August 2016 

 

 

 

BASELINE STUDY OF LIVESTOCK AND MEAT 

MARKETING TRENDS AND IMPLICATIONS FOR 

LIVESTOCK MANDATORY REPORTING 

 

 

By: 

Value Ag, LLC 

Joe Parcell 

parcellj99@gmail.com 

Research Commissioned by the: 

Agricultural Marketing Service 

United States Department of Agriculture 

Project Researchers: 

Joe Parcell, Glynn Tonsor, and Ted Schroeder 

Acknowledgements 

We gratefully acknowledge industry stakeholders providing observations relevant to Livestock 

Mandatory Reporting. Their valuable input led to the recommendations presented here. We also extend 

our appreciation to Agricultural Marketing Service staff in the Des Moines, Iowa, and St. Joseph, 

Missouri, offices for providing background information, data, contacts, and clarity of processes. 
About the Principal Investigators 

Joe Parcell, PhD, is a 

Professor in the Department 

of Agricultural and Applied 

Economics at the University 

of Missouri. He has been on 

faculty at the University of 

Missouri since 1998. He 

received his M.S. and Ph.D. 

in agricultural economics 

and BA in mathematics, 

respectively. His research 

involves value chain 

demand drivers, price 

analysis, and marketing. He 

has extensive knowledge of 

supply and value chain 

issues through his research 

and practical experience 

with producer agricultural 

ventures. His over 200 

scholarly publications, 

proceedings, book chapters, 

and extension publications 

relate to marketing, pricing, 

strategy, and value added. 

He is co-author of the 

textbook titled The 

Agricultural Marketing 

System. He is founder of 

Value Ag., LLC. Value Ag, 

LLC, headquartered in 

Columbia, Missouri, is an 

economic consultancy group 

committed to “Analyzing 

Innovative Ideas for 

Tomorrow’s Agriculture.” 

Ted C. Schroeder, PhD, is 

a University Distinguished 

Professor of Agricultural 

Economics at Kansas State 

University. He has a B.S. 

from the University of 

Nebraska and Ph.D. from 

Iowa State University. He 

has been on the Agricultural 

Economics faculty at Kansas 

State University since 1986. 

He teaches and conducts 

research. He is director of 

the Center for Risk 

Management Education and 

Research. Ted has done 

extensive research in 

livestock market risk 

management, meat demand, 

meat and livestock 

marketing, and price 

discovery and has more than 

100 published journal 

articles and numerous other 

publications. He has worked 

as a consultant on numerous 

meat and livestock valueadded projects, and he has 

been the principal 

investigator on a large 

number of external grants. 

Glynn T. Tonsor, PhD, is a 

Professor at Kansas State 

University in the 

Department of Agricultural 

Economics. He obtained a 

B.S. from Missouri State 

University and Ph.D. 

from Kansas State 

University. He was a faculty 

member at Michigan State 

University from May 2006 

to March 2010 and then 

joined the Kansas State 

University faculty. Through 

active research, engaged 

outreach with industry, and 

first-hand knowledge with 

livestock production, Glynn 

has economic expertise in an 

array of topics important to 

stakeholders throughout the 

meat and livestock supply 

chain. Glynn's integrated 

research and extension 

program has resulted in 

more than 60 published 

journal articles, numerous 

other publications, a 

multitude of outreach 

contributions, and projects 

with more than $2 million in 

cumulative funding. 
Table of Contents 

Executive Summary .......................................................................................................................1 

Chapter 1: Introduction and Objective .......................................................................................3

Chapter 2: Livestock and Meat Market Trends .........................................................................5

2.1 Structural change in Livestock Production ..........................................................................7 

 2.2 Structural change in Livestock Packers and Meat Processors .............................................9 

 2.3 Changes in Livestock and Meat Marketing .......................................................................15 

 2.4 Product Proliferation and Price Reporting Standardization ...............................................20 

 2.5 Composite and Primal Calculations ...................................................................................21 

 2.6 International Trade .............................................................................................................23 

