Mandatory price reporting will evolve into something more workable, but not overnight.
Be careful what you ask for, they say you just might get it. The cattle industry asked for mandatory price reporting (MPR) and, as ugly as it's been to date, it's here to stay. But, the sooner it can get a face lift, the sooner our reporting system can start working better for everyone.
MPR's debut couldn't have been worse. From the beginning, the reports compiled by USDA's Agricultural Marketing Service (AMS) were laced with data holes big enough to ride a horse through.
• The 3/60 rule is often faulted for this decrease in information. The rule allows release of information only when at least three packers are trading in the market and no packer supplies 60% or more of the market.
Then, it was learned that from April 3 to May 11, AMS had miscalculated the reported cutout values for beef carcasses and primals. Prices for “no-roll” product Standard and lower grades were being incorporated into both the Choice and the Select cutout values.
No-roll product typically sells for $2/cwt. less than Select. For 29 market days, daily Select and Choice cutout values averaged higher than originally reported. One day's Choice report was off by $7.69/cwt.
USDA calls it a computer glitch, but it cost the feeding industry millions of dollars; producers and cattle feeders will feel the pain for some time. We'll never know for sure how much money was lost directly or indirectly, who lost it and who found it.
Meanwhile, USDA is facing some serious class-action lawsuits and may be in the mood to provide some type of settlement.
The Confidentiality Clause
The frustration and outrage over this software glitch is understandable. But a more chronic glitch has cattle producers even more confused about what MPR is doing for them. Producers feel they're receiving less market information than under the old voluntary price reporting system.
They can thank the 3/60 provision for that. This provision isn't unique to livestock and meats price reporting. Other government branches use it to protect the confidentiality of private business information and to prevent collusion.
But, 3/60 will be a short-lived component of MPR. In fact, had USDA not had to stop and clean up the mess from the miscalculated cutout prices, the 3/60 rule may already have been replaced with something else.
USDA has evaluated data from regions where release of information is restricted due to 3/60. The agency now must determine how to reconfigure regions so the data still has meaning to producers. It's also looking at other methods for releasing data that still protect confidential information.
Don't Expect Miracles
Given the complexity, it's not surprising there have been problems in the transition from voluntary to mandatory reporting.
While MPR provides daily morning and afternoon reports, that doesn't mean there is always trade to report. The majority of fed cattle trade still occurs in a narrow window one or two days a week. Trade can only be reported after it happens, whether it's mandatory or voluntary.
We must remember two things:
• MPR doesn't change the way livestock and meat are traded. It only defines the transactions required for reporting once trade occurs.
The system provides commitment and delivery reports for cash, formula and contracted cattle. It also reports prices for formula and contract transactions, and price ranges that reflect the value differences for various qualities of cattle. We are getting much more complete information on boxed beef and cutout prices.
Under the voluntary system, this information was not available or in the case of boxed beef, very thin.
Generally, good cash cattle prices for the five regions are being reported. In time, they will improve in availability and timeliness.
• The price reports you see are just that reports. They're not price determination, and they're not real-time. They can be used in downstream price determination but only a seller and buyer who are communicating can determine a price.
Using price reports, we can have an indication of value. But the three tenets of value time, place and form are different with every transaction.
Reports also can be used to track trends and bias in a market and predict markets. But, reports are not the market.
In the short run, MPR has meant less price information in some markets. But, MPR has the potential to provide more detailed price information, segmented by livestock weights and quality levels. It also could fill some data gaps, particularly in meat price reporting.
As tough as it has been to date, increased price transparency will evolve from MPR. In today's concentrated packing industry, however, the 3/60 provision blacks out too many areas. It can't be allowed to defeat the purpose of MPR.