Livestock Mandatory Price Reporting

Livestock Mandatory Price Reporting

Order Code RS20079
Updated August 15, 2001
CRS Report for Congress
Received through the CRS Web
Livestock Mandatory Price Reporting
nae redacted
Agricultural Policy Analyst
Resources, Science, and Industry Division
Summary
On April 2, 2001, the U.S. Department of Agriculture (USDA) implemented the
Livestock Mandatory Price Reporting (LMPR) law. LMPR was passed as part of
USDA’s FY2000 appropriations law (P.L. 106-78), to address the concerns of some
livestock producers about low prices, increasing industry concentration, and the
availability of price information. Under the previous, voluntary system, USDA reported
data provided on a voluntary basis by meat packers and processors on the prices they pay
for animals. The new law requires large packers to report not only negotiated sales, but
also forward contract and formula arrangement transactions. Since implementation,
LMPR has provided new information and further disclosure on pricing, but the system
has experienced problems. On May 14, USDA announced an error in the computer
program, which incorrectly calculated published prices. Since then, USDA has
announced corrections. On August 3, USDA announced a new confidentiality rule, to
go in effect on August 20. (This report will be updated as needed.)
Background
Under the broad authority of the Agricultural Marketing Act of 1946 (7 U.S.C. 1621-
1627), AMS has long collected livestock and meat price and related market information,
on a voluntary basis. The agency’s trained market reporters attend public livestock
auctions, visit feedlots and packing plants, personally contact many individual buyers and
sellers, and consult with trade associations to develop data so buyers and sellers all have
access to accurate and objective information from major markets throughout the country.
The information is disseminated through daily, weekly, monthly, and annual written and
electronic reports covering sales of live cattle, hogs, and sheep, and of the wholesale meat
products from these animals.
In recent years more and more animals have been sold under private marketing
arrangements where prices were not publicly disclosed or reported. Some agricultural
producers, believing such arrangements made it difficult or impossible for them to
determine “fair” market prices for their livestock, called for mandatory price reporting
Congressional Research Service ˜ The Library of Congress

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(MPR) requirements for packers and others who process and market meat. Opponents of
MPR, including some meat packers, and other farmers and ranchers, argued that MPR
would impose costly new burdens on the industry and could cause the release of
confidential company information.
MPR attracted interest in Congress in 1999, as Members sought ways to help
producers coping with low cattle, hog, and sheep prices. Also fueling interest were
concerns about the increasing concentration of the livestock industry into larger and fewer
entities, and the impact of these changes on “price transparency” —that is, the ability of
producers to obtain accurate, timely price information and open competition.
In the 106th Congress, the House and Senate Agriculture Committees held hearings
on April 29 and May 26, 1999, respectively, on MPR. The Senate committee then marked
up and approved an original bill (S. 1672; S.Rept. 106-168) on July 29, 1999, to amend
the Agricultural Marketing Act of 1946, to require mandatory price reporting. S. 1672
was the culmination of a long period of intensive negotiations involving meat packing
companies and livestock producers to design a comprehensive price reporting law
acceptable to both segments of the industry. Although the full Senate did not vote on the
proposal, a similar one was added to the conference version of USDA's FY2000
appropriations (H.R. 1906; H.Rept. 106-354). Congress cleared the conference measure
in early October, and the President signed it into law (P.L. 106-78) on October 22, 1999.
Mandatory Price Reporting
Provisions of the Plan1
The new LMPR plan is in effect for five years. Besides preempting state laws, the
measure subjects packers to civil penalties of up to $10,000 for each violation of not
reporting, and requires USDA to collect and publish at least monthly information on retail
prices for meat and poultry products. The law also increases the number of required
reports to 91. New reports under LMPR include the prior day’s swine market; forward
contract and formula marketing arrangement cattle purchases; packer-owned cattle and
sheep information; sales and purchases of imported boxed lamb cuts; and live lamb
premiums and discounts. (AMS continues to collect information under the voluntary
system. However, only data not published under the mandatory system is still published
under the voluntary system.)
The law further contains the following species-specific provisions:
Cattle Provisions. Cattle plants that slaughter at least 125,000 head annually must
report (delineated by domestic and import market purchases) twice a day on all cattle
purchased on a live or dressed weight basis. Packers must report weekly on all cattle not
purchased on cash (spot) markets, such as through forward contracts or formula marketing
agreements. They also are required to report their sales of boxed beef, by price, volume,
1 For further information on LMPR, please see the AMS page at:
[http://www.ams.usda.gov/lsg/price.htm].

