The Critical Question Remains Ignored

March 29, 2007

Normally when a study is done to analyze a serious matter, we at least expect the right questions to be asked. In the GIPSA study that was released in February the greatest question on everyone’s mind was whether captive supply affects the price of cattle. Somehow, when the analysis was being done the question morphed into the less relevant one of whether cash prices are lower than captive supply prices.

While that question is important, it fails to get to the heart of the problem. In most cases the price of captive supply cattle is tied to the price in the cash market. So of course an analysis to determine the relationship between the two would find little variation. The next step, and the one GIPSA failed to take, would be to analyze whether the proportion of captive supply in the market has a depressive effect on the cash price. In answering this question the study contractors would also have to determine whether any relationship between proportion of captive supply and the cash price is a result of correlation or of causation. That specific question was raised in the Pickett vs. Tyson trial and in a study by Schroeter and Azzam before that. The results generated a great deal of controversy and debate.

The recent GIPSA study did not address the question at all. That failure alone severely diminishes the value of the study. If the study did not determine the relationship between the proportion of captive supply and the cash market price, then it did not answer the most important question facing the market.

Without a direct answer to this question Congress ought to feel free to ignore the entire study and chart its own course toward solutions to relieve the abuses of market power in the cattle market.