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This paper examines the impact of captive market supply on cash market price in the U.S. cattle procurement market with consideration of dynamic interactions between captive and cash markets. Both conceptual and empirical analyses explore advantages of dynamic models over static models by focusing on the temporal change in the ratio of captive purchase to packers' total procurement and discount factor. Empirical models were estimated using the Kalman filter procedure with three alternative cost functions: generalized Leontief, translog, and quadratic functions. Dynamic estimation results found a statistically significant and negative relationship between captive market quantity and cash market prices from all functional forms of cost function. However, results of static models showed that the captive market quantity - cash market price relationship was sensitive to functional forms of cost function. Findings from our empirical analysis suggest that dynamic models could be more appropriate than static models in examining the impact of captive supply on cash price in the cattle procurement market. |