Chapter 3: LMR in a Dynamic Industry ...................................................................................24 

Chapter 4: References .................................................................................................................25 
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EXECUTIVE SUMMARY 

The Livestock Mandatory Reporting (LMR) Act of 1999 was enacted to increase transparency in 

market transactions for swine, cattle, sheep, beef, and lamb. In 2012, coverage of pork 

transactions was added to the Act. LMR is scheduled for reauthorization in 2020. The 2015 

authorization of the Act requires a comprehensive review of LMR by 2018. The purpose of this 

study is to help inform the 2018 comprehensive review. This study provides information 

regarding changes occurring in livestock and meat markets that will impact LMR design and 

associated market reporting. 

USDA-AMS is responsible for implementation of the Act. Market information provided by 

USDA-AMS through LMR facilitates more efficient markets by informing more than a million 

livestock producers, hundreds of meat processors, some 37,000 retail food outlets, more than 1 

million restaurants, as well as meat exporters, and the many industries that provide inputs, 

support, and service to the livestock and meat industry with important market information on a 

daily basis. Information contained in USDA-AMS livestock and meat market reports is used for 

decisions ranging from day-to-day marketing of livestock and meat products to long-term 

investments and policy. 

Since enactment of the 1999 Act, major changes have occurred in the livestock and meat 

industry. Changes in the structure and ownership of reporting packers; how trade occurs in the 

industry; livestock production methods and technology; meat processing technology; product 

mix; product form; importance of export markets; and policy that all impact LMR design, data 

collection, and information reporting methods. Advances in information technology are also 

noteworthy. 

This study identified evolving trends in how livestock and meat production and markets are 

changing to help inform the comprehensive LMR 2018 review. We conducted interviews with 

numerous industry participants including producers; packers; processors; retailers; market 

analysts and researchers; and industry association representatives to gain insight into evolving 

industry market trends and implications for LMR. We also utilized USDA-AMS historical data 

as well as published literature in completing this study. 

Key Findings 

1. Major structural shifts have occurred over the past 15 years in the meat packing and 

processing sectors in cattle, swine, sheep, beef, pork, and lamb. Packing firms have 

increased size, in many instances increased concentration, vertically integrated, and made 

major investments and changes in processing to improve supply chain management to 

respond to changing domestic and international customer and consumer demands. 

Producers are increasingly looking to vertical integration as a means to remain 

competitive and solvent. Furthermore, the use of LMR information has expanded beyond 

pricing to include establishing insurance contracts, futures contract settlement, indemnity 

loss payment determination, and for policy analysis. 

2. Changing domestic and global meat customer and consumer demands are driving the 

meat industry to be more responsive to consumer interests. This is leading to increased 
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product differentiation, more vertical coordination and integration, and relative to when 

the Act was established generally a much different product mix is being produced by 

meat packers who report information to USDA-AMS under LMR. 

3. Livestock and meat are being marketed in dramatically different ways today than in the 

recent past. Negotiated trade has been rapidly replaced by formula pricing, forward 

markets, and longer term marketing agreements. There is also an ongoing shift towards 

pricing livestock using meat values. Furthermore, traditional data providers are also 

increasingly LMR data users. This changes the form and role of LMR and USDA-AMS 

market reporting. 

4. New methods for pricing livestock and meat products, such as internet based auctions, 

are being launched in industries that do not necessarily conform to traditional LMR or 

USDA-AMS practices. These types of marketing institutions will likely see continued 

interest as a way to provide lower cost opportunities for producers, packers, processors, 

and others to participate in price discovery instead of direct negotiation. 

Key Implications 

1. The importance of LMR to the livestock industry, domestic and international commerce, 

and to rural communities was made most obvious by the shutdown of LMR during the 

October 2013 federal government shutdown. Fears of another disruption to LMR 

information continues to resonate with data users. 

