchasing power and a deceptive device to reduce the prices on the cattle market and that hurt prices for the cattleman. It hurt the prices for all the cattlemen, not just those in the cash market. Since the "captive supplies" were priced on the cash market the possibility for manipulation existed. This deception could not have happened if the purchase price were not based on the cash price.

Point 3: I understand a lot more than you think. This discussion needs to be about the merits of the case, not your "packer blamer" name calling. I might be on the other side of the cattleman's argument on another issue but it will be based on an understanding of economic principles, not necessarily my self interests in the case.

Your numbering system 1:

Just because no one forced farmers to go into the marketing agreements has no relevance. Freedom to contract is not a defense to market manipulation. As I said before, the issue was not whether this marketing arrangement or that one is better. The central question was whether the marketing arrangements that were prevalent in the industry led to market manipulation and an artificial lowering of prices. The evidence was presented and the jury of 12 thought so. The marketing arrangements in themselves did not create the manipulation; they just provided a possible vehicle for that manipulation.

Your numbering system 2:

The manipulation was to be proven to the jury. Not you, not I, not the judge alone. The jury. Should we all give up our right to the safety net of 12 consciences? I am not willing to give that up to some system that claims to be more efficient. Go talk to the poultry people and the hog people on that one. Tyson just settled a $142 million judgment with the hog people for their wrong deeds. Now that is real money. The arbitration agreements in those systems have enslaved those farmers in continual market abuse with no economical recourse. Your arguments of right to contract do not supersede the interests of a free capitalistic economy from making the rules we all have to play by fair and just. Again, if you want to see problems with those arguments played out in industry think about the companies I mentioned before.

In reference to your bold face type: The choices a feeder has for marketing cattle does not rule out market manipulation. I never said the use of "captive supply" is evidence of manipulation. It was, however an essential ingredient. The jury found the evidence to be persuasive enough to answer the questions the way they did and believed in it so much that they wrote in a 1.28 billion dollar figure. Fair competition should determine the supply/demand equilibrium, not market manipulation no matter what the excuse. Market manipulation for packers can come in the form of either the supply of cattle or the selling of boxed beef. They are two separate issues that should not be confused. If for instance, the boxed beef guys had the whole market controlled in boxed beef through either monopolization or collusion and exerted that market power on that side of the equation to constrict supplies and drive up prices, it may not be necessary to use market power to drive the price of beef down on their purchasing side through market manipulation. The only problem with that strategy is that it would create incentives for new entrants and more competition which would eventually break up their collusive activity. Also, the outcry from the consumers would bring in the political and regulatory side like flies on SH---(no pun intended)

Your quote 4. Let's make another session up on this one. Are you up to it? You might get the whole picture then. This is the second time I've asked you to do this. How about another topic "Why Tyson would want to drive up beef prices when it does not really benefit them: The rest of the story."

Your numbering system #5: You got that one mostly right. I, too, detest "socialized cattle marketing". I absolutely do not want to limit cattle marketer's options. They have too few already. I just wan to make sure that the marketing systems that are out there are not being used to manipulate the markets into a lower point than would otherwise be with no real justification or with mixed justifications that can not be distilled.

Your numbering system 6: Concentration is not necessarily an evil. Look at how many electrical companies you get electricity from. When markets become more concentrated the rules of fair play are more important. By the way, your electrical utility has these same economic principles that are in the Packers and Stockyards Act regulating their monopolies with few exceptions they follow these rules instead of trying market power plays. When you talk about concentrated industries and abuse of market power you must look at another important issue: Substitutes. With your example of coke and Pepsi, the substitutes are important. Anyone can go and drink a whole host of other products or they can just drink water for next to nothing. Even in an airport where you might think you can only get bottled water you can go in the bathroom and drink from the faucet. Substitutes are the limiter of market power plays in the beef industry. Go back to number 4 for this one. I am not a conspiracy theorist. Conspiracies are always a possibility but they have to still be proven. Just because market power plays are possible does not mean that they are happening. In the Pickett case the plaintiffs proved their case to 12 non interested parties only to be over ruled by appellate judges who are politically appointed and did not see the witnesses.

"Something smells in the state of Denmark"

7. I have personal knowledge that the USDA discriminated against a local smaller packing plant. I believe I read the same from another person posting that "Tyson was exerting influence on the USDA" to not inspect a smaller meat packing plant. Are these plants going out of business due to corruption at the USDA and Tyson's influence on it? I am not going to call that one but it needs investigating by an independent agency, not the USDA. The USDA is losing its credibility on the grassroots level and for good reason.

