Organization for Competitive Markets

P.O. Box 6486
Lincoln, NE 68506

Tel:(662)476-5568
Fax: (860) 379-6196                         web site: www.competitivemarkets.com

 

News Release - for immediate release                            March 9, 2000

Contact: Michael C. Stumo - (860) 379-6199

 

USDA Study Correlates Captive Supply with Lower Cattle Prices

 

The Organization for Competitive Markets today called for the Secretary Glickman to ban captive supply of livestock as a mechanism for packers to manipulate farm gate prices.  A recently released study by USDA found a "robust correlation" between higher captive supplies and lower spot cattle prices "in every case."  Yet, Jim Baker, administrator of USDA's Grain Inspection, Packers and Stockyards Administration, maintained his implausible refusal to protect open markets by stating, "That's not collusion."

 

OCM general counsel Michael C. Stumo stated, "Baker does not need proof of collusion.  All he needs to propound regulations prohibiting captive supplies is a correlation.  He had proof of correlation before and he has it now."  Captive supplies are livestock controlled by packers through contracts or outright ownership.  Captive supplies are not negotiated on the open market and reported to USDA.  In contrast, "spot" or "cash" transactions are negotiated as to every lot of hogs or cattle and publicly reported via USDA Market News Service.

 

Mike Callicrate, a Kansas feedlot operator and OCM vice president said, "Independent feedlots used to have several buyers competing for their cattle every day of the week.  Now, with extremely high levels of captive supplies, the packers do not need to bid aggressively for cattle.  We now have less than half an hour on Thursday or Friday, while the packers are processing their captive supplies, to accept a take-it-or-leave-it bid."

 

Stumo continued, "USDA has the power and obligation to stop anticompetitive practices in their incipiency, that is before they cause harm.  Baker fails and refuses to understand that 'collusion' is not only unnecessary to prove, it is all but impossible to find without a subpoena of internal communications and depositions of witnesses."

 

The Western Organization of Resource Councils analyzed the USDA data to quantify the correlation.  WORC's consulting economists found that for each percent of captive supply, prices decreased by eight cents per hundred weight.  With captive supplies currently at 42%, the effect is a $3.36 per hundredweight price depression which is $40.32 per steer.  Those numbers translate into a $1 billion per year loss for cattle producers.

 

            The Organization for Competitive Markets is a multi-disciplinary, nonprofit organization dedicated to reclaiming competitive agricultural markets for independent farmers, ranchers and rural communities.  An OCM analysis of USDA authority under the Packers & Stockyards Act can be found at www.competitivemarkets.com/testimony/ocmt10.htm.