2. Structural changes in livestock and meat markets are testing confidentiality structures in 

market information reporting. This issue has always been a concern, but it is becoming a 

greater concern as markets become more vertically integrated, differentiated, and in many 

instances thin. There is clear need to assess alternative ways to manage price reporting 

under such conditions to continue to provide the desired depth of market information the 

industry relies upon. 

 

3. Changes in products being produced by packers through value added, branding, specialty 

programs, and other differentiation challenges market information reporting. This is an 

area that requires considerable assessment in future price reporting design. 

4. The importance of international trade is elevating in meat markets. Continued efforts to 

provide timely market information related to products moving into and from international 

markets is a worthwhile endeavor. 

5. Capability for USDA-AMS together with industry to quickly assess new market 

developments in the livestock and meat sectors and to determine how to modify reporting 

accordingly will be an important dimension of the effectiveness of LMR in the future. 

 
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CHAPTER 1: INTRODUCTION 

Background

Public price reporting has immense value. A classic study on the value of price information is 

Stigler’s 1961 “Economics of Information.” He argues that “ascertainment of market price” (p. 

213) is one of the most important dimensions of economic information. 

The intent of price reporting is to reduce asymmetric information among market participants, 

which helps to achieve more efficient market outcomes and level the playing field and 

counterbalance possible market power. Price information signals resource allocation, 

production, processing, and marketing decisions. Price data from different market levels such as 

farm, wholesale, and retail are used to calculate marketing margins, which can help reveal 

changes in marketing costs among vertical industry sectors. The broad private and public 

importance of price information makes reliable, accessible, timely, and accurate price reporting a 

valuable activity worthy of public investment. This sentiment has been a major impetus to public 

support for USDA-AMS market reporting and was part of the initial motivation for mandating 

livestock and meat price reporting. 

The Livestock Mandatory Reporting (LMR) Act of 1999 was enacted in 2000 and implemented 

in 2001 following the call by livestock industry participants for increased transparency in swine, 

cattle, sheep, boxed beef, and carcass and boxed lamb transactions. In 2012, wholesale pork was 

added as a mandatory reported product under the LMR Act. The Agricultural Marketing Service 

(AMS) of the United States Department of Agriculture oversees implementing and carrying out 

the secure collection of processor data and aggregating data into reports that mask confidential 

information. Many industry participants refer to LMR as mandatory price reporting (MPR). We 

use the acronym LMR to capture the breadth of the Act requirements to include both price and 

volume data. 

During the past 15 years, the methods of commerce used by the livestock industry and the 

livestock industry's structure have changed considerably. Although the original intent of LMR 

was price transparency, LMR information has over time become the primary price discovery tool 

for the lamb, pork, and beef industries. Much attention is given to the role of reported prices 

within LMR, but LMR also mandates reporting of volume (i.e., head, loads, pounds) 

information, which is important to industry participants as well. Furthermore, over time the 

distinction between data users and data providers has blurred as processors required to report 

under LMR increasingly are also heavy users of resulting LMR reports. Approximately every 

five years, LMR is up for reauthorization. Significant historical dates relevant to the Act include 

statutory authority for LMR lapsing in 2005, the final rule of 2008 that re-established and revised 

LRM, 2010 reauthorization, which added wholesale reporting of pork, and 2015 reauthorization. 

The 2015 reauthorization language requires completing a comprehensive review of LMR and 

delivering it to Congress by March 2018. In 2015, AMS leadership sought a precursor 

assessment of LMR to serve as a white paper for prioritizing topics important for further focused 

assessment as part of the mandated 2018 congressional report. AMS contracted with Value Ag, 

LLC to conduct the precursor study. 
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Objectives and Procedure 

The purpose of this study is to identify and document changes occurring in livestock and meat 

markets that may impact LMR now or in the future. The objective is to determine current 

marketing trends for cattle, swine, sheep, beef, pork, and lamb that may influence LMR design, 

price reporting and transparency. 

