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Mad Cattlemen Sue Oprah

Key Economic Concepts:

• Demand
• Determinants of Demand
• Determinants of Supply
• Equilibrium Price
• Markets
• Supply

Description:

A lawsuit has been filed by a group of Texas cattlemen who charge that a 1996 Oprah Winfrey show about mad cow disease drove down cattle prices by misleading and frightening consumers. Students will use their understanding of the determinants of supply and demand as well a changes in equilibrium prices to act as expert witnesses on behalf of the both the plaintiff and the defendant.

Introduction:

A lawsuit has been filed by a group of Texas cattlemen who charge that a 1996 Oprah Winfrey show about mad cow disease drove down cattle prices by misleading and frightening consumers. Students will use their understanding of the determinants of supply and demand as well a changes in equilibrium prices to act as expert witnesses on behalf of the both the plaintiff and the defendant.

Process:

Read the article excerpts below to learn more about the Oprah Winfrey trial.

Yahoo:

Oprah Vilified in Court, Adored Outside

"Witness Bill O'Brien, head of plaintiff Texas Beef Producers, said the Winfrey Show, aired on April 15, 1996, caused prices to fall by 7 cents a pound in one day...O'Brien said meat packers, after hearing about the show, started pulling out of the market in droves."

Dallas News :

www.amarillo.com/stories/012798/show.shtml ^[1]

"Mr. O'Brien detailed how the West Texas cattle market crashed to 10-year lows in the wake of the show. He cited industry figures showing a drop from 62 cents per pound on April 16 to 55 cents eight days later...The defense blames the beef industry's price drop on drought and other factors."

CNN:

O'Brien testified that he heard about an immediate slide in cattle prices after the program aired from contacts in Chicago -- which is home to both Winfrey's show and the mercantile exchange that sets a benchmark for nationwide cattle prices. He responded by notifying his feed yards to start selling off cattle. Within an hour, O'Brien had sold more than 2,000 head. Prices, meanwhile, continued dropping for weeks.

"I didn't try to sell any cattle (later) that week, but from people I talked to, they said the market was dead," said O'Brien, one of several Texas cattle producers suing Winfrey.

Plaintiffs claim that Winfrey's show triggered the market downfall, costing them $10.3 million. They're seeking unspecified punitive damages from Winfrey, her production company Harpo Productions Inc. and show guest Howard Lyman, a food safety activist."

Which determinant of demand led to a demand shift? Did demand increase or decrease after Oprah's television show?

The following information comes from a National Cattlemans' Association report from May 1996.

The amount of beef produced by the beef industry held relatively steady in spite of decreases for several years in the size of the basic cow herd and total cattle herd. That was because of greater output per cow, reflecting heavier average animals, more lean and less waste fat per carcass, and faster turn-over of fed cattle in feedlots. Overall efficiency has improved. Recently the total herd has been expanding again, and beef production is increasing. Production in 1995 was up 3% from a year earlier. With an expanding herd, output will increase further during
the next two years.

Table 2.2

Monthly Commercial Meat Production

	1994	Beef	Pork	Total Red Meat	Poultry	Total Red Meat and Poultry
1996
	Jan	2,220	1,550	3,823	2,753	6,576
	Feb	2,048	1,417	3,519	2,628	6,147
	Mar	2,034	1,421	3,513	2,625	6,138
	Apr	2,153	1,484	3,691	2,702	6,393
Year-To-Date Comparison
	1995	7,729	5,893	13,828	9,825	23,648
	1996	8,455	5,872	14,546	10,712	25,258
% of '95	96%	109%	100%	105%	109%	107%

Table 4.1

Average Prices*
Cattle, Wholesale Beef, and Retail Beef
($/cwt.)

Year	Choice Fed Steers	650lb Feeder Steers	450 lb Steer Calves	Beef Cut-Out Value	Choice Retail Beef	All Retail Beef	Featured Retail Beef
	$/cwt	$/cwt	$/cwt	$/cwt	$/lb.	$/lb.	$/lb.
1980	52.43	73.11	84.62	104.44	2.34	N/A	2.31
1981	68.42	64.40	70.80	99.88	2.35	N/A	N/A
1982	67.97	63.32	67.93	101.31	2.38	N/A	2.25
1983	65.05	62.71	69.30	97.83	2.34	N/A	N/A
1984	65.22	64.11	69.88	100.11	2.35	N/A	2.13
1985	63.66	63.03	71.32	90.76	2.29	N/A	2.05
1986	66.31	60.52	69.01	88.98	2.27	N/A	2.05
1987	60.05	73.82	84.73	97.21	2.38	2.13	2.16
1988	58.93	82.71	96.47	103.28	2.50	2.25	2.26
1989	66.14	84.14	98.76	107.78	2.66	2.46	2.41
1990	70.93	89.02	103.22	116.54	2.81	2.62	2.61
1991	73.94	90.72	105.69	118.31	2.88	2.71	2.62
1992	78.32	83.98	96.77	116.65	2.85	2.66	2.56
1993	76.40	88.96	103.15	119.23	2.93	2.71	2.72
1994	69.28	80.07	93.42	108.57	2.83	2.65	2.59
1995	66.57	68.31	78.22	106.62	2.84	2.59	2.42
1996	65.00	59.22	64.10	101.71	2.80	2.52	2.45

* Cattle-Fax Averages
Sources: USDA and Cattle-Fax

(In the retail category, Choice beef prices are averages for all cuts from Choice grade carcasses. "All" retail beef refers to all types of retail cuts -- including Choice, Select and ungraded beef.)

Fed cattle prices have decreased with increases in supplies of beef and other meats, and feeder cattle and calf prices have decreased sharply with increases in corn prices as well as cattle supply increases.

Based on the information in the interviews, how did some cattle producers respond to the show? If most producers responded in a similar way, which determinant of supply led to a supply shift? Did supply increase or decrease? Do the data above support the notion that the quantity of cattle sold increased over the previous year?

Given the expectations about buyer and seller behavior, what would you hypothesize about the direction of change in the market equilibrium price?

If you were an expert witness testifying on behalf of Oprah Winfrey, how would you describe her role in the decline of cattle prices in April 1996? Use graphs and labels to identify the source of demand and/or supply shifts. Write a description about what you think may have happened. Similarly, if were asked to testify on behalf of the plaintiff, what information could you provide that would help them?

Links Used:

1. ^{^} "www.amarillo.com/stories/012798/show.shtml" - (www.amarillo.com)

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