Pricing Linkages Between Added Value Levels Of The Beef Industry: A Systems Approach

Abstract

Agricultural commodities, and in particular the livestock industry, experiences cycles in prices, demand, and supply conditions. Large variations can result from a variety of factors which influence the regularity, magnitude, and the severity of the cycles. In the last few years the U.S. Livestock industry has suffered through hard financial times. Grass roots organizations such as WORC have accused the packers for using their economic power gained from concentration and the use of captive supplies for low prices at the slaughter and cow-calf levels. To compound the issue IBP, the largest beef packer, with 33 percent of the beef kill is for sale and has been bid on by other packers, potentially concentrating the industry more and reducing the number of bidders for slaughter cattle. The article found that the inefficiencies and price distortion in the value system were not at the packer level, but rather the retail level and between the feedlot level and the cow-calf levels. Because of changing marketing arrangements, price discovery issues in the concentrated markets needs to be resolved before suspicion will disappear.