Marketing Agreements - Good or Bad?

[Econ101]

Captive Supply:
Correlation v. Causation
OCM Economics Fellow
Dr. Robert Taylor


GIPSA recently released their $4.5 million interim captive supply report, "Spot and Alternative Marketing Arrangements in the Livestock and Meat Industries." The interim report largely regurgitates previous studies of captive supply. While devoid of real analysis of hard data – they claim that data analysis will come in the final report due in 2006 – the authors nevertheless conclude that benefits of vertical integration are "clear" but that impacts on the cash market are "elusive." The report states,
"While the empirical research, on balance, suggests an inverse relationship between captive supplies and cash market prices, establishing a causal link has been elusive. (p. 3-17)"

The causal link has been elusive? Elusive? Causal mechanisms were not elusive to Bob Peterson, long-time cattle buyer and former CEO of IBP. He identified several causal mechanisms in talks to cattlemen in 1988 and 1994. In particular, he emphasized the leverage the packer obtained in the cash market with captive supplies. He stated,

"Do you think this (packer-owned or contracted cattle) has any impact on the price of the cash market? … You bet!"

"In my opinion the feeder can't win against the packer in the real fair play if
we go into the feeding and the hedging program."

"I don't know if we should be proud or ashamed but I'm telling you we started formula pricing. Why did we do it? So we have the same leverage our competition had (with packer fed cattle). And we feed cattle through the process of formula pricing."

In three lengthy speeches Peterson clearly and effectively identified how captive supplies could be used to manipulate the cash market. Yet, his warnings and threats about manipulative use of captive supply have been unheeded by economists in several USDA studies costing taxpayers
millions. It is disturbing that so many economists would continue to ignore persuasive statements from the person who would know best – the executive responsible for buying 30-40% of fed cattle during the 1980s and 1990s.

Common sense application of basic economic principles reveals numerous causal mechanisms, including:

Buyer power in a highly concentrated industry. This is undergraduate textbook stuff.
Base price in most marketing agreements is typically tied to a cash price. Such arrangements, in the presence of buyer power, depress cash price further that it would be without the agreements.
Asymmetric information favoring the large buyer over the feeder. It is well known in economics that asymmetric information favoring the buyer tends to depress price. Testimony in Pickett revealed that the head buyer had 65-75 field buyers calling in four times daily to report market information. Feeders selling on the cash market do not have much of this information.
Preferential deals for selected captive feeders. Such deals increase total supply thereby causing cash price to be lower than it would otherwise be. Hard data in Pickett revealed that Tyson/IBP paid more, on average, for captive cattle than for cash cattle, yet the cash cattle had about 10% more grading choice and prime, although captive cattle yielded about 1% more.
Packer mandated narrow trading window.
Packer control of within-week timing of acquisition and slaughter of captive and cash cattle.
Exclusive arrangements that preempt other buyers from accessing those cattle, thus making entry more difficult for potential competitors.
How was the evidence weighed in arriving at conclusions in the GIPSA study? We don't know1. Were both sides represented? Obviously the independent cattlemen were not represented. There is no mention in the $4.5 million interim report of extensive Pickett evidence. There is no mention of several common-sense causal mechanisms. There is no mention of Bob Petersons warnings.

Early studies of captive supply presumed causation. Then, in a 1996 GIPSA funded study, Schroeter and Azzam advanced a hypothesis that the negative relationship between captive supply and cash price was due to the correlation2 of captive supplies and captive feeders' expectation of price. Their hypothesis may have been well intentioned3, but there was no apparent weighting of evidence. Implicit in their report is the presumption that any argument for correlation, no matter how far-fetched, trumps any causal explanation. Unfortunately, the
correlation hypothesis has dominated the mind-set of academics, and has been a convenient excuse for USDA/GIPSA inaction.

Arguments for and against both the correlation and causation explanations should be objectively weighed. Since the captive supply issue falls under the Packers and Stockyards Act and perhaps under the Sherman and Clayton Antitrust Acts, the preponderance of evidence standard (more likely than not) is the appropriate legal standard and thus the appropriate standard for GIPSA studies. Academic standards should not apply, particularly standards that are never disclosed.

The GIPSA report claims that "clear" conclusions are reached about benefits of vertical integration. Yet, they do not report any real numbers to support these clear conclusions. It must not matter that hard evidence in Pickett contradicts most of their so-called clear conclusions.