 

To complete the study three major sources of information were analyzed. First, information 

contained in public USDA-AMS reports and other publications were used to identify recent 

trends in livestock and meat markets. Second, scholarly literature was used to document 

important market changes. Third, the project researchers conducted extensive phone, email and 

in-person interviews with representatives from the pork, beef, and lamb industries. These 

contacts included producers, livestock and meat associations, data providers, industry and 

academic data users, AMS market reporters and administration, retailers, and various other 

entities within the meat protein value chain. Industry support and feedback for this report was 

strong; no entity, or individual, who was contacted refused to provide comment. To ensure 

confidentiality of those providing comments, the names of individuals and organizations are not 

reported. Although it is impossible to capture comments from every value chain participant, the 

report reflects sentiments from a broad array of these industry stakeholders. 

Every industry participant we interviewed applauded AMS for taking the initiative to 

commission this study in preparation for the 2020 reauthorization and the separate 2018 report 

required by Congress. Participants thanked us for providing them with the opportunity to 

proactively consider livestock and meat marketing trends that may impact LMR data reporting 

and the use of LMR information provided by AMS. In many ways the active discussions we had 

with participants was viewed as the first in a multi-step process towards assessing LMR issues 

and carefully assessing ways to keep LMR concurrent with industry needs and trends. 
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CHAPTER 2: LIVESTOCK AND MEAT MARKET TRENDS

This project includes sheep, lamb, swine, pork, cattle and beef as covered by LMR. These six 

industries are unique in structure and scope (Table 1) and changed since the inception of LMR in 

2001 (Table 2). These industries totaled retail equivalent sales of nearly $200 billion in 2015 

and indirectly impacted the US economy several times this level. More than 1 million livestock 

producers, 29,000 feedlot operators, hundreds of processors, a significant number of 

importers/exporters, 37,000 grocery stores, and over 1 million restaurants combine efforts to 

meet the demands of over 320 million domestic consumers and a growing base of foreign 

consumers (Table 3). LMR reports directly and indirectly provide market information, and serve 

as a source of price discovery, for participants across all of these sectors. 

Table 1. Snapshot of LMR-Covered Livestock Industries of Cattle, Lamb and Swine (2015, 

except for GIPSA 2012) 

Cattle Sheep Swine 

Metric Tons Produced Domestically (ERS) 10,752,178 68,239 11,116,742

Retail equivalent value (ERS) $105B $1.7B1 $73B 

Number of Producers (NASS) 915,000 50,012 63,246 

Number of Processors (GIPSA) 168 81 157 

Number of Processors Contributing to LMR (AMS) 33/42* 5* 47/46* 

Per Capita Consumption, Pounds per Capita (ERS) 53.9 0.7 49.8 

Percent of Exports to Domestic Meat Production (ERS) 10% 3% 20% 

Percent of Imports to Domestic Meat Production (ERS) 14% 142% 4% 

*The first number represents live animal processors and the second number represents meat and cull processors. 

Since boxed lamb and carcass lamb reporting includes importers, and the number of qualifying importers changes, 

no processor number is presented here for lamb. 

1. Source: American Sheep Industry Association, 2011, 

https://www.sheepusa.org/ResearchEducation_Publications_EconomicImpactAnalysis 

Table 2. Snapshot of LMR-Covered Livestock Industries of Cattle, Lamb and Swine (2000) 

Cattle Sheep Swine 

Metric Tons Produced Domestically (ERS) 12,161,525 104,355 8,642,922 

Number of Producers (NASS) 1.075M 66,100 86,360 

Number of Processors (GIPSA) 189 62 186 

Per Capita Consumption, Pounds per Capita (ERS) 67.8 0.8 51.2 

Percent of Exports to Domestic Meat Production (ERS) 17% 2% 7% 

Percent of Imports to Domestic Meat Production (ERS) 11% 56% 5% 
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Table 3. Snapshot of Entities impacted by LMR (2015) 