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grade, and whether for domestic or export sale. USDA, in turn, is required to compile and
publish the data in detailed form at regular, statutorily-prescribed intervals —some of it
several times per day.
Pork Provisions. Federally-inspected pork plants that slaughter at least 100,000
head annually must report daily all prices (also reflecting any premiums, discounts, and
merit adjustments), plus volumes and terms of sale, for domestic hog purchases from the
previous business day. Packers also must report hogs they have committed to purchase
for the next 14 days. USDA in turn is required to publish detailed reports on hog
purchases and slaughter twice daily, plus separate weekly reports distinguishing between
barrow and gilt slaughter, and a monthly rather than quarterly hogs and pigs inventory
report. USDA also must maintain an electronic library on open hog marketing contracts
offered by packers and a monthly report of contracted swine numbers.
Lamb Provisions.2 A federally inspected lamb packer that processes at least
75,000 head annually must report daily on lamb purchases and sales of boxed lamb.
USDA will publish the information at least once daily. Packers also must report weekly
on lambs not purchased on cash (spot) markets, such as through forward contracts or
formula marketing agreements, which USDA will publish weekly. A lamb importer who
imports 5,000 metric tons of lamb meat must report once a week on prices received for
imported meat sold domestically.
Packers and importers must report purchases within the following time frames: swine
reported three times each day; cattle and lambs reported twice each day; domestic and
export sales of boxed beef cuts, including branded boxed beef cuts, reported twice each
day. Sales and purchases of lamb carcasses and boxed lamb cuts, including branded boxed
lamb cuts, must be reported daily and sales of imported lamb cuts weekly. AMS, in turn,
must collect, assemble, analyze, and report the data within one hour of receiving the data.
Implementing MPR
USDA published a proposed rule in the Federal Register on March 17, 2000, with
a 30-day comment period. A final rule was published on December 1, 2000, with the
starting date for LMPR set at January 30, 2001. In order to give AMS more time to test
a new electronic information system, the implementation date was moved to April 2, 2001.
LMPR currently is in operation.
On May 14, 2001, AMS discovered a technical error in the computer program for
MPR. The error affected the cutout values for beef carcasses and primals (the major
components of carcasses). USDA aggregates individual meat cut prices to construct a
carcass value. Individual meat cuts reported by packers were reported accurately , but due
to the programming error, the calculated carcass values were incorrect. The program
inadvertently was set up to also include “no-roll” cuts (USDA inspected, but not graded)
in the calculations of both the Choice and the Select. This had the effect of lowering the
value of Choice and Select cutouts. The problem became apparent only when AMS
2 Although the Act did not specify requirements for establishing a lamb reporting program, the
Secretary was given the authority to mandate such a program if it is determined one is needed.

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observed that Choice cutout values were decreasing while Choice cut prices were
increasing. In addition, reporters did not observe usual seasonal price patterns that
normally result in a widening spread between Choice and Select carcasses in reported
boxed beef carcass and primal cutout values. These observations alerted reporters to a
potential problem. Once the problem was identified, AMS immediately suspended
publication of boxed beef reports pending review of the situation. AMS discovered the
source of the problem on May 16. Arrangements were made to report data under the
voluntary system in the interim.
On May 25, AMS released corrected Choice and Select boxed beef cutout and primal
cut values for April 3 through May 11. Corrected calculations for the daily Select cutout
values for the period April 3 through May 11 averaged $0.71 or 0.60 percent higher per
hundredweight than the values originally reported, ranging from a one-day low of -$1.10
to a one-day high of $1.72. The corrected Choice cutout values averaged $2.85 or 2.26
percent per hundredweight higher, ranging from a one-day low of $0.73 to a one-day high
of $7.69. Choice and Select boxed beef cutout and primal cut values reported since May
16, have been correct, according to USDA.
On May 18, Secretary Veneman appointed a Review Team headed by Keith Collins,
USDA’s chief economist, to evaluate the MPR program and to assess the economic impact
the misreported data may have had on livestock producers. As part of its activities, the
Review Team met with representatives of the livestock and meat packing industries,
Congress, AMS, and contractor officials. (The review team’s report is available at
[http://www.usda.gov/oce/mp-report/index.htm].)
The Review Team found (1) testing conducted by AMS was inadequate to ensure
that the MPR system was accurately calculating reported data; (2) AMS’ plan to
implement an audit surveillance plan is behind schedule; (3) confidentiality provisions of
the program are preventing the release of a significant quantity of information under
mandatory reporting, undermining the objective of the authorizing legislation.
The Review Team recommended (1) further testing of the system, including periodic
tests that use more realistic test data from industry; (2) attracting more candidates or
seeking personnel details or reimbursable agreements with other agencies to obtain the
needed expertise in order to perform audits; (3) developing alternative standards that
would be applied over a multi-day reporting period, incorporate measures that ensure
adequate frequency of reporting by firms to maintain confidentiality, and be appropriately
reviewed.
Additionally, the Review Team estimated that cattle producers lost $15 to $25 million
in sales revenue due to the reporting error. The National Cattlemen’s Beef Association
(NCBA) estimated cattle producers may have lost $42-$54 million, based on studies done
by Virginia Tech and Kansas State University. A precise determination of losses is
difficult given the complexity of the market, difficulty determining exactly when reporting
of incorrect data began and ended, and the chosen method of analysis. In some cases,
producers and packers use the price reports to negotiate deals, with some contracts
pegged directly to the price reports. According to USDA, it would be almost impossible
to specify any losses to an individual producer, given the complexities. The Review Team
examined three avenues for compensation to livestock market participants and concluded
(1) producers could not sue USDA for compensation; (2) USDA does not have authority

