Livestock Mandatory Price Reporting: Fed Cattle Market Implications Ted Schroeder Professor,...
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Livestock Mandatory Price Reporting: Livestock Mandatory Price Reporting: Fed Cattle Market ImplicationsFed Cattle Market Implications
Ted SchroederProfessor,
Agricultural EconomicsKansas State University
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?