Taxpayers deserve a final report that is based on fairly weighting the evidence – all evidence – by a clearly defined and appropriate evidentiary standard. This should not be a purely academic exercise intended to impress other academics. At this point in the captive supply debate, we need practical, common sense analyses not esoteric academic exercises.

Despite several taxpayer-funded captive supply studies spanning over a decade, only a Jury of your peers has looked at the hard facts and carefully weighed the evidence. GIPSA economists have not. Federal Judges have not. After listening to four weeks of testimony followed by five days of careful deliberation, the Pickett Jury verdict (question #4) was that "… use of captive supply proximately caused the cash market price to be lower than it otherwise would have been."CRT

A nice meaningless commentary from the man whose own research per this matter got destroyed in the Pickett case. This is the same man who is a production economist who never authored any research per the livestock industry prior to Pickett. When his own "captive supply" research was further analyzed by a world renowned econometrician it proved the opposite of Taylor's claim. Taylor 's research was so wrought with error and unsupported claims the presiding Judge outside jurors presence but with the plaintiff's attorneys stated that if he was the fact-finder he would conclude their expert witness was nuts. The case and the Judge's ruling was upheld UNANIMOUSLY by the Appellate Court and the Supreme court rejected the case.

You keep grabbing for straws that don't exist. This case is over - forget it.

Agman, the cattlemen were railroaded in this case and you know it. The "world renowned" econometrician must have had assurance that the data obtained via discovery would never see the light of day outside the trial and that his analysis would not be checked over.

I have asked you to make sure this information would be released so that others could look at the evidence. So far, you have not produced.

The judge had a bias against Taylor as you accurately point out. He should not have tried to influence the trial, but even in spite of this, the jury found for the plaintiffs.

As you know, the Supreme Court uses, as its criteria for review as stated by Justice Breyer, the fact that the districts disagree on the interpretation of the law. Being that the 11th circuit decision was a new interpretation of the law, there was no disagreement between the circuits and according to the criteria the Supreme Court has set out, would not qualify for review by that body. Calling this an affirmation of your point is stretching it.

You have to stretch so many things that we may have to call you stretchy.

As far as the appellate court, they were largely appointed by Bill Clinton (7 of them) who, as you know, pardoned Archie Schafer of Tyson Foods after being convicted of trying to bribe the Sec. of Agriculture.

When you have these type of "coincidences", the court loses the gloss of impartiality, and they should.

Calling this a victory for Tyson, a multiple convicted felon (as a company), shows that your twist for corporate America and against producers as an obvious fact.

Perhaps you would like to get back to work allowing the evidence from discovery to get out so there can be real peer review and clear up the clouds surrounding the "truth" you see but the jurors did not.

Then again, there might be some promises broken to a "world renowned econometrician" who has sold his soul.

Where's the BEEF and why are you hiding it?

 

[Anonymous]

Sandcheska: "If the truth really was you only bias, you would know that the Federal Government"s decision to phase out 100% testing is meeting stiff resitance from the citizenry."

Of course and you have all sorts of documentation to back that don't you?

ZZZZZZZZZZZzzzzzzzzzzzzz!

Meanwhile Japan continues to buy untested beef. Apparently they need you to save them from themselves Sandcheska.

Sandcheska: "Local governments are even saying they will continue testing."

Cattle OTM you deceptive #^&*#%@&*!

Sandcheska: "If you had any common sense, you would realize that it isn't the Feds who buy the beef, it's the citizens. You would then put the two together and reach an informed decision."

If you had any common sense you would know that Japanese consumers would not be buying untested beef if they wanted tested beef and Japan wouldn't be phasing out their own 100% bse testing program BUT HEY, LITTLE SANDCHESKA KNOWS MORE ABOUT WHAT THEY WANT THAN THEY DO.

Sandcheska: "Your avoidance of the subject on some Japanese citizens wanting tested beef shows that you know that to be the truth."

You haven't backed this claim. You never back any claim. You just make the statement and expect the lemming world to follow.

Sandcheska: "So here we have a market that the USDA will not allow us to tap.(with your blessings) The product is legal there and effects nobody negetively anywhere."

That is ANOTHER bold faced lie. We are currently shipping untested beef to Japan. You're getting as bad as Lying King.

Sandcheska: "You often make smart ass comments about "saving them from themselves", but you embrace exactly that in this case."

