When mandatory price reporting spreads its wings - supposedly by the end of this summer - odds are it will fall short of the expectations of both hand-wringing doomsayers and silver-bullet purveyors. Odds are also better than even that the most likely beneficiaries of the new system won't be the producers who clamored for the legislation to begin with.
"Producers want this, but do they understand what its impact might be?" wonders Don Wilms, vice-president of procurement for ConAgra Beef Co., one of the nation's Big Three packers. "Conceivably, mandatory reporting might help the packer more than the producer."
First, Wilms explains there are enough price transactions reported to discover price in today's voluntary system. Monfort, he says, has always reported all of its spot trades. Chuck Lambert, chief economist for the National Cattlemen's Beef Association (NCBA) says 70-80% of all transactions are currently reported. So, Wilms doesn't anticipate increased price discovery.
Besides, Wilms points out, "The market is the market as determined by supply and demand factors, and the fact that we're required by law to report prices doesn't change the value of the cattle we're buying."
A Disincentive To Premiums? If anything, he says mandatory reporting provides packers with a disincentive to offer premiums on cattle. Fact of the matter is, some packers pay added premiums on some cattle today but don't report the prices because as soon as everyone hears that someone got another buck, everyone thinks they are entitled to it even if their cattle don't merit the extra jingle.
Next, when it comes to the grid and formula cattle the legislation seeks to uncover, Wilms explains, "Basically there is a lack of information concerning what the competition is paying relative to grid premiums and discounts and base price. Once this mandatory reporting is implemented, we'll know more about what our competition is doing."
If packers can ferret out specific values they're all paying for the same cattle, it's reasonable to think that ultimately each one could start paying the same base, same premiums and same discounts. This sounds eerily similar to the average-based system already in existence.
But, the safest money of all, and the most bitter pill, may be the cost implications.
"It doesn't make the beef any more valuable. And, if it adds cost to the system, which it will, it will probably cause a slight reduction in price to the producer," says Wilms. "It will add cost to the system in a day when everyone is trying to remove cost from the system."
That, just as cow/calf producers are beginning to reap the spoils of cyclically declining cow numbers in tandem with apparently increasing consumer demand. If packers wind up passing along the cost of mandatory reporting to fed cattle, presumably calves and feeders will command less than they would otherwise.
Increased Costs Are A Given Moreover, Tim Schiefelbein, Monfort's manager of value-added procurement, worries the initial impact of mandatory reporting could stall the industry's progress toward value-added vertical cooperation. He explains, "The industry has worked through alliances - producers, feeders and packers working together - to reduce cost and improve the product. This increases cost but doesn't improve the product."
Keep in mind that Monfort, along with other major packers helped NCBA craft the legislation that was signed into law last October. That doesn't mean they necessarily believe it's beneficial, but Wilms says, "We're in favor of helping the producer make an informed decision. If this is information they feel like they need, then we support it."
Bottom line, Paul Hitch, chairman and president of Hitch Enterprises, one of the nation's largest cattle feeders, explains, "I personally was not in favor of mandatory price reporting because I'm concerned that the packers have greater ability to crunch the numbers than an individual feedlot." Moreover, he's hard-pressed to understand how the new system adds to price or value discovery.
Briefly, mandatory reporting requires packers to report all live, carcass, grid, formula and boxed beef trades to USDA. Depending on the volume and number of packers reporting various categories, however, reported prices may in fact not be reported to the public.
"It will provide a broader range of information from which producers can make business decisions," explains Lambert. "I think this will provide equal access to market information." Whether or not producers exploit that access equally is another question.
Still, in theory at least, Lambert says the wider price distribution mandatory price reporting is expected to reveal - and hoped for retail price data - could serve as added benchmarks for value. They also might offer producers more confidence to price their offering beyond the packing house rail. In reality, however, Lambert says, "If anyone thinks this will add $2 or $5/cwt. to the price of cattle, they're fooling themselves... It probably won't be the panacea its proponents had hoped for or represent the doomsday opponents thought it would be."