Cattle Sheep Swine 

Number of Beef/Cattle Producers (NASS) 915,000 50,000 63,000 

Feedlots 29,200 

Processors 168 81 157 

Supermarket Stores (2013, FMI)  37,000 

Restaurants (National Restaurant Association)  1M+ 

Barkema, Drabenstott, and Welch (1993) were among the first to document the consumer 

revolution and the food system offering a more discriminating consumer greater choice in food 

purchases. Since the inception of LMR, the US food industry has undergone significant change 

to provide consumers with greater choices. The changes in consumer preferences have been well 

documented (for example, see Okrent and Kumcu 2016). Show in Figure 1 is the flow of 

payments, preferences, and product quality and quantity information for the food, fiber, and fuel 

value chain. These supply chain activities are important for efficient commerce that leads to 

consumers with a variety of product offerings at the lowest cost. Parcell and Tonsor (2012) 

provide a summary of the importance of information for efficient market transactions between 

parties in the agricultural value chain. They offered suggestions for keeping public information 

relevant in face of increased industry consolidation/coordination, product proliferation, and 

global trade. As consumer preferences change, the food system has responded with change. 

While LMR has evolved into an important tool to facilitate efficient transactions, simultaneously 

other segments of the livestock supply chain have changed in response to the new consumer. All 

of these changes have become endogenous to each other because of the increased level of 

coordination in the red meat value chain. 

Figure 1. The Food, Fiber, and Fuel Value Chain and Flows 

Source: Rhoades, Dauve, and Parcell (2015) 
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The transformation of the meat supply chain over the past 15 years has significant implications 

for LMR: 

1. The concept behind the LMR Act of 1999 originated from livestock producers seeking 

greater transparency in the marketing of live animals. The addition of meat to LMR was, 

at least compared to live animal reporting, an after-thought addition to the original Act. 

Over time, the growing importance of consumer preference, reorganization and 

diversification of the supply chain, and changes in the methods of commerce enhanced 

the importance of meat market reporting. The addition of mandatory wholesale pork price 

reporting of 2012 is an example of the growing importance of meat trade and of a major 

enhancement to LMR. Because of the growing coordination of the meat supply chain 

progressively more participants are dependent on LMR than just livestock producers. 

 

2. As evidence of the expanded use of LMR information beyond a reflection or “mirror” of 

the market as intended by establishing the Act in 1999, there are multiple examples of 

unintended consequences that could arise when enhancements are proposed and resulting 

LMR information changes. For example LMR information is used by the CME Group for 

settling futures contracts; the sheep industry price protection insurance products rely on 

LMR data for indemnity payment calculation; the USDA Risk Management Agency 

established livestock indemnity program payments based on LMR data; and long-term 

USDA baseline forecasts which directly influence farm program policy utilize LMR data. 

2.1 Structural Change in Livestock Production 

Structural change at the farm level has been well documented (e.g., Jones, 2004; Key and 

McBride, 2007; McGrann, 2007; O’Donoghue et al., 2011; Parcell, Schroeder and Tonsor, 2009; 

Parcell and Schroeder 2014; Taylor, 2007) and the data (e.g., Ball et al., 2016; Hoppe and 

Newton, 2016; Key, 2016) corroborate these findings. The trend in structural change is not 

expected to slow. And, these trends have given rise to competing supply chains in the livestock 

and meat industry that are similar to supply chain differences in other highly concentrated 

industries (see Woolverton and Parcell, 2008). 

Competing supply chain models have been the cause for the diverse livestock production 

systems typical in 2016 that result in divergent use and user preferences for LMR information. 

The primary supply chain model is commodity focused realizing economies of size where 

bigger, and fewer, operations continue to get larger. In this system processors add value to base 

meat commodity products. The supply chain model with the greatest growing consumer interest 

is referred to as a value chain system where producers produce a specific trait, or set of traits, 

targeting a specific consumer group. In this system the identity of the highly valued trait is 

preserved from producer to consumer. Characteristics of these systems are: 

 Economies of size supply chain characteristics at the production level: 

1) Continued growth, focused on revenues. 

2) Traditional (local) financing no longer sufficient to serve financial needs. 

3) Increased need to manage the “profit margin” and “revenue risk” through 

contracting inputs and outputs. 
8 | Page

4) Increased capacity to access and analyze information and translate 

information for decision making. 

