23 Feb 2006
Misreported Boxed Beef Prices

A lot of folks wonder how corporations take advantage of producers: this case illustrates a classic scam. Commodities markets depend on transparency: information is the currency that's being traded here, and perfect information makes for market equilibrium. Of course, information is never perfect, and so prices constantly move and flow, adjusting themselves in a sort of feedback loop to try to find the balance.

If the information can be controlled and skewed, it can be used to leverage huge advantages in trading. This is exactly what happened here: this should be a pretty open and shut case. It'll be interesting to see how the packers try to defend themselves.

I strongly suspect that this kind of thing goes on pretty much all of the time, behind the scenes, in various commodity markets, including such non-agricultural goods as energy and metals. It was a variation on this theme that got Enron in so much trouble trading electricity in California before their collapse - and it wouldn't surprise me a bit to see a major "agribusiness" follow in it's footsteps at some time in the near future.

(Aberdeen, S.D.) A federal jury trial will begin here April 3 to consider claims made against the four largest United States beef packers arising out of the misreporting of the U.S. Department of Agriculture's boxed beef prices that occurred between April 2 and May 11, 2001.

(link) [The Prairie Star]

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