The systematic downward bias in live cattle futures: An evaluation

✍ Scribed by Lennart A. Palme Jr.; James Graham

• Publisher: John Wiley and Sons
• Year: 1981
• Tongue: English
• Weight: 373 KB
• Volume: 1
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990010308

✦ Synopsis

James Graham

n the last two years Congressman Neal Smith of Iowa has released a series of I reports critical of the live cattle futures market. These reports, prepared by the staff of the House Committee on Small Business under the direction of Chief Economist Dr. John Helmuth, have received widespread coverage in the press. The press has also reported the response of the President of the Chicago Mercantile Exchange, denying Congressman Smith's various charges. However, the charges and denials have not received enough coverage to provide the readers with the data to evaluate the validity of Congressman Smith's charges or the quality of the economic analysis provided by John Helmuth. Now with the publication of the latest report from Dr. Helmuth and the Committee staff, originally released in February 1981, the readers can see behind the headlines and evaluate for themselves the caliber of research and the validity of the conclusions.

We are confident that anyone taking the time to study the Helmuth report will be dismayed by the lack of solid economic analysis and the misleading conclusions presented. It is our feeling that the report serves as its own worst critic. It is our purpose to only highlight some of the problem areas and let the readers perform their own evaluation.

THE BASIC HYPOTHESIS

The title of the Helmuth report is "The Systematic Downward Bias in Live Cattle Futures." In one of the early paragraphs of the study, Helmuth states, "Evidence indicates that this market is operating with a consistent, systematic, perfectly predictable downward price bias." Further, the author states, "When live cattle futures prices reach a price which covers Corn Belt cattle feeders' costs plus an interior Iowa-Southern Minnesota basis adjustment, they will drop-every time." Finally, he concludes that because the market operates with this predictable