How have packers accumulated the off-market or captive supply cattle that give them control over the market?
First, the major packers own and feed their own cattle, thus reducing the number of cattle they purchase in the open market to fill plant capacity. They also use their own cattle to control prices. When demand drives the open market higher, packers slaughter their own cattle, thus limiting access to available plant capacity and satisfying demand, causing open market prices to fall. Second, packers use market access restrictions as leverage to encourage producers to enter forward contracts without setting a price until after the cattle are removed from the market. While this gives producers access to the market, it also allows packers to fill much of their available plant capacity without first having to bid or negotiate a price for cattle. This reduces the demand for cattle in the open market, resulting in lower open market prices. Packers then use the lower, open market price as the basis for pricing their un-priced, forward contracted cattle, driving all cattle prices down. Q: If the