5) Emphasize genetics to deliver a more quality consistent commodity (see for 

example Martinez and Zering, 2004). 

6) Increased coordination between supply chain segments to respond to 

consumer preferences and to coordinates supplies. 

7) Increased incentive to vertically integrate to better leverage information, 

management, and volume. 

 Value added supply chain characteristics at the production level: 

1) Smaller size focused on trading technology for labor. 

2) Greater profit margin potential, higher costs, and more production and 

financial risk. 

3) Coordinated value chain to preserve quality characteristic identity. 

4) Served by specialized processors able to maintain quality identity. 

5) Increased coordination between supply chain segments to secure flow of 

payments from retailers and quality from producers. 

6) Specific genetics to deliver necessary characteristics or enable a specific 

production system. 

Both production systems, for different reasons, have evolved in their need for public information 

such as LMR. Producers are seeking better access to information that resides closer to the 

consumer and end-product they are ultimately selling. 

Structural change at the production level is important to LMR and USDA-AMS for several 

reasons: 

1. There will continue to be lower negotiated trading volume at the live animal level (see for 

example Grimes and Plain 2009). Large scale producers will continue to consolidate and 

rely heavily on alternative marketing arrangements. Niche value-added producers face 

substantial financial risk if not involved with an alternative marketing arrangement 

guaranteeing a price level and/or market outlet. There will be increased use of meat prices 

to establish the base price of live animals. This will magnify the scrutiny of calculations 

like composite and cutout values, as many producers will lack the knowledge of processing 

and fabrication costs, yields, and processes. 

2. Producers focused on an economies of size supply chain system will increasingly look to 

vertical integration to maintain competitiveness. A positive externality of vertical 

integration will be increased producer access to meat values, yields, and processing and 

fabrication costs. Producers aligned in vertical business partnerships will be better 

equipped to use a meat value to establish value for their own live animals. 

3. Quality attributes will continue to change to reflect adjusting consumer preferences (see for 

example Marsh and McDonnell, 2006). At the farm-level these changes will occur 

relatively slower because of biology and fixed investments in animals and production 

facilities. Economic theory reveals if the economic incentives are large enough, a niche 

attribute will transition to a commodity attribute over time. Because historical information 
9 | Page

facilitates forecasting, data users will increasingly need to be cognizant that the commodity 

of the future may not be the same as the commodity of the past. Identifying correlations 

between old and new information will be important for users of LMR information. 

4. To enhance strategic planning, producers will increasingly look to LMR information to 

shed light on forward trends in volume and prices. Producers who regularly market 

livestock will increasingly look to LMR information as they develop near-term price 

expectations. Forecasting is important aspect of operational and strategic planning 

(Armstrong, 1985; Armstrong and Brodie, 1999; and Armstrong, Brodie, and McIntyre, 

1987). 

2.2 Structural Change in Livestock Packers and Meat Processors 

Similar to studies of structural change at the farm-level, considerable research has been 

conducted on structural change between the farm level and consumers (e.g., MacDonald et al, 

2000; Ollinger et al, 2006; Nguyen and Ollinger, 2009). Such structural change has been heavily 

studied for implications on pricing behavior by processors (e.g., Azzam and Salvador, 2004; 

Perloff and Rauser, 1983; Lawrence, Muth, Taylor and Koontz, 2007; Njoroge, 2003).1

 The use 

of alternative marketing arrangements to negotiated trade in the food industry was first noted by 

Hayenga et al. 1979. Structural change has brought about change in how the industry conducts 

commerce. 

Immense structural change has occurred in the cattle, sheep, and swine processing sectors since 

the LMR Act of 1999 became law. To highlight this change, three timelines were created to 

show the mergers and acquisitions in the livestock packing and meat processing industry by 

species (Figures 2-4). Structural change has had the following impacts 

Structural change and changes in commerce

1) Entities closer to the consumer are more dependent on fewer processors. 

