Effects of Captive Supplies on Spot Market Prices: A Panel Data Analysis

Abstract

There is a debate among researchers whether the negative relationship between captive supplies and spot market prices is a correlation or causality. The Granger Causality Test (GCT) suggests that captive supplies have led the change in spot market prices. The Pearson's Correlation Coefficient matrix show spot market prices are correlated with not only the current period but also lagged periods of marketing agreement and forward contracts. Koyck's method was used to estimate the cumulative effect of lag periods of marketing agreement and forward market. Regressions were conducted with and without quality variable to determine the significance of quality in cattle pricing. A panel data analysis was conducted to take into account contemporaneous correlation among cattle markets in different states. Both pooled and panel analyses indicate that there exists a negative relationship between captive supplies and spot market prices and a positive relationship between captive supplies and quality of cattle.