Market Preview: Pork’s Stake in Price Reporting

US - This week, in National Hog Farmer's weekly Market Preview, Steve Meyer, Ph.D. of Paragon Economics, Inc., writes about the Livestock Mandatory Reporting Act of 1999, which was recently re-authorised.
calendar icon 24 September 2010
clock icon 5 minute read

It is official – the Livestock Mandatory Reporting Act of 1999 has been reauthorised and needs only the president’s signature to be law for five more years. That signature should not be a problem.

The legislative action comes as a relief to everyone in the livestock business, given what happened five years ago. When the act first expired in 2005, it took over a year to get it reauthorised due to the objections of several upper-Midwest senators who, because of complaints from a small minority of producers, believed that the system was deeply flawed. When asked about their perceived problems with the act, they never had a good answer. The issue pretty much revolved around some so-called “mistakes“ in the cattle reports, which I still don’t believe existed.

Regardless, Agricultural Marketing Service (AMS) had to rewrite the rules, which took the better part of a year. Then, it took another year to “officially“ reauthorise the mandatory system.

To their great credit, pork packers continued to voluntarily report virtually everything required by the mandatory system while the good Senators were dithering and AMS rewrote the rule. Ditto for steer and heifer slaughterers and most cow slaughterers, although the wheels fell off of lamb reporting in the interim. The sheep industry was hurt badly since there was virtually no data upon which to make decisions.

Two Big Changes for Pork

There wasn’t much contention about this round of reauthorizations, but there are two big changes for the pork industry.

First, the reauthorised system will make price reporting for wholesale pork cuts mandatory. Pork was left out of the original law passed in 1999, because Congress insisted that the industry write a law that everyone agreed to or they wouldn’t pass anything. Under those circumstances, wholesale pork cuts were a deal breaker and, rather than get nothing, producers agreed to their omission.

This does not mean we will know the prices at which all wholesale cuts sell. A large portion of bellies and hams never change hands in an unprocessed wholesale form. They stay within Smithfield Foods, Hormel Foods, Farmland Foods, Farmer John, etc., to be processed into cured products. In addition, many of the products that do change hands are formula-priced, just as many hogs are. So, while these volumes of reported cuts will grow well above the paltry 2 to 5 per cent of total carcass-weight pork production we have seen since 2004, producers must realise they will not even approach 100 per cent.

Additionally, when wholesale reporting becomes mandatory, the cutout value estimated by USDA each day will decline! The reason is that current reporting is almost certainly skewed to the high end of the price distribution. Wouldn’t you report your highest selling prices if a) you were given the choice, or b) you sold a bunch of hogs based on the price you report? Mandatory reporting will include all prices, which means the low prices will push the average lower, just as happened with hogs and cattle when mandatory price reporting began back in 2001.

The other new feature will be weekly reporting of pork exports. The bill’s language matches the language included in the original act for beef, so I presume we will see much the same data. One set of beef data is generated from reports of wholesale prices and quantities. The prices and quantities from this set are included in the comprehensive beef cutout computations and quantities shipped to North American Free Trade Agreement (NAFTA) and non-NAFTA markets and published each week. Another set of data are generated by customs officials and represent the pounds of actual product that are loaded at US ports by shipment destination each week.

Don’t expect any of this soon. The law requires a “negotiated rule-making“ process that is apparently slower than the normal process but, theoretically, should include only those parties that have a direct stake in the system. One Capitol Hill friend told me that we might all be surprised at who USDA includes in the process. I hope he is wrong on that since designing a good system for reporting prices of pork cuts, with all of their unique specifications and characteristics, is going to require real knowledge of the trade – not just an ideological interest.

Trade Data Delayed Again

One more week without Canadian-US live hog trade data. AMS tells me they are close to having the data up and running again. Let’s hope so, so we can get a reasonably clear picture of potential slaughter levels coming out of next week’s Hogs and Pigs Report.

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