Assessment of the Cattle and Hog Industries Calendar Year 2000

lock in the price. The locked price is determined by applying the basis to the futures
market price for that date. The packer and feeder agree on a delivery date and time.
P&SP reports on the volume of cattle that packers report they have procured under
forward contracts and market agreements. Between 1988 and 1998, the latest data
available, the percentage of cattle the 15 largest packers reported procuring through
marketing agreements and forward contracts ranged between 13 percent and 19 percent,
with no upward or downward trend over the period. 50
Packer Feeding–Packers slaughter some cattle that they own and feed themselves, either
in their feedlots or in custom feedlots. In some instances, the feedlot may be owned by a
subsidiary of the packing firm, or by a subsidiary of a separate parent company of the
packer. In some instances, packers may enter into joint ventures, sharing ownership of
cattle with individuals or with feedlots where the cattle are fed. A joint venture is a profit
sharing agreement in which the feeder and packer share the costs and revenues. When
packer-owned cattle are ready for slaughter, the feedlot manager notifies the packer of the
number of head and the week of delivery and the packer schedules the delivery day.
Typically, feedlot managers will notify the packer when the cattle have reached the
desired weight and degree of finish, and the packer has discretion in scheduling delivery
for slaughter. Based on data reported to P&SP by the packers, packer-fed cattle as a
percentage of slaughter declined from 4.7 percent in 1988 to 3.5 percent in 1998. 51
Captive Supplies–Producers and others have differing concepts of what constitutes
captive supplies. Some, including P&SP, define captive supplies as cattle that are owned
by or under contract to a packer more than 14 days before the animals are ready for
slaughter. P&SP’s definition includes cattle procured through marketing agreements,
forward contracts, and packer feeding arrangements. Some market participants define
captive supplies to include all transactions in which price is based on a plant average
price, while others define as captive supplies all non-spot market transactions. Some
limit the definition of captive supplies to cattle committed to a packer for any period of
time, while others require a set amount of time, which can be more or less than the 14
days used by P&SP. P&SP is undertaking a Congressionally-mandated study of the
captive supplies issue. 52
Fed Cattle Pricing Methods
Pricing methods refer to the method used to determine the price paid for a specific lot of
cattle. Examples of pricing methods include liveweight, in-the-beef, grade and yield, and
formula. The same price may be paid for all animals in a lot (lot-average pricing) or
different prices may be paid for each animal (carcass-merit or value-based pricing).
Lot-Average Pricing
50 Packers and Stockyards Programs, Packers and Stockyards Statistical Report, 1998 Reporting Year, GIPSA SR-00-1, GIPSA-
USDA, July 2000.
51 Ibid.
52 Conference Report 106-948, 106 th Congress, 2d Session, to accompany H.R. 4461, October 6, 2000.
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