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to make direct compensation; and, (3) USDA not support legislation allowing for such
authority.
USDA announced on July 2, that it was implementing the changes recommended by
the Review Team and was looking at ways to change reporting confidentiality while
improving the reporting of data.
Confidentiality of Published Information
3/60 Rule. To preserve confidentiality and the identities of reporting processors,
a “3/60” rule was adopted at the request of the Office of Management and Budget. Under
the 3/60 rule, USDA collects but does not report data from markets where there are fewer
than three reporting entities, or where any entity handles more that 60% of the total
volume within a particular area. The 3/60 rule is a guideline used by other federal agencies
as well, and is not a statutory requirement. Several other federal agencies follow the 3/60
rule, sometimes with variants of 3/50-3/80. Since implementation of LMPR, the 3/60 rule
has prevented a significant amount of information from being released. According to
USDA, between April 2, and June 15, 894 daily reports out of a potential of 3,740 reports
(24%) and 46 weekly reports out of a potential of 230 reports (20%) were not issued as
a result of confidentiality provisions. For lambs, significantly less information is being
made available to the public under LMPR than was available under the voluntary system.
In addition to the reports not released, many of the released reports contain lines that do
not have data because of confidentiality problems.
3/70/20 Rule. On August 3, USDA proposed a 3/70/20 rule, to take effect August
20. The 3/70/20 rule means that over a 60-day period (1) at least three entities have to
submit data at least 50% of the time; (2) no one entity can account for more than 70% of
the data for a report; and, (3) the same firm cannot be the only reporting entity more than
20% of the time.
The new rule is expected to increase the percent of market information reported.
USDA estimates that between April 2 and June 14, 30% of daily swine and cattle reports
were withheld for confidentiality reasons under the 3/60 rule. If the 3/70/20 rule had been
applied over that same period, fewer than 2% would have been withheld. The new rule
would mean there may be days when only one packer reports live cattle prices, although
confidentiality will be maintained. According to AMS, it is difficult for anyone other than
the buyer and the seller to know the identity of the buyer. However, AMS recognizes that
too many successive days with only one and the same firm reporting could increase the
chance that market participants could identify the reporting firm.
The National Meat Association (NMA), a trade association representing meat
processors, is concerned about the possibility of a published report containing information
from only one entity. In a letter to Secretary Veneman on July 5, NMA argued the new
rule will make small and medium-sized packers vulnerable to their competitors “and that
it will violate the First Amendment to the United States Constitution by disclosing
information about a single firm when that disclosure is not only contrary to the firm’s
interest but also not in the public’s interest.” The MPR law further directs USDA to
protect the identity and proprietary information of reporting parties, which, NMA argues,
the 3/70/20 rule will not do. The NCBA and the American Meat Institute (AMI) have

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come out in support of the 3/70/20 rule, stating it will provide further market information
to producers, while maintaining confidentiality.
Additional concerns have been raised about having only one or two packers in the
market, who then might use MPR to “set” prices. The 3/70/20 rule could allow two
packers to communicate through publicly reported information, creating the possibility of
collusion and price fixing. Another concern raised about reporting over a longer period
of time states that such a change would risk concealing current market information by
blending it with historical data of the previous days’ markets.
Other suggestions for increasing published information while maintaining
confidentiality include lowering packer size from 125,000 head slaughtered per year to
50,000, thereby increasing the number of packers required to report.
Potential Legislative Changes
One potential issue for legislative change is the legislated time-frames for reporting
data to USDA. USDA’s Review Team identified at least one report with a reporting
deadline that occurs before the reporting firms have all the information on slaughtered
cattle needed for the report. Another issue is the legislated time-frames for issuing reports.
If alternative standards for confidentiality cannot be found that also substantially increase
reported data, USDA recommends consideration should be given to altering reporting
time-frames. This change might eliminate reports that cannot be completed in the time-
window, and establish time-frames that ensure accurate and complete reports while
maintaining confidentiality.

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