2) Publically traded versus privately owned allows different access to capital. 

3) Constant expectation of growth. 

4) Sustained growth requires either new markets or the acquisition of 

competitors. 

5) Maintaining demand growth requires dedicated supply. 

6) Increased need to manage the “profit margin” and “revenue risk” through 

contracting inputs and outputs. 

7) Need for product innovation to sustain, or gain, market share. 

8) Increased dependence on other partners in the supply chain increases 

information sharing. 

9) Fewer individuals needed to conduct purchases and sales between entities. 

Because of the changes that occur with commerce, the past, present, and future mergers and 

acquisitions are important for LMR and USDA-AMS for several reasons: 

 

1

 Research by Albaek, Mollgaard, and Overgaard (1997) and then Stuhmeier (2015) offer 

empirical evidence and theoretical motivation for how collusive behavior can develop and for 

why mandatory price reporting can lead to higher expected market prices. 
10 | Page

1. The composition of companies that are reporting regular market information and data to 

USDA-AMS under LMR guidelines has changed significantly over time. This brings 

changes in volumes of products represented by individual companies and proliferation in 

the forms and types of products being produced and marketed by individual companies. 

For example, when a pork processor merges with a large hog producer, the result is a 

major shift from producer-marketed hogs to packer-owned hogs. Or when a packer 

acquires a branded food processor, the packer suddenly has a new set of branded product 

lines under its domain that may divert meat products from commodity markets to intrafirm transfers to more branded product lines. These types of events, occurring at a rapid 

pace in the livestock and meat industry, are having substantive impacts on the quantity, 

type, and form of information available for USDA-AMS reporting. Adapting LMR 

accordingly has been, and will continue to be, a major challenge. 

2. Increased consolidation directly affects confidentiality concerns in market price 

reporting. For example, when two LMR reporting packers merge, there is an immediate 

increase in the probability that existing USDA-AMS price reporting categories for meat 

or livestock may not be reportable because of the existing confidentiality guideline. Beef, 

pork, and lamb industries are all experiencing consolidation directly affecting current 

price reporting confidentiality restrictions. The same confidentiality guideline is applied 

across all three species (swine, cattle, and sheep) and associated meat sectors. With 

markedly different industry structure and industry evolution, this is an issue many voiced 

as worthy of further consideration by LMR and USDA in the future. 

3. Larger firms have increased incentives to better vertically coordinate their supply chain. 

As such alternative marketing arrangements for both inputs and outputs, inter- and intrafirm transfers, and partnering has become more commonplace. Such activities directly 

impact the form of information that becomes available to USDA-AMS for price 

reporting. Negotiated markets become more thinly traded and reported and the types and 

nature of alternative marketing arrangements become increasingly important to design 

more effective price reporting protocols. 

4. As negotiated live animal trade thins, price discovery for live animals is more heavily 

tied to meat trade. While the impetus for the 1999 LMR Act was live animal trade, future 

enhancements to LMR will have more emphasis on meat trade. 

5. As value added production systems develop medium-size meat processors are becoming 

more involved with identity preservation of the value added commodity attributes. 

Understanding the marketing mix of medium-size meat processors is important to know 

whether they are able to add volume to meat LMR or if their products are subject to 

confidentiality exclusion. 

All such structural changes lead to changes in how livestock and meat marketing occurs 

impacting the structure and effectiveness of LMR. 

The LMR Act of 1999 was intended to be flexible to meet evolving industry needs. The AMS 

has been responsive to needed changes. For example significant changes in LMR during the first 

couple of years when the Act took effect included adjusting confidentiality rules in August 2001, 
11 | Page

just five months after inception, from the original “3/60” confidentiality guideline to the 

“3/70/20” rule.2

 Furthermore, adjustments to price reports are frequently made by AMS to make 

reports more reflective of current industry practices. With the changes occurring in the livestock 

and meat industries, LMR and USDA-AMS will need to continue to be vigilant in making 

adjustments to reporting procedures to optimize relevance and value for market participants. 