Number 8. I never said that all persons are crooks. That is your reading of what I said. We just have to make a society where being a crook doesn't pay. Let people compete on real things like quality and price, not being a crook. That was the central question in the Pickett case that 12 people answered.

Number 9: The correct term on the cattlemen's side of the equation is monopsony or more accurately, with a small group of buyers, oligopsony. The legitimate business reasons for entering the captive supply arrangements do not trump the illegality of abuse of market power and the breaking of the economic protections of Section 202 of the Packers and Stockyards Act. I applaud legitimate business reasons for doing anything but they can not be an excuse to prices being pushed down concurrently by market power. Again, the legitimate business reasons are not the issue. They are just another fish darting around for people not interested in determining the real issue of whether or not the law was broken. Just an excuse. My kids are good at those too. They just don't have market power to get away with it.

Number 10: Participants can be a part of a scam and not even know it. It happens all the time. Those participants are not the real culprits, nor should their innocence be confused with the illegality of the scam. Fish.

Last point in this response: I had to bait you to reveal your ignorance of the real issues somehow. I really enjoy sparring as it sorts out the kind of questions the trial was really about, not the bait fish you and the packers are throwing around to keep from getting caught. Packers definitely have a self interest in market power abuses and just because they mix a few fish in the scam doesn't mean they should get away with it. It might be too complicated for some to see but a jury of 12 regular people who really listened to the evidence and saw the witnesses first hand saw through the bait fish they threw out. Too bad some of these appointed judges who owe their advancement in their careers to the political forces that are being bought off in Washington by Tyson and the packers couldn't see the real issues and do something right for our economy. As another fellow Texan, Ross Perot said, that road leads south to Mexico. How about my offer on number 4?

 

[RobertMac]

Econ101, thanks for your post...very interesting reading. Good luck with SH...hope you have a tough hide...we'll put you up for the 'Bloody Head' award.

 

[Econ101]

SH: Who the hell made you king?

I believe you did, GOD! :lol:

No, but I work for Him to the best of my abilities. Do you?

 

[blackjack]

...econ101... thanks for the excellent post... it is refreshing to read a well thought out post with some class...

 

[Sandhusker]

Welcome to the board, Econ101. I see you've met SH........

RobertMac is right, you'll need a supply of head bandages when "debating" SH. I'd also advise removing sharp objects from your desk.

 

[mrj]

At this point, all you have is speculation, theory, and conjecture.

That's all you've ever had Scott. Everyone in this town knows what a snake you are. If I had a dollar for everytime I heard this in the same breath as Scott Hubers name I'd be a rich man. "If you bought Scott for what he's worth, and sold him for what He thinks he's worth, you'd make a lot of money". LOL what a pathetic human being you really are.

With that ridiculous and vicious comment, the more accurate name for you would NOT be "Horseman"........you sound much more like a real horses ass!

MRJ

 

[HAY MAKER]

At this point, all you have is speculation, theory, and conjecture.

That's all you've ever had Scott. Everyone in this town knows what a snake you are. If I had a dollar for everytime I heard this in the same breath as Scott Hubers name I'd be a rich man. "If you bought Scott for what he's worth, and sold him for what He thinks he's worth, you'd make a lot of money". LOL what a pathetic human being you really are.

With that ridiculous and vicious comment, the more accurate name for you would NOT be "Horseman"........you sound much more like a real horses ass!

MRJ

careful old girl,you have shown your true colors more than once :wink: .................good luck

 

[agman]

The real loser in the Pickett verdict was the U.S. economy with its dead weight losses.

Your commnet..The question put was,"Did IBP/Tyson use its market power to decrease the price of all cattle for packer benefit by breaking any of the economic rules of the Packers and Stockyards Act of 1921?" The jury of 12 were to decide the answers to that question after assessing the credibility of the witnesses and the proof offered. The jury said yes. The jury thought the cattlemen's economist was credible and awarded the verdict of 1.28 billion in actual damages over the time period in question.


Respose....The problem is that the jury got it wrong-period. Regardless what you think or the jury thought Taylor proved nothing except that he had six theories none of which he tested by his own admission. Taylor's position was dismantled by the defense. While the jury did not understand how severely his claim was dismantled Judge Strom certainly did. Thus the statement by him, "I think your expert witness is nuts". I don't believe a federal judge would make that statement without strong reasons to believe that Taylor was not a credible witness. This is especially so since his comment is a matter of court record.

