Sheep industry continues to tackle mandatory price reporting
Mandatory price reporting was developed with the intent of facilitating open, transparent marketplaces, with price discovery mechanisms that provide all market participants – both small and large.
However, because of changes in the sheep industry, including the sale of the JBS processing plant to Mountain State Lamb Cooperative and the lack of ability to capture all trades within the sheep industry, confidentiality has become more challenging.
Wyoming sheep producer Brad Boner says, “The biggest issue with mandatory price reporting is confidentiality. It’s really challenging to make sure we have a robust report.”
Confidentiality issues
Currently, USDA’s Agricultural Marketing Service (AMS) regulates mandatory price reporting to ensure confidentiality is maintained in the industry.
“The current guideline is called the 3-70-20 regulation,” Boner explains. “For a report to be issued, there have to be at least three reporting entities. Also, no single entity may provide more than 70 percent of the data for the most recent 60-day period, and no single entity may provide more than 20 percent of the data.”
Often the nature of the lamb industry means confidentiality requirements are not met.
Brad Anderson of Mountain States Lamb Cooperative adds, “All the data we report to the public is not reported because of those confidentiality rules. Because there are only two of us in the industry – MSLC and Superior, we can’t meet the confidentiality requirement.”
While data is still reported, it is not available to be utilized by the lamb industry to help predict markets.
Though some data is provided, Anderson notes the incomplete nature of the report is problematic.
“Every Friday, we see a report on range of weights, price and average price, but we don’t know how many head that reflects,” he explains. “We don’t know how many lambs are harvested to give us any idea about if the market is oversupplied or how many lambs are being killed.”
Capturing all trades
A second challenge for the lamb industry regarding mandatory price reporting relates to the fact that AMS doesn’t capture data from lambs that are custom slaughtered or sold to custom fabricators and wholesalers.
“About 2,500 lambs a week are custom-slaughtered and sold to fabricators or wholesalers,” Boner explains. “AMS doesn’t capture that data because they say these custom lambs don’t meet the definitions of a packer.”
While many in the industry disagree with AMS’ view, Boner says, “If we were able to include those custom slaughtered lambs in the report, our report would be much more robust.”
Pelt market
Anderson notes transparency in pelt markets is also important.
“Mandatory price reporting on pelts needs to be looked at again,” he says. “I think if we reported the price of pelts by region, it would make more sense and be more useful for producers.”
Currently, pelt prices are reported as both a price range and an average price across the nation, but no details are provided as to where pelts originated.
“A western Wyoming Rambouillet pelt with two inches of wool is worth much more than an Iowa Polypay pelt with two inches of wool,” Anderson says. “There’s an eight dollar difference in price, even though both may be top-end pelts.”
Adding regional pelt price reporting has the potential to increase the value of pelts by as much as $10, he adds.
Why it matters
Mandatory price reporting has dramatic impacts on the sheep industry, particularly as it relates to the financial decisions made by sheep producers each day.
“One of the important things mandatory price reporting – and any price reporting, in my opinion – is it helps producers to secure financing,” explains Boner. “When we go in to get a note or renew our note, one of the first questions our banker asks is about the lamb market.”
He continues, “If the banker isn’t confident about what’s going on in our market, it affects producers’ ability to get financing for the year.”
Secondly, Boner comments, “Mandatory price reporting also keeps everyone honest and helps keep the market more stable.”
Boner recalls several instances where mandatory price reporting lapsed, and each time, the stability of the market disintegrated.
“Transparency in the markets are important,” he says.
Further, Anderson says mandatory price reporting can allow producers to gauge the marketplace and predict future markets more.
“Looking at these price reports allows us to more effectively assess the temperament of the market to predict market trends and plan ahead,” he comments.
Steps forward
As he looks to the future, Boner notes sheep producers and the American Sheep Industry Association have advocated for improvements to mandatory price reporting to improve transparency of markets and enhance the sheep industry’s report.
“The first thing we need to do was figure out how to capture all the trades in the industry,” Boner says. “I believe if we were able to capture all of the trades, our confidentiality issues would be alleviated.”
The effort would also increase the value of the report by providing consistently more data.
Anderson notes they have petitioned AMS to ease some confidentiality restrictions, as well.
“The other challenge is that the grids that lambs are priced on – as are hogs and cattle – are based off of a cash market, which only represents about 10 percent of the volume of the market,” Boner comments. “A very small percentage of the price determines the price of the whole market.”
Further, Boner mentions frustration is felt within the industry with AMS, and he hopes both the agency and the sheep industry can work together to find solutions and possibly amend the current 3-70-20 confidentiality provisions.
“We need to work together to ensure AMS can provide the sheep industry with a robust market report,” Boner emphasizes. “We need do to what we can to ensure a transparent marketplace via mandatory price reporting.”
Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at saige@wylr.net.
