OCM has calculated that captive supplies cost producers over $5.7 billion in lower prices during 2006 because of the price depressing effects of packer market control.  The analysis was based upon a January study released by the U.S. Department of Agriculture and related research.  OCM said that cattle producers received an average of $69 per head less than they would have in a free and competitive market.  Hog producers received $32 to $48 less per head less than competitive market prices.

“The Senate Agriculture Committee has a chance, this month, to boost farm income and rural prosperity by including livestock market reforms in the Farm Bill,” said Keith Mudd, OCM president.  “Producers that actually sell cattle to packers know that higher captive supplies result in lower bids for livestock.  Farmers, ranchers and feeders deserve the opportunity to profit from their innovation and hard work through free and competitive livestock markets.”

USDA commissioned a report, mandated by the 2002 Farm Bill, to study the industry.  The report was not released until January 2007, and showed a stunning decrease in prices caused by packer ownership and contracts.  The study shows a $69 per head price decrease for cattle and at least $32 per head for hogs.

The USDA-commissioned report finds that only 9% of hogs and 62% of cattle were sold on the open market from 2002 to 2005.  OCM calculated the price declines caused by these captive supplies.

Most prior cattle studies have found that each one percent increase in captive supplies is correlated with – or causes - a .145% to a .25% decrease in cattle prices.  Using the USDA report numbers of 38.3% captive supplies (which OCM believes are probably too low) and a low end .15% negative price impact, the price decline today is $5.75 per hundred weight.  In other words, cattle feeders received $69 per head less (on a 1200 pound animal) than free market prices.

The hog picture is worse.  The USDA report found that each one percent increase in contract hogs causes a spot market price decline of 0.75%.  The study’s authors also said a one percent increase in packer owned hogs causes a spot price decline of 0.24%.

The USDA study said that 20% of hogs marketed are packer owned, thus causing a negative price impact of $4.80/cwt live, or $13.44 per hog (at 280 pounds per hog).  By adding the contracted hog impact, the result is another $43.28/cwt price depression (58% x .75) for a total of $48.30/cwt.  This is a tremendous price decline. 

But let’s assume the price effect is less, similar to the cattle estimate of 0.15% for every 1% of captive supply.  The price depression effect is $11.65/cwt or $32.62 per head for a 280 pound hog. 

Commercial hog slaughter numbers for 2006 were 104.7 million head annual hog slaughter in 2006.  Hog producer received $3.4 billion less than they should have in a free market (at $32.62/head price decline).

Commercial cattle slaughter numbers for 2006 were 33.7 million head.  Cattle feeders received $2.3 billion less than they should have in a free market (at $69/head price decline).