Short run price effects of a change in the buying structure for hogs at a terminal market
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"Statement of Problem: The presence of packing houses on terminal markets to convert into meat the large numbers of slaughter animals amassed by the railroads, was considered by some economists to be one of the essentials necessary for the existence of a terminal livestock market. As cities began to surround the terminal stockyards and the adjacent packing plants, land values rose steadily and access to the terminals became more difficult. As the original plants adjacent to the terminals become antiquated, many packers were attracted to concentrated areas of supply away from the large cities. At the same time this relocation of packing plants was occurring, terminal markets were experiencing a steady decline in volume of receipts. This decentralization of the packing industry into areas of production and the simultaneous deterioration of central markets, may provide some substantiating evidence for the viewpoint that the presence of packing plants is essential for the existence of a terminal market. In light of these existing circumstances, it is interesting to note the decision of a major packer, in 1971, to locate a new hog slaughtering plant on the St. Louis National Stockyards, a terminal market for livestock. The new slaughter plant for hogs was opened in October of 1971 and was located immediately adjacent to the market site. This packer had previously operated a plant in the St. Louis area until May 1970 and was without a plant in this region during the interim (May 1970 through October 1971). The introduction of a large buyer into the marketing structure provides a rare opportunity to gauge the effects of this entry on the price relationships of this market. The purpose of this study is to determine whether or not the opening of a new slaughter plant for hogs, adjacent to the St. Louis National Stockyards, significantly affected prices at this market relative to prices at other terminals. The specific objective of this study is to test the hypothesis that the opening of a new slaughter plant on the St. Louis market significantly raised the price surface at that point as compared to key time periods prior to the opening of the plant. After establishing a theoretical framework within which to describe the structural change, the study empirically measures changes in both absolute and relative price levels at the St. Louis National Stockyards as compared to other slaughter hog markets."--Page 7.
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