Impacts of Alternative Marketing Agreement Cattle Procurement Volumes on Packer Costs: Evidence from Plant-Level P&L Data

It has been argued that access to captive supply cattle improve the economic efficiency of beefpacking facilities. However, this argument has not been subject to hypothesis testing. This workmodels the cost efficiencies associated with captive supplies or cattle we refer to as beingsourced through alternative marketing agreements (AMAs). We find that slaughter andprocessing costs are lower ceteris paribus for AMA cattle than for cash market cattle. We findthat plants that slaughter cattle from AMA sources operate at higher monthly volumes ceterisparibus and lower average costs per head. And we find that plants that slaughter cattle fromAMA sources have more predictable volumes ceteris paribus and have lower average costs perhead. If AMAs were limited or prohibited then packing industry efficiency would be negativelyimpacted and that fed cattle prices would be negatively impacted.