Pending approval by President Bush, the livestock industry will once again be privy to mandatory livestock price reporting (MLPR). That's due to the Senate's unanimous consent last week to approve a bill (H.R. 3408) to reauthorize the Mandatory Price Reporting Act of 1999.
As you may recall, the price reporting act expired last fall. The House of Representatives approved the bill for reauthorization a year ago, but it has languished in the Senate until now.
"This reporting process is important to U.S. cattle ranchers, and since the mandatory law expired last fall, we have been working diligently to urge its renewal," explains Mike John, National Cattlemen's Beef Association president. "Making price reporting practices mandatory by law assures cattle producers are getting the marketing information they need about their beef products."
Though MLPR has been missing in action for the past 12 months, causing confusion and wonderment in some cases, for many it hasn't been much of an issue.
As an example, last winter, Jeff Stolle, vice president of marketing for Nebraska Cattlemen, noted the vast majority of folks reporting pricing information under the mandatory system had continued to do so on a voluntary basis.
"The data appears to be flowing as it did," Stolle said. "I haven't noticed any shift in volumes given the available supply of cattle. There haven't been any major week-to-week changes on the formula and contract side."
At the time, we reported in BEEF magazine (February 2006) that another reason losing mandatory reporting seemed so benign might be that it never revealed the packer skullduggery many MLPR proponents thought it would.
According to an Economic Research Service report issued last fall, "It appears that, for cattle of similar quality, prices in negotiated spot market transactions closely track prices for cattle sold under contracts. In other words, producers selling under contract do not seem to realize a significant price advantage." That's based on MLPR accounting for more than 90% of all cattle sales by early 2002, compared to an estimated 60% accounted for by the voluntary system just before MLPR was implemented.
Of course, ever since the system requiring packers to report sales transactions went into effect (2001) the level of captive supplies that folks were so concerned about has declined.
Clem Ward, Oklahoma State University Extension economist and a longtime analyst of concentration, consolidation and captive supplies, put together a comprehensive analysis of the impact of MLPR on captive supplies. In it, he explains annual average captive supplies controlled by the four largest packers ranged from 17.5% to 24.9% between 1988 when the Grain Inspection, Packers and Stockyards Administration (GIPSA) began requiring packers to report captive supplies, and 1998. Using a different and incomparable technique, for 1999 to 2001 GIPSA reported the range at 32.4% to 42.9%.
Based on MLPR during its first three years -- April 2001 to April 2004 -- negotiated pricing averaged 46.1%, followed by formula pricing at 43.3%, packer-owned cattle at 7.1%, and forward-contracting at 3.5%.
While some speculate MLPR actually caused a shift back to more cash transactions, market fundamentals are the more likely cause. About the time the law went into effect, supplies started to dwindle, demand began to climb and prices followed suit. In other words, there has been less incentive for sellers to lock up prices and market access.
Once approved by President Bush, MLPR would be reauthorized until Sept. 10, 2010.