Wrong! It's you that wants to save Japanese consumers from themselves. They are buying untested beef (UTM), the science says they don't need tested beef (UTM), they are phasing out their own 100% bse testing program BUT YOU THINK THEY STILL WANT TESTED BEEF. Proving what a complete idiot you are.

ocm: "You ALLEGE that Japan is phasing out their testing program. Come on, bring on the proof. You made the statement. Yet you show no proof that it is actually the case. Whassamata. Can't prove your own statements? Are the Japanese down to a 99% rate of testing yet? HUH HUH HUH???!!"

Mike just posted it. Japan is phasing out 100% testing.

Shouldn't you be running around with a bottle of Elmers glue trying to keep your crumbling organization from falling apart. Just breaks my heart ocm!

Lying King: "Agman, the cattlemen were railroaded in this case and you know it."

Oh bullsh*t! They lost because they couldn't back their allegations with hard evidence and neither can any of you packer blamers. All you had was empty allegations just like you do at this site. Talk is so cheap from the packer blaming camp.

Lying King: "I have asked you to make sure this information would be released so that others could look at the evidence. So far, you have not produced."

Listen to you! THE BURDEN OF PROOF IS ON THE PACKER BLAMER TO PROVE THEIR CASE, NOT ON THE PACKERS TO PROVE THEIR INNOCENSE YOU MORON.

I've asked you repeatedly to bring this "SUPPOSED" proof of market manipulation that you all espouse and not one of you can bring the smoking gun. Deny, Discredit, Deceive, DIVERT! Same-O, Same-O from the factually void packer blamers.

Lying King: "The judge had a bias against Taylor as you accurately point out. He should not have tried to influence the trial, but even in spite of this, the jury found for the plaintiffs."

That bias, if relevant, would have been revealed at the 11th court of appeals BUT THE PACKER BLAMERS LOST THERE TOO.


Lying King, Mike Callicrate took the same case to court in the heart of cattle feeding country and got his head handed to him there too. That's when his lie about "stepping out of the cash market for 8 weeks" was brought to light.

YOU GOT NOTHING! You never do!



~SH~

 

[Econ101]

SH:

Listen to you! THE BURDEN OF PROOF IS ON THE PACKER BLAMER TO PROVE THEIR CASE, NOT ON THE PACKERS TO PROVE THEIR INNOCENSE

They did prove it, to 12 jurors. I have asked repeatedly that the information obtained in discovery be released by the packers.

WHAT HAVE THEY GOT TO HIDE IF THEY ARE INNOCENT?

 

[Anonymous]

Lying King: "They did prove it, to 12 jurors. I have asked repeatedly that the information obtained in discovery be released by the packers.

WHAT HAVE THEY GOT TO HIDE IF THEY ARE INNOCENT?"

They didn't prove nothing! They tried to deceive the jurors into believing that dropping your price in the cash market to reflect your purchases in the formula market was a PSA violation but the judge saw right through their deception as did the 11th circuit as did the Supreme Court.

Go suck your thumb somewhere else.


~SH~

 

[Econ101]

Lying King: "They did prove it, to 12 jurors. I have asked repeatedly that the information obtained in discovery be released by the packers.

WHAT HAVE THEY GOT TO HIDE IF THEY ARE INNOCENT?"

They didn't prove nothing! They tried to deceive the jurors into believing that dropping your price in the cash market to reflect your purchases in the formula market was a PSA violation but the judge saw right through their deception as did the 11th circuit as did the Supreme Court.

Go suck your thumb somewhere else.


~SH~

So all the college graduates on the jury believed it but you don't.

'The Japanese are deceiving themselves, so are all the people who buy organic or hormone free. I am and everyone else is too. Sometimes every thing around you spins around and it is opposite day.



Gopher trappers go!! Gopher trappers go!! :lol: :lol:

 

[Sandhusker]

SH, your whole Japan stance is based on some Japanese accepting untested beef, yet you choose to completely ignore the fact that some Japanese will not buy untested US beef! If you truly need proof that these people do exist, you're a bigger idiot than you've revealed already.

If we were shipping the 20,000+ tons/month that we used to, you would have an arguement that the number of people holding out for tested was very low. However, because of the crappy deal the USDA got us into (with NCBA's approval) we can't even get enough product over there to accurately gauge the market - and that would still not justify the USDA banning US packers from serving a niche market with a legal product!

