Moving the Market out of the Shadows

April 5, 2007

Senator Mike Enzi has introduced legislation to reform the cattle market by eliminating captive supply. Co-sponsors include fellow Wyoming Senator Craig Thomas as well as Senators Dorgan and Conrad from North Dakota and Grassley from Iowa. The bill addresses the captive supply issue directly. Packers have used their captive supplies as a market manipulating method for several years now. This bill would end that practice.

In a press release announcing the introduction of his captive supply reform bill, Enzi likens captive supply to insider trading. On Wall Street insider trading takes place when a stockholder acts on information available only to people inside a publicly traded company before such information is announced to the public. Insider trading has been prohibited for a very long time.

When packers use captive supplies of cattle, they know how much of their slaughter needs are filled when they enter the cash market. Such information is not available to the public. Economists call this asymmetric information. It is the essence of the definition of insider trading.

Packers are understandably upset about captive supply reform. They have been desperate enough to spread misinformation. And there is no doubt they know it is misinformation. Captive supply reform has been falsely described by packers and their lackeys as a prohibition against contracts altogether. Nothing could be further from the truth.

It's about time the livestock markets caught up with the proven regulations of the stock market. Far from being a step toward a socialistic market, captive supply reform is a protection of true capitalism by requiring an openness and honesty in market transactions by exposing them to the scrutiny of daylight. It would remove the cattle market from the shadows of hidden information and place it directly in the realm of real free enterprise; just like Wall Street has been for years.