After more than a year of debate and fine tuning the payoff for mandatory price reporting begins Feb. 1.
The final rules published Dec. 1, changed little from the proposed rules (see the May 2000 issue of Pork). The most notable exception is that packers are required to report loin depth and backfat, in addition to the other carcass traits.
While the act is a major step in gaining access to market information, it won't translate into direct market impact. The reality of the situation is that mandatory price reporting will not move the price of live hogs one cent.
"Overall, mandatory price reporting won't have much impact," says John Lawrence, Iowa State University agricultural economist. "There will be more information, but that won't change market prices."
The one thing mandatory pricing does hope to provide is a more complete market picture by more accurately reflecting the price paid for hogs sold on contracts. In addition to providing more detail on packer prices for those hogs, the act provides for the Grain Inspection Packers and Stockyards Administration to publish a listing showing the number of various types of contracts available. From that point it will be up to you to call packers and find out which ones are offering which version of the contracts.
Packers will be required to post two current-day price reports – one at 10 a.m., the other at 2 p.m. – similar to the voluntary price reports that previously existed. However, packers also will be required to report the final prior day's prices at 8 a.m.
"Civil penalties of up to $10,000 can be levied against packers if there is a pattern of significant variance between the previous day's reports and the 8 a.m. report," says Steve Meyer, NPPC economics director. "This gives the law teeth, but no one wants to hang anyone for an honest mistake."
Of course, new information won't do you any good if you don't use it. The new information can be accessed from the same sources as previous price reporting information, including USDA's Agricultural Marketing Service Web site at www.ams.usda.gov.
After you locate the price reporting information for your market, you still must be able to analyze and decide what the information means.
"The most important thing for producers to remember is that there is a lot of information available. You need to be careful that you understand what you're looking at," says Meyer.
"Marketing hogs is complex. I don't think the new reporting system will answer all the questions that it will raise," says Lawrence. "It helps with price distribution, but doesn't answer what hogs are worth or whether the market is up or down."
You're not the only ones who will have to adjust to the new rules. Packers will need to update their reporting methods, because the new reports will be filed electronically.
"Packers' databases will need to transfer information to USDA databases that they haven't had to in the past," says Kenneth Clayton, associate administrator for AMS. "Early on that may require some adjustment for some packers."
Clayton says AMS has worked with packers to make sure they are aware of the kind of data that is required and ensure that the electronic systems are up to speed. Several beta tests have and will be run in December and January to make sure the report filing logistics were acceptable.
"There are the added costs of filing the reports," says Lawrence. "There also are some questions like, how to report prices of cuts that go into sausage? These are issues USDA and packers will need to work out."
Packers that slaughter 100,000 hogs annually are the only ones required to report, but those packers cover 95 percent of the annual U.S. hog slaughter. USDA estimates the additional costs to pork packing plants will average $5,308 annually. Also, the price of packer-owned hogs will not be reported, as it is not reflective of the profits made on those hogs and could be used to manipulate prices.
Disclosure restrictions will have some effect on what prices are reported. USDA cannot disclose anyone's private business transactions and the reporting has to cover an area with at least three different packing companies, says Clayton. Also, a single company cannot control more than 60 percent of the hogs reported in an area. If either of these situation occurs, USDA must expand the reporting area to include three packers. This may not be as geographically specific as originally intended, but it preserves the packers' identity and private business transactions.
The price-reporting program does not just affect hogs – beef and lamb slaughter plants also must report prices. "The fact that beef has to report prices won't affect pork as a competing meat, because those relationships are determined by consumers rather than production or slaughter factors," says Meyer.
The bottom line on mandatory price reporting – it gives you a more complete picture of the live hog market, but it will not change that picture. It can help you make more informed decisions, but it can also be confusing if you look at the wrong information.
"Certainly, there will be a much more complete array of information and it will be more timely," says Clayton.