Clayton, Kenneth C.

English

Research Papers in Economics

Livestock Mandatory Reporting Act of 1999
Remarks of Kenneth C. Clayton
At the USDA Annual Outlook Forum
February 25, 2000
Introduction
In the next few minutes, I'll try to summarize 23 pages of statutory language and
20 pages of report language.  To put what I'm about to describe to you in context, at least
to those of us who have been in the daily price reporting business for a long time…we are
talking revolution, not evolution.  Hopefully, my fellow panelists will help to address the
significance of this change, but I can tell you that, from a programmatic point of view,
mandatory price reporting represents a "sea-change" in price reporting for AMS.
Background
Mandatory reporting for livestock transactions first recommended by the
Secretary's Advisory Committee on Concentration in June, 1996.  The advisory
committee, followed by the National Small Farms Commission, articulated the concerns
of many livestock producers that, with a growing share of transactions occurring through
contracts, the cash market would be reduced to a residual claimant, to the financial
detriment of producers trading in cash markets.
Producers engaging in contract transactions argued that a more reliable
benchmark was needed to enable them to evaluate the terms they were being offered.
The cash market alone was not viewed as acceptable; more complete information was
said to be necessary for markets to be efficient and competitive.
Studies by USDA's Grain Inspection, Packers and Stockyards Administration
(GIPSA) and GAO, among others, raised concerns about cash markets for livestock.
Until last fall, the Department did not have the legislative authority to mandate
price reporting.  While Secretary Glickman strongly encouraged voluntary reporting after
the advisory committee made their recommendations, he also stated that he would
embrace the authority to mandate price reporting if that is what it took to ensure that
livestock markets are open, fair, and competitive.
At the same time, the move to expand market information has been evolving since
1996.  AMS made several modifications and enhancements to its Market News program
for livestock:
n  We expanded our boxed beef report; initiated a regional slaughter report
including carcass grades;
n  We increased our coverage of the volumes of cattle moving under market
arrangements outside of cash or spot markets;2
n  We initiated a live animal crossing report to cover cattle and hogs moving
over the Canada and Mexico borders; and
n  We initiated a report for premiums and discounts based on yield-grade factors
(the value-based marketing report).
Also since 1996, five states have passed mandatory price reporting legislation,
including Iowa, Minnesota, Missouri, Nebraska, and South Dakota, although only
Minnesota and South Dakota are collecting price information currently.
In addition to States' legislation, there has been strong Congressional support for
mandatory price reporting; prior to passage of the Livestock Mandatory Reporting Act,
several bills were drafted that incorporated mandatory price reporting as a provision.
And many grass roots, producer, and farm organizations pushed for some form of
mandatory price reporting to address concerns over price discovery and packer
concentration.
Overview of the Act
When Congress passed the mandatory price reporting legislation, it amended the
Agricultural Marketing Act of 1946 -- the law that authorizes USDA to collect and
disseminate market information.  Under the Act, price reporting will become mandatory
for slaughter cattle and hogs, for boxed beef sales, and for lamb and mutton.
Congress also defined the size of packers, including their plants that are required
to report or would be exempted from mandatory reporting requirements.  This reduces the
burden on small businesses, but it also complicates our overall market news reporting,
because we still have voluntary reporting by smaller packers and plants.
Ideally, we would like to develop a program that will allow us to provide
information from both sources, without confusing the market.  We hope to continue to
report voluntarily collected information that is not duplicative of information that must be
reported under the mandatory program.  However, any duplication will be resolved by
discontinuing the voluntary report.
Mandatory reporting will also be in near "real time."   In most cases, packers or
their plants must report twice daily, in the morning and afternoon, with AMS providing
public reports fairly immediately thereafter.  In the case of hogs, an early morning report
will cover transactions from the immediately preceding day.
Other Provisions & Responsible Agencies
A number of other provisions of the Act either expand or enhance market
information collected and disseminated by several other USDA agencies. The Economic
Research Service (ERS) will assume responsibility for reporting monthly retail prices for
beef, pork, lamb, chicken, turkey, and veal, as well as develop a meat price spreads
report.  The Foreign Agricultural Service (FAS) will develop a report for meat exports.3
The Food Safety and Inspection Service (FSIS) will provide information on meat imports
as well as barrow and gilt slaughter.
The Animal and Plant Health and Inspection Service (APHIS) will develop a live
animal import data base and make it available through AMS reports.  USDA's National
Agricultural Statistics Service (NASS) will increase the frequency of its Hog and Pig
Inventory Report, from its current quarterly report to monthly.  A Trim Loss study and
report must be conducted.  Finally, GIPSA will establish and maintain a library of swine
packer contracts offered to producers and prepare a monthly report of contracted swine
numbers.
Slaughter Cattle
For slaughter cattle, plants that slaughter 125,000 or more head per year must
report the terms of negotiated trades, formula marketing arrangements, and forward
contracts.
AMS estimates that approximately 30 companies representing 50 beef packer
plants (out of a total of 800 plants) are covered under the mandatory reporting
requirements for slaughter cattle.  This means that 94 percent of plants will be exempt
from mandatory reporting (although voluntary reporting will still occur from these
exempted plants).  However, we estimate that 90 percent or more of slaughter will be
reported.
In the Act, Congress defined negotiated transactions as those in which the base
price is determined by buyer and seller agreement on a day, and for cattle that are not