 

[Econ101]

SH, your whole Japan stance is based on some Japanese accepting untested beef, yet you choose to completely ignore the fact that some Japanese will not buy untested US beef! If you truly need proof that these people do exist, you're a bigger idiot than you've revealed already.

If we were shipping the 20,000+ tons/month that we used to, you would have an arguement that the number of people holding out for tested was very low. However, because of the crappy deal the USDA got us into (with NCBA's approval) we can't even get enough product over there to accurately gauge the market - and that would still not justify the USDA banning US packers from serving a niche market with a legal product!

With friends like SH, cattlemen don't need enemies (for those that call him friend).

 

[Anonymous]

Lying King: "So all the college graduates on the jury believed it but you don't."

You think the jurors know more about the law than Judge Strom and the 11th Circuit? What an idiot you are!

There is a good reason the plaintiffs took their case out of cattle country. When they tried spreading their bullsh*t to a jury in Kansas, they got their heads handed to them by the judge and jury.

Lying King: "With friends like SH, cattlemen don't need enemies (for those that call him friend)."

With liars like you defending lies, someone needs to bring those lies to light.


GO LYING KING GO!

Sandcheska: " SH, your whole Japan stance is based on some Japanese accepting untested beef, yet you choose to completely ignore the fact that some Japanese will not buy untested US beef!"

You don't know a damn thing about the Japanese consumer.

Sandcheska: "If you truly need proof that these people do exist, you're a bigger idiot than you've revealed already."

Translation: I cannot back my position once again.

Gee, imagine that?

Sandcheska: "If we were shipping the 20,000+ tons/month that we used to, you would have an arguement that the number of people holding out for tested was very low."

The reason we are not shipping beef to Japan in pre bse levels is because we had bse not because we are not conducting 100% testing.

More Sandcheska deception!


~SH~

 

[Sandhusker]

Quote:
Sandcheska: " SH, your whole Japan stance is based on some Japanese accepting untested beef, yet you choose to completely ignore the fact that some Japanese will not buy untested US beef!"


SH, "You don't know a damn thing about the Japanese consumer."

What a clever response. You really countered my statement with an intelligent rebuttle.


Quote:
Sandcheska: "If you truly need proof that these people do exist, you're a bigger idiot than you've revealed already."


SH, "Translation: I cannot back my position once again. Gee, imagine that?"

What makes you think those people do not exist?


Quote:
Sandcheska: "If we were shipping the 20,000+ tons/month that we used to, you would have an arguement that the number of people holding out for tested was very low."


SH, "The reason we are not shipping beef to Japan in pre bse levels is because we had bse not because we are not conducting 100% testing. More Sandcheska deception!"

:lol: :lol: :lol: Now that insertion of your head in the sand took real effort! :lol: :lol: :lol: :lol: You only bias is the truth? :lol: :lol: :lol:

I'm glad you're back, SH, you sure add a level of comedy uniquely you!

 

[Anonymous]

Sandcheska, once again you refuted absolutely nothing I stated and supported absolutely nothing you stated.

AS ALWAYS!


~SH~

 

[Sandhusker]

My post was common knowledge, that needs supported?

Your posts were childish putdowns. (Who said "those who can not debate discredit"?). What is there to refute?

I'm saying there are Japanese consumers who will not buy untested US beef. You care to refute that? Maybe you would rather continue to ignore it?

 

[Jason]

I'm saying there are Japanese consumers who will not buy untested US beef. You care to refute that? Maybe you would rather continue to ignore it?

Many of those same Japanese consumers won't buy tested US beef either. You care to refute that?

For proof look at the consumption numbers. They can buy beef from Australia that hasn't found a case of BSE yet, but consumption is still down. Maybe you would rather continue to ignore it?

 

[Sandhusker]

Jason, "Many of those same Japanese consumers won't buy tested US beef either. You care to refute that?"

Not at all, I'm sure that is true, but that doesn't change anything. There are Japanese people who will buy tested US beef, but not untested. That is a niche market that is being denied US packers and producers for no valid reason. What happened to a free market?

Jason, "For proof look at the consumption numbers. They can buy beef from Australia that hasn't found a case of BSE yet, but consumption is still down. Maybe you would rather continue to ignore it?"

