Price transparency in the hog market has been producers’ rallying cry for some time now. It appears you will soon be getting what you’ve asked for.
USDA outlined the rules for the Livestock Mandatory Price Reporting Act of 1999 in March. This was followed by a 30-day comment period ending April 17. The rules are expected to go into effect in mid to late summer, with the intention of clearing up the sometimes muddy hog price picture.
Among the legislation’s chief objectives is to provide information on the volume and terms of sale for domestic swine, as well as slaughter numbers. One of the required reports involves publishing the previous day’s activities by 8 a.m. This report is considered one of the major selling points by some, while others find it a sizable snag in the program.
“Mandatory price reporting will provide some information that isn’t available now, especially the prior day reporting,” says Steve Meyer, director of economics at the National Pork Producers Council.
The flip side of that coin comes from packers who say that the prior day report will be difficult if not impossible to report.
“Some packers are not even sure they will be able to report some of their hogs sold on contracts, because their price may be tied to a weekly average,” says Jens Knutson, economist for the American Meat Institute.
USDA’s Agricultural Marketing Service says the parties involved in contracts with such provisions need to decide if those terms are still practical for the new price reporting system.
Daily information will be required from all packers that slaughter 100,000 hogs per year, which will cover 95 percent of U.S. slaughter.
Currently, packers voluntarily report prices two or three times a day. Any hogs purchased by 2 p.m. are included in the end of the day report and hogs sold after 2 p.m. aren’t being reported anywhere. That will change when the law goes into effect and the prior day report becomes mandatory.
The new prior day report will include actual prices from the previous day.
Any discrepancies between a packer’s current day report and the complete day’s report published the following day can lead to trouble. If USDA determines there is a pattern of significant difference between the two reports it can levy a fine of up to $10,000 against that packer depending on circumstances, according to Kenneth Clayton, associate administrator for AMS.
There will be a procedure for due process, allowing a packer to plead its case if needed. USDA also will have the power to assess injunctions and restraining orders against offending parties in some cases. The bill authorizes the Grain Inspection Packers and Stockyards Administration to establish a system of gathering information on current marketing contracts. This information will be compiled into a contract catalog, allowing you to see what contracts are available and who is offering them.
Packer-owned hogs must be reported separately from other market hogs. Slaughter numbers and carcass characteristics must be reported on those hogs, but not prices.
“That price is really immaterial to the performance of a vertically integrated system, and it could be used to manipulate the average prices for the hogs actuallytraded,” Meyer says.
For all other hog purchases, the rules require packers to report base prices, net prices and carcass characteristics. Showing both prices gives you a more complete market picture.
In addition, packers will have to report “non-carcass” premiums, like delivery time or load size, weekly by plant, so that you can identify which plant is offering what deals.
Another provision of the bill is that USDA will publish monthly Hogs and Pigs Reports in addition to the current quarterly report. The survey will be simplified to reduce the reporting burden and save funds.
Not everyone likes the new rules, however. The American Meat Institute, which represents packer interests, has opposed the bill.
“We believe USDA has extremely understated the costs of the program,” says Janet Riley, AMI’s vice president of public affairs. “USDA is saying that a plant can update its systems to transmit the data electronically for $750 to $1,000. We think the hardware costs alone will exceed that.”
Another problem AMI has with the bill is the cost inequality between large and small packers. Lawmakers admit that the process will be more costly for small packers. AMI says the bill will be 28 times more costly for the 12 smallest pork packers than the seven largest, and that is too wide a swing.
The proposed rules have no apparent conflicts with pork producers’ wish list, as outlined by the law.
Still, the transition from voluntary to mandatory price reporting won’t be without a few bumps in the road.
“The big challenge for producers will be to sort through the additional information to figure out what’s most important to your situation,” says Clayton. “Everyone involved in the marketing of hogs will go through some adjustments.”
By Tyler Kelley
What Will and Won’t Mandatory Reporting Do?
Mandatory price reporting has been among the most discussed topics of the past two years, and has been heralded as a golden goose to aid low prices. But increasing hog prices never was a goal of price reporting; rather it is about providing you with more information.
“Alone, it may not raise prices, but it will certainly provide a more comprehensive and hopefully more accurate reflection of prices, contract commitments and animal movement,” says Kenneth Clayton, associate administrator for USDA’s Agricultural Marketing Service.
A more open market could ease people’s minds and help boost trust between different links in the pork chain.
“I hope it will ease peoples’ fears and show that the alleged ‘sweetheart’ deals don’t exist,” says Steve Meyer, economist with the National Pork Producers Council.
While it will make for a more open marketplace, the program will have limitations. Perhaps the biggest misconception: “It won’t increase the price of hogs,” says Meyer. “It won’t provide individual transaction data in the public room. For example, it won’t show the price that Murphy Farms’ received for its hogs.”
What It Will Do:
- Improve daily market information.
- Facilitate more informed marketing decisions.
- Create a catalog of marketing contract information.
- Create a monthly hogs and pigs inventory report.
What It Won’t Do:
- Provide prices of packer-raised hogs.
- Provide plant-by-plant information.
- Provide the terms of all marketing contracts. Producers are still responsible for investigating contract opportunities and comparing contract terms.
- Improve hog prices above the levels that supply and demand dictate.
The Saga of the Fat-Free-Lean Index
For mandatory price reporting to be effective, a standard for fat-free lean content within hog carcasses had to be determined, so that you could compare apples to apples.
USDA chose the National Pork Producers Council’s Standardized Fat-Free-Lean Index to be part of the new mandatory price reporting regulations.
The new Fat-Free-Lean Index has been a hotly debated subject that has at last come to a relatively happy ending.
The new FFLI was developed as part of NPPC’s Quality Lean Growth Modeling study, which used information from almost 700 hogs, the largest data set ever used. This data was originally used to form a new equation, which actually measured lipid-free soft tissue within a carcass. Then the data was used to calculate four new equations, each for a different endpoint.
The industry has no single definition of fat-free lean, and lipid-free soft tissue is one accepted measure. That created problems when the new equation was plugged into industry modeling programs that used the old FFLI, such as the National Research Council’s nutrition model. Since the two equations had different endpoints, any model designed to use the old equation would have to be redone.
To remedy this situation, NPPC developed the standardized Fat-Free-Lean Index, which is compatible with current modeling programs. This became known as the NPPC Standardized Fat-Free-Lean Index.
“We recommended the Standardized Fat-Free-Lean Index as a courtesy to NRC and other modelers who used the equation,” says Rodney Goodwin, NPPC research director.
As USDA worked to draw up plans for mandatory price reporting, NPPC presented four options for determining carcass percent lean: primal yields, sub-primal yields, lipid-free lean and NPPC Standardized Fat-Free-Lean Index. In March, USDA decided to use the Standardized FFLI in the mandatory price reporting rules.
“The changes will be so small producers won’t even notice a change on their kill sheets,” says Goodwin.
Changes will be published in the new Procedures to Evaluate Market Hogs scheduled for release in May. NPPC is also publishing a book explaining the four sets of prediction equations with individual muscle yields of different size, sex and genetics. With that, the book shall close on the Fat-Free-Lean Index debate.