scheduled for delivery more than 14 days after they have been committed to the packer.
In other words, negotiated transactions are cash sales.
A forward contract is an arrangement that defines an advance agreement for
purchase before slaughter, in which the base price is established related to prices quoted
on the Chicago Mercantile Exchange or other comparable prices available publicly.
A formula marketing arrangement means an advance commitment of cattle for
slaughter, not transacted through negotiation or forward contracting, but using a method
to calculate the price in which the price is determined at some future date.
Packer-owned cattle are defined as cattle owned for at least 14 days prior to
slaughter.  Only volumes and carcass characteristics are required to be reported for
packer-owned cattle; price is not required.  In all other cases, prices and quantities must
be reported.
For forward contract and formula-priced cattle, the "terms of trade" that must be
reported include: any packer financing that is provided; whether the producer can choose
the date and time for delivery for slaughter; whether delivery terms specify the location
of the producer or the packer's plant; and, the percentage of cattle purchased by a packer4
that are delivered after 7 days, but less than 14 days, after they were either committed to
or purchased by the packer.
A packer is defined as any person engaged in the business of buying cattle in
commerce for slaughter or for manufacturing or preparing meat that moves in interstate
commerce.  Although Congress set slaughter thresholds for defining which packers must
report market information, Congress also provided that a packer may be required to
report even if the packer slaughters fewer than the number specified in the Act, but has
the capacity to slaughter the minimum number of cattle defined in the Act.
Boxed Beef
Boxed beef sales have been reported by AMS on a voluntary basis.  In 1996,
AMS expanded its coverage of boxed beef sales from 14 business days forward to 21
business days, effectively increasing the volumes reported to approximately 40 percent.
The Act now makes reporting mandatory, and prohibits plants from selectively
reporting sales.  Boxed beef reports will provide information on prices, quantities, and
characteristics including USDA grade, the cut of beef, and the trim specification.
Retailers are not covered by the Act, but are strongly encouraged to verify sales
when contacted by Market News reporters.
Slaughter Hogs
For slaughter hogs, plants that slaughter 100,000 or more head per year are
required to report terms of negotiated trades, swine or pork market formula purchases,
and other market formula purchase terms.
AMS estimates that approximately 29 companies representing 50 pork packer
plants (out of a total of 750 plants) are affected by the Act.  This means that 93 percent of
pork packer plants are exempt from the mandatory reporting requirements.  As in the case
of cattle, we expect to cover some 90 percent of slaughter.
As with slaughter cattle, packer-owned swine are defined by greater than 14-day
ownership before slaughter.  And only quantity and carcass characteristics are required to
be reported for packer-owned swine.
For other slaughter hogs, quantities and prices must be reported; and terms of
purchase and sale arrangements must also be provided.  Definitions for formula
purchases and market arrangements are analogous to those for slaughter cattle.
Also to be reported are noncarcass merit premiums which are defined as an
increase in the base price of swine offered by a packer or packer-plant based on any
factor other than the characteristics of the carcass if the actual amount of the premium is5
known before the sale and delivery.  If market formulas are tied to futures contract prices,
those terms must be reported also.
Lamb Reporting
We are also in the process of developing reporting requirements for lamb and
mutton, although Congress did not provide the same level of specificity for lamb
reporting as for cattle and hogs.
In fact, the Act leaves this portion of the mandatory reporting program to the
discretion of the Secretary.  We anticipate addressing lamb reporting along with reporting
requirements for cattle and hogs in the forthcoming proposed rule with the opportunity
for public comment on all of the provisions.
Preemption of State Laws
Congress also included a provision to preempt States from passing reporting
requirements that are in addition to or inconsistent with the requirements under the
Federal law.
As we have been developing implementing regulations, we have held informal
discussions with States -- particularly the five States that have already passed similar
reporting requirements -- and they are aware of the provisions of the Federal law
mandating price reporting.  We will be expressly inviting States to comment on our
proposed rule.
Implementation & Funding
Congress built in a timeline for implementing the mandatory price reporting
program. Right now, the proposed rule is in final clearance.  Congress mandated a 30-day
comment period on the proposed regulations, and that 60 days after the comment period
closes, the final regulations are to be published.  Congress further provided that authority
for the mandatory program will expire five years after enactment, which would be
October 22, 2004.
AMS is in the process of hiring staff, developing software, and purchasing
equipment needed to implement the new reporting requirements.  Industry also will need
some time to reconfigure its computers to accommodate the new reporting requirements.
This will be a particularly crucial step as the reporting timeframes required by the Act
will necessitate that most data be provided electronically.  Realistically then, we're
looking at implementation in mid- to late-summer of this year.
To get the mandatory reporting program up and running this year, AMS has been
provided $4.7 million.  To support continued operation of the program in fiscal year6
2001, the President has included a request for $5.5 million in his budget that was recently
submitted to the Congress.
Summary
Let me close by saying that although we are moving ahead aggressively to
implement mandatory reporting, we are doing so being mindful that the point of this
effort is not simply to add reporting burdens.
Rather, our objective is to design and implement a price reporting program that
will improve transparency in livestock markets and enhance the market information
available to industry participants.
Thank you.

LIVESTOCK MANDATORY REPORTING ACT OF 1999

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