I am confident that Judge Strom has much more experience with these types of cases and econometric analysis than any of the twelve jurors. Legal precedent does allow the judge to dismiss the jury verdict when it is clear that they failed to understand the testimony or his instructions. To see where the minds of the jurors were one only needs to understand that they failed to understand very concise and specific instructions given by Judge Strom.

Your commnet...This case has more to do with the exercise of market power (purchasing power) to lower prices for merchants than efficiencies gained in a particular marketing mode. In economics there are what are called dead weight losses to producers and consumers when market power is excercised. You can look this up in any good textbook with monopsony models. Market power moves are slides down the supply curve to the left and down. They change the demand curve equilibrium to either a higher point leftward and upward on the demand curve when monopsonists or oligopsonists pocket the profits or they have the potential of buying more market power if they share these ill gotten gains with consumers. When they share these gains with consumers they purchase a compettitve edge against competitors they often buy more market power. When all competitors are doing the same, an act of collusion, they are buying barriers to entry to any new entrants who do not come down to that same level. It is similar to cheating in class. Cheating in a classroom did not make the class any smarter, it just made hard for those not cheating in class to compete.

Response... Have you personally ever conducted any analysis yourself that has shown a correlation with increased captive supply and lower price? I have, and the analysis shows no correlation. There are periods of increased captive supply and prices go up. There are also periods of declining captive supply when prices go up. The converse is also true. When isolating the variables the one that holds true in all periods is the correlation of price change to production change independent of the level of captive supply.

I also find it very interesting in Taylor's own testimony, which I have all copies of, that he did not find any price depressing influence in two of the latter years. Interestingly , those years were years when total demand was increasing as opposed to previous years when demand was in a precipitous nineteen year decline. The declines in total beef demand was approximately 50% during that nineteen year period. Is it possible that Taylor mistook the influence of captive supply cattle for the impact of declining beef demand? Did he test for that condition?


Your comment...It is interesting that the argument on page 18 of the 11th circuit appeals court was used incorrectly. The appellate judges, Carnes, Cox, and Mills all showed their ignorance of economic concepts by quoting the absolute defense the Robinson-Patman Act gives to a merchant. "The Robinson-Patman Act recognizes an exception and provides an absolute defense if a merchant's lower price to a purchaser "was made in good faith to meet an equally low price of a competitor."

Since cattle ranchers are on the other side of the merchant, the merchant's purchasing side, this economic concept would provide an absolute defense if a merchant paid a higher price to a seller if it was "made in good faith to meet an equally high price of a competitor."
In the Pickett case the prices in the "captive supply" were dependent on the cash market, not on the prices other competitors paid for the products in their captive contracts. If that were the case then the captive contracts would not be dependent on the cash price but on a negotiated price with competitors involved in increasing the price. Since even the court agreed in the ruling that the total market was artificially lowered and the defendents claimed that competitors engaged in the same activity, all of the competitors should be liable also. In other words, if you are stealing from the market by breaking the economic rules set forth in Section 202 then you can not claim as a defense the fact that others are stealing too. Thus, the defense is erroneous.

Resposne... Your quote.."Since even the court agreed in the ruling that the total market was artificially lowered and the defendents claimed that competitors engaged in the same activity, all of the competitors should be liable also."

You have incorrectly interperted what the court said. The court said that even if Taylor's claims were valid, the key word is "if", the case was still lost on the other positions outlined by the court. The 11th Circuit Court expressed on page 13 footnote#7 that there were serious Daubert concerns regarding Taylor's testimony. Please note that in the five page second opinion that the 11th Circuit Court refuted the plaintiffs claim that "this was a close case." The court stated quite emphatically with no uncertainty that the case was "not a close case and furthermore the plaintiffs lost on every account."

Your comment...It should be noted that marketing agreements, however beneficial to either side, were not the issue. The issue was whether the use of marketing contracts pushed down the cash price. The jury found that it did. All of the arguments for marketing agreements are esoteric to that question.

Response...You would have a valid point if Taylor's testimony in fact supported his own claim. His testimony was simply bogus, he failed to even test his own theories as to how captive supply cattle could cause the market to go lower. I assume you have the court testimony, yes or no? You appear to be very knowledgeable regarding economics and I assume econometrics. I have a simple question for you. How valid is a result if you fail to test for the validity of that result? I expect you teach your students the pitfalls of such untested conclusions.

More later but post and I will rely.

I have replied.