For the first time ever, economic analysts have completed an external review of wholesale pork reporting in USDA’s Livestock Mandatory Reporting (LMR) system. Since wholesale pork reporting began in 2013, the industry has experienced many changes and the pork cutout number (derived from wholesale pork reporting) is impacting more and more market transactions.
“The motivation to get the pork cutout right is pretty steep,” says Glynn Tonsor, one of the three analysts who completed the review. “There is value in backing up and just saying, what’s changed? How’s the industry different now than it was then? Have we adapted the procedures? Could we do more? Should we do more? Are there some things we should sunset that aren’t as relevant today as they were before?”
The Numbers Matter
Tonsor believes the public data provided by USDA Ag Marketing Service (USDA AMS) makes ag markets operate more efficiently because there’s more information reflecting the supply, demand and market situation. Although it may feel like LMR has been around forever, he points out that it wasn’t that long ago that producers and packers were without this information.
“I grew up on a hog farm in northeast Missouri and graduated from high school in 1998,” Tonsor explains. “1998 was not a fun year for the hog market. Anybody my age or older will remember we had hogs you couldn’t give away towards the end of 1998. With that, of course, was lots of emotion and accusations about why that happened. We don’t need to relive that, but what is relevant was there was assertions of unequal market information among those buying and selling market hogs.”
This argument led to a political push that resulted in LMR. It started in the hog industry, and spilled over into other parts, including fed cattle and wholesale beef, and ultimately, wholesale pork was added later in 2013. This requires qualified pork packers to submit information about qualified wholesale pork sales to USDA AMS.
“Leveling the field from an information perspective is one of the historic calls for why you mandate,” Tonsor says. “It’s a reminder that there is broader public value in public data and information sets. But there’s a quite a bit of elevated uncertainty right now about the future of public data and information and how commodity ag markets might operate if we do change what public data and information is available, how it works, or how detailed and frequent it is.”
Although this was not the purpose of this review conducted by Tonsor, along with Joe Parcell and Alice Roach, the process did result in great industry engagement and feedback presented in their final 54-page report. In addition to analyzing a lot of data and compiling their own figures and charts, Tonsor says they also held many clinical one-on-one discussions with large and small pork companies, market analysts who advise people on the markets and are heavy users of the reports, CME staff and more.
“It’s important to note that the pork industry we engaged with here wanted to send a very loud and clear and direct message: wholesale pork reporting by AMS is deemed market essential by market participants,” Tonsor says. “The universal message we received was keep this and help us make it better. Don’t ever consider defunding or getting rid of it.”
Not All Pork is Equal
One specific example of how the industry has changed since 2013 is the definition of specialty products.
“Not all pork is equal – that’s a very broad comment,” Tonsor says. “You can start with recognizing pork chops and bacon are two different products, but you could go a lot geekier and narrower than that. Pork chops come from the loin, and there’s a lot of loin products. I could add a layer, too. Is there a gestation housing claim with it or not? Is there an antibiotic claim?”
In short, a pork chop isn’t always a pork chop, he says. At some point, some of these items were named specialty products. They are no longer clinical commodity pork, and they are handled differently currently. Specialty products have ramped up in the past 10 years, with more products carrying some kind of claim.
“There are a lot of details in our report encouraging AMS to go further with what we know is going on in this area,” he says. “How do we use that information more? What does that do to the composite cutout specifically so it’s a representative value of the barrow or gilt on the hook?”
Don’t Let it Go Away
After 12 months of conducting this review, Tonsor says three key takeaways come to mind for producers.
1. Recognize the pricing trend.
More and more live animal producers are directly pricing their production off the wholesale pork report that USDA AMS puts out.
2. Understand the opportunity.
LMR requires packers to send transaction data to AMS, who in turn, protects confidentiality of those transactions and puts out reports. It’s important to understand that USDA AMS goes above and beyond what they are actually required by law to do to help the industry.
3. Every number matters.
The more accurate and timelier you can make the data, the better it will serve the greater good. You can price your live animals with more confidence when you know the system is working well.
“Joe, Alice and I would say it’s working well, but we have a list of things we would encourage AMS to look into to help wholesale pork reporting continue to work well and be a useful tool for you as a live animal producer,” Tonsor says.
Some of those recommendations stemming from the review include:
•Discontinue reporting FOB Omaha
•Evaluate impact of less frequent but more detailed reporting
•Consider mandating variety meats reporting
•Set volume thresholds to report trade
•Indicate when estimates use values other than the most recently reported
•Measure sensitivity of primal and composite carcass value
•Continue voluntary collection of fabrication costs and yield
•Internally assess reporting percentile information to describe price distributions
•Proactive assessment
The very strong message received from this review was that wholesale pork reporting is “mission critical.” People do business around this report and don’t want it to go away. Although this wasn’t surprising to Tonsor, he says the extent of how often they received that message was a little surprising.
“It’s very hard to put a value on things that we’ve quote, unquote, always had,” Tonsor says.
LMR has only been around for a little over 20 years, but some people forget it wasn’t always part of the industry, he says. This makes it easy to take for granted.
“I think the industry is becoming more and more aware that these reports are immensely valuable, and they’re wanting that sentiment known,” Tonsor says.