"Continue" to ignore it? When did I start? Who's ignoring it? You're actually making a case for testing, Jason. It was Japan's discovery of BSE and subsequent government coverup that soured the Japanese consumer on beef in the first place. They lost trust. They began 100% testing as a reaction to that loss of trust. If you read the news from Japan, you'll learn that many Japanese don't trust our beef. Now put it together - consumers lost trust in Japanese beef, so they began testing - many have lost trust in our beef so we ......... tell them they're not being scientific, we won't supply them with tested beef even if they pay for it, and they have to take our beef or we will bring trade sanctions! UNBELIEVEABLE STUPIDITY! .... and some folks support this stupidity!!!!

 

[RobertMac]

Jason, there are consumers in the USA that won't buy beef because of BSE(and in Canada too). Do we write those consumers off? Or, for the sake of market expansion, we allow small producers/processor to fill that niche? Just like Organic, if a consumer doesn't believe there is justification, they buy commodity.
Note: Organic consumption is growing a double digit rates!

 

[Mike]

They can buy beef from Australia that hasn't found a case of BSE yet, but consumption is still down.

Any fool knows that the Guydon Beef bowls (highly marbled beef) with rice was driving the market in Japan. The US was their supplier.
Australia was not before, but is fast becoming able to provide that type of beef.

Consumption of USA beef in Japan was on the decline a full 2 years before the Washington cow. In fact, the NCBA was a proponent of labeling US beef as "BSE FREE" as far back as 2001. (Without Testing, I might add)

Fact - BSE has scared the Japs to the point that they will take no chances.

Korea is following suit.

The US and Canada could have gotten back in those markets in full force years ago had it not been for the USDA's blind stupidity and bull-headedness.

 

[agman]

You bet, Agman, Dr. Taylor was the lead witness on the side that got a unanimous decision - but his testimony got destroyed. :roll: The score was Dr. Taylor 12; Tyson 0. Tyson just had the ref.

Are jurors always right, yes or no? If the judge was wrong with his comment and understandig of Taylor's research the Appellate Court would have reversed his decision. You people never run out of lame excuses.

 

[agman]

Jason, there are consumers in the USA that won't buy beef because of BSE(and in Canada too). Do we write those consumers off? Or, for the sake of market expansion, we allow small producers/processor to fill that niche? Just like Organic, if a consumer doesn't believe there is justification, they buy commodity.
Note: Organic consumption is growing a double digit rates!

To be fair and honest the double digit growth you mention is from an extremely small base. Going from 1.0 unit to 1.1 units represent double digit growth -10%. That said I am all for market niche players and if manged properly there is a very bright future for them in the beef business.

 

[Econ101]

You bet, Agman, Dr. Taylor was the lead witness on the side that got a unanimous decision - but his testimony got destroyed. :roll: The score was Dr. Taylor 12; Tyson 0. Tyson just had the ref.

Are jurors always right, yes or no? If the judge was wrong with his comment and understandig of Taylor's research the Appellate Court would have reversed his decision. You people never run out of lame excuses.

Are judges always right, yes or no?

If yes, why do we have a jury? The appellate court was stacked by Clinton. It is so obvious the favors that are bought and sold in our capital that congress has one of the lowest ratings as far as job performance.

As I said before, Clinton pardoned Archie Schafer of Tyson for bribing the Sec. of Agriculture. Hillary also made all her money from the commodities markets from insider information from Tyson's Blair.

We have the best justice money can buy and Tyson had their checkbook out.

 

[Sandhusker]

You bet, Agman, Dr. Taylor was the lead witness on the side that got a unanimous decision - but his testimony got destroyed. :roll: The score was Dr. Taylor 12; Tyson 0. Tyson just had the ref.

Are jurors always right, yes or no? If the judge was wrong with his comment and understandig of Taylor's research the Appellate Court would have reversed his decision. You people never run out of lame excuses.

You telling me an Apellate Court has never been overturned?

You packer boys never run out of ways to screw producers.

 

[RobertMac]

Jason, there are consumers in the USA that won't buy beef because of BSE(and in Canada too). Do we write those consumers off? Or, for the sake of market expansion, we allow small producers/processor to fill that niche? Just like Organic, if a consumer doesn't believe there is justification, they buy commodity.
Note: Organic consumption is growing a double digit rates!

To be fair and honest the double digit growth you mention is from an extremely small base. Going from 1.0 unit to 1.1 units represent double digit growth -10%. That said I am all for market niche players and if manged properly there is a very bright future for them in the beef business.

Does this mean you are for BSE testing to fill a niche market? :wink:
That would make Creekstone happy!!! 8)