It's as tough to miss something you've never had as it is to miss something you've still got. At least that seems to be the case with mandatory livestock price reporting (MLPR).
The legislation was ballyhooed from the rafters when it was passed in 1999, then implemented in 2001. Crowing the loudest were those who believed packers were hiding more lucrative prices in unreported contracts and formulas reserved for the largest operators. To be fair, spot-cash reports at the time were getting so thin in some parts of the country, that some weeks there wasn't much to report.
However, when the sun set on the law Sept. 30, 2005 — the Senate and House couldn't agree on the length of reauthorization — a sudden, industry-halting void of price data didn't occur.
One reason, says Jeff Stolle, vice president of marketing for Nebraska Cattlemen, is the vast majority of folks reporting pricing information under the mandatory system continued to do so on a voluntary basis.
“The data appears to be flowing as it used to,” Stolle says. “I haven't noticed any shift in volumes given the available supply of cattle. There haven't been any major week-to-week changes on the formula and contract side.”
Where's the skulduggery?
The other reason the loss of MLPR seems so benign may simply be it never revealed the packer skulduggery many proponents were sure it would.
According to a report issued by the Economic Research Service (ERS) last fall: “It appears that, for cattle of similar quality, prices in negotiated spot market transactions closely track prices for cattle sold under contracts. In other words, producers selling under contract do not seem to realize a significant price advantage.”
That opinion was based on MLPR accounting for more than 90% of all cattle sales by early 2002, compared to an estimated 60% accounted for by the voluntary system just before MLPR was implemented, the report said.
Of course, ever since the system requiring packers to report sales transactions went into effect, the level of captive supplies folks were so concerned about has declined.
Clem Ward, Oklahoma State University Extension economist — a longtime analyst of concentration, consolidation and captive supplies — put together a comprehensive analysis of MLPR's impacts on captive supplies. In it, he explains annual average captive supplies controlled by the four largest packers ranged from 17.5% to 24.9% between 1988 — when the Grain Inspection, Packers and Stockyards Administration (GIPSA) began requiring packers to report captive supplies — and 1998. Using a different and incomparable technique, GIPSA reported the range at 32.4% to 42.9% for 1999 to 2001.
Based on MLPR during its first three years — April 2001 to April 2004 — negotiated pricing averaged 46.1%, followed by formula pricing at 43.3%, packer-owned cattle at 7.1%, and forward-contracting at 3.5%.
While some speculate MLPR actually caused a shift back to more cash transactions, market fundamentals are the more likely cause. About the time the law went into effect, supplies started to dwindle, demand began to climb and prices followed suit. In other words, there's been less incentive for sellers to lock up prices and market access.
Market forces at work
Market forces — including the aftermath of BSE in Canada, and later in the U.S. — are surely the root of another interesting finding by the ERS folks. As some folks like Ward anticipated, MLPR increased price volatility because market reporters could no longer ignore unrepresentative price extremes.
“Most would likely conclude the new information (MLPR) is an improvement, and insightful,” Ward explains. “Mandatory reporting has provided some information from weekly data on captive supplies that wasn't available previously. Plus, since data are reported weekly, the information is much more timely than waiting a year or two for the monthly or annual reports from GIPSA.” He emphasizes captive-supply data from MLPR doesn't exactly match the definition used by GIPSA to collect its captive-supply information.
Timeliness still defines use, though. As Stolle points out, “We tend to use that data (MLPR) more from a benchmarking standpoint after the fact. I think that's the way most have used it; it's not timely enough to use in trading.”
That was one of the faults a December report from the Government Accountability Office (GAO) found with the system.
“While important steps have been taken, the Agricultural Marketing Service has not yet fully assured the transparency and accuracy of these reports,” the report says.
Specific bones of contention mentioned by the GAO include: failing to inform readers of regular transaction exclusions in order to present prevailing market conditions, and incorrectly reported transactions by packers (revealed through audits). Unsurprisingly, these findings are being used by some lawmakers as fuel to reform the law.
What the GAO findings don't mention, however, is the possibility that increased market transparency appears lacking because, left to its own devices, the market was transparent already.