MANDATORY PRICE REPORTING: IT'S THE LAW

P.J. Rathwell, Extension Ag. Economist

Last October Congress passed the Livestock Mandatory Price Reporting Act of 1999. The act is an attempt to provide producers with timely information on the differences in fed cattle value (head and carcass), before the animals are marketed.

Mandatory price reporting requires packers to provide the USDA's Agricultural Marketing Service daily price and volume information regarding negotiated and non-negotiated purchases of cattle and boxed beef sales. The new system intends to provide complete information regarding negotiated cash prices as well as cattle sold on contracts and formulas. Volume and quality information also will be reported for packer owned cattle.

This is an important piece of legislation for all cattle producers and especially producers in the Carolinas that maintain ownership of their cattle through the feedlot phase on the market channel. With the industry moving away from public auctions to more private treaty sales pricing information is lost to the general market. This loss in information makes it more difficult for the average producer to determine the value of his animals prior to a sale and be assured that he is being paid what the cattle are worth.

How is this information going to be made available to the producer? Once the reporting process is in place, beef packers will report to USDA twice daily all price and volume information for all cattle purchased since the previous report. USDA will compile and release market reports as it does under its current voluntary reporting system. Each Monday morning, packers will provide USDA summary reports of the previous week's volume of all cash and non-cash shipments, with separate reports for contract, formula and packer-owned cattle. USDA will collect the information, create a national aggregate report and publish the report on the same day.

Tomorrow's producers will be value-based marketers. Alliances are requiring cattle to be produced on a set of specifications (breed combinations, heath requirements, feed additives, etc.). The alliances after analyzing their marketing opportunities have developed a list of do's and don'ts for their cattle producers. The do's are based upon what the market perceives as a positive add ons to the animal's value by the consumer. The don'ts are discounts.

How do the alliances determine what these do's are worth (PRICE) and how do they reward the producer? Values are determined by what the packer receives from the retail outlet and then passes down to the feedlot. The consumer develops premiums and discounts via the acceptance of the beef product. The packer passes this information to the feedlot through the price that he is willing to pay. Animal traits that are perceived to have significant value are paid a premium. Traits that are not in demand are discounted.

Today this premium and discount process is frequently developed and related to the producer through a grid. For example, a Quality Grade based grid would reward cattle that graded Choice + and heavily discount cattle grading Select. A Yield based grid would reward cattle that graded ones and twos and heavily discount fours and fives. Grids also discount cattle that weigh over or under a set carcass weight range.

Cattle sold on the head are also evaluated on the bases of quality and yield grades. The difference between a carcass and live grading system is that the live basis grader is "estimating" how the animal will perform. Because the risk of being wrong is present in the graders estimate he will frequently pay less than the animal's worth (based on his estimate being correct) to hedge is estimate. The carcass-based approach can see the results and it isn't an estimate.

This mandatory price reporting process is for fed cattle. How can it help a Carolina producer that sells lightweight calves? The buyers of Carolina calves don't work in a vacuum. They are aware of the prices being paid for all types of cattle that posses certain traits. The cattle they buy are in turn sold to someone else. They face the same set of market premiums and discounts as do cattle producers. The question is do they pass on to the producer all of the premiums that they are paid and not more of the discounts. How do we, as producers, know that we are being paid what are cattle are worth?

The mandatory price reporting process is a start. By having a system that publicly reports an animal's value at the feedlot-packer level of the market we can obtain a better understanding of the animal's worth to the cattle producer. The more the producer understands the value of his animal's characteristics and his management practices the more he will be able to work the market to achieve a fair value for his animals.

The future will provide producers with a wider range of alternatives to market cattle. More alternatives mean more choices for the producer but it also means the need for more information, more analysis and more decision-making. The future will allow cattle producers the opportunity to capture the fair value of their animals---if they believe that marketing is an important tool in the management of their business.