The USDA Market
News program aims to aid the efficient marketing of agricultural
commodities by providing the public with price and sales information
drawn from transactions around the country. But fundamental changes
in livestock industries called into question the effectiveness of
Market News reporting for livestock and led to a major
redesign of the program through the Livestock Mandatory Reporting
Act of 1999 (LMR). A recent ERS report reviews developments leading
up to the Act and assesses its impact on cattle markets after implementation
in 2001.
Before 2001, USDA Market News reporters gathered data voluntarily submitted
by market participants and by observation at public markets. But more and more
livestock are now being marketed under contract arrangements that often bind
producers and packers to formal long-term relationships and set sales terms well
before delivery of the animals for slaughter. Because contract terms were rarely
reported under the voluntary system, USDA’s Market News reports
of the late 1990s were based on a declining number of transactions. Producers
expressed concern that unreported contract prices were substantially higher than
the cash prices reported in Market News and that Market News prices
based on a small number of transactions could be more easily manipulated. Some
feared that cash markets for livestock would disappear without timely, comprehensive,
and accurate price reporting. Because many contracts base payments on cash market
prices, cash market erosion concerned all market participants.
Under LMR, large meatpackers electronically file summary information on all transactions
twice a day, and USDA compiles the information in its Market News reports.
By early 2002, the program was capturing more than 90 percent of all cattle sales,
compared with less than 60 percent in the last days of the voluntary system.
LMR enables users to compare prices for cattle sold under different marketing
methods. 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.
Many producers initially expressed disappointment with LMR, partly because
of implementation problems and partly because the data did not show that
contract prices were higher. But producers now appear to be using the cash
market more: After 2002, cattle sales shifted away from contracts and toward
negotiated cash market transactions. While that shift may have been driven
by other market developments—such
as low inventories and strong demand—that raised all cattle prices, it
also may have been affected by expanded and more transparent price reporting
under LMR.
