Livestock Mandatory Price Reporting: Livestock Mandatory Price Reporting: Fed Cattle Market ImplicationsFed Cattle Market Implications

Ted SchroederProfessor,

Agricultural EconomicsKansas State University

tcs@ksu.edu

C-FARE SymposiumNovember 6, 2002Washington DC

Livestock Mandatory Reporting ActLivestock Mandatory Reporting Act

Enacted into law October 1999Operational April 2001

An amendment to Agricultural Market Reporting Act of 1946

Objective:Provide information to better reflect the overall supply and demand situation of the marketplace and would allow producers to better determine prevailing market prices, conditions, and arrangements pertinent to the marketing process (Federal Register, 2000)

Livestock Mandatory Reporting ActLivestock Mandatory Reporting Act

Requires:

beef, pork, and lamb processors of specified slaughter volume to electronically report details of all transactions of livestock purchases and wholesale trade (beef and lamb only) twice daily to USDA. Also calls for monthlyretail meat price and margin reporting.

USDA summarizes and reports information subject to confidentiality clause

Livestock Mandatory Reporting ActLivestock Mandatory Reporting Act

Contrast to voluntary reporting

Expensive endeavor

Supported by producer associations

Lobbied against by packer associations

What brought us to this point?

Markets at each stagecoordinate chain, but system worked poorly

- highly varied product- little price-quality distinction - no incentives to improve

"Additional Movement" and Contract and Formula Fed Cattle Marketings, KS, CO, TX, and NE, 1995-2001

17.2%21.4%

23.4%

31.9%34.5%

40.9%

45.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

1995 1996 1997 1998 1999 2000 2001

Year

Perc

ent o

f Mar

ketin

gs

Source: USDA and Cattle Fax

Weighted-Average of Respondent's Percentage of Cattle Marketed Under Marketing Agreements, by Year

22.5%

52.3%

65.3%

0%

10%

20%

30%

40%

50%

60%

70%

1996 2001 Expect in 2006Year

Perc

enta

ge o

f Cat

tleM

arke

ted

Source: Schroeder et al. 2002 Feedlot Survey

Percentage of Days Fed Cattle Cash Price Not Reported by AMS in Kansas, Nebraska, and Texas, 1991-March 2001

0

10

20

30

40

50

60

70

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000*Year

Perc

enta

ge o

f Bus

ines

s D

ays

Nebraska

Texas

Kansas

* Year 2000 includes Jan-Mar 2001 after which mandatory price reporting beganSource: USDA, AMS

Livestock Mandatory Reporting ActLivestock Mandatory Reporting Act

Cash market trade in hogs also declined (Grimes)44% in 199717% in 2001

Disappearing cash trade made change in Market Newsreporting necessary

Given nature of changes, mandated reporting inevitable

Effectiveness of ActEffectiveness of Act

1. Eliminated selective reporting bias(Koontz, GIPSA)

2. Initially confidentiality guidelines resulted in less frequent reports than under voluntary system After modifications, problem resolved(Schroeder, Grunewald, and Ward)

3. Increased price information should:reduce packer costs of information reduce producer uncertainty about terms of

tradeinform otherwise uninformed participantsimprove production efficiencyenhance price discovery process

(Bastian et al., Azzam, Anderson et al., and others)

35%

15% 13%

8%

19%

6%1% 1% 2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 2 3 4 5 6 7 8 9

Level of Agreement (1=SD to 9=SA)

Perc

enta

ge

Effectiveness of ActEffectiveness of Act

Cattle Feeder Survey response to:

Mandatory Price Reporting has Enhanced my Abilityto Negotiate with Packers

Source: Schroeder et al. 2002 Feedlot Survey

Disagree | Agree

Effectiveness of ActEffectiveness of Act

Cattle Feeder Survey Response to:

Mandatory Price Reporting is Benefiting Beef Industry

22%

11%8% 8%

22%

7% 7% 5%9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 2 3 4 5 6 7 8 9

Level of Agreement (1=SD to 9=SA)

Perc

enta

ge

Source: Schroeder et al. 2002 Feedlot Survey

Disagree | Agree

Effectiveness of ActEffectiveness of Act

4. Timeliness of reports has raised concerns (Schroeder et al.)

5. Collection and reporting have been expensiveAppears compliance costs were underestimated

Who pays for compliance costs? - producers, consumers, and packers

Policy ImplicationsPolicy Implications

1. Reliable, Relevant, and Timely Market Information essential for efficient price discovery

2. Diminished cash livestock market trade made changes in Market News necessary

3. We replaced a voluntary system with an expensive mandatory system without careful study of:

- costs of mandatory reporting- benefits of mandatory reporting

4. Just because mandated reporting did not reveal any “special deals” it has been criticized

that is not a valid critique

Policy ImplicationsPolicy Implications

5. Have we been enacting “experimental policymaking” in livestock markets?

Without careful assessment of cost, benefits, and impacts we have enacted recent policies:

- Mandatory Price Reporting Act- Country of Origin Labeling

.

.

.What’s next-Ban certain parties from owning livestock?-Limits on producer-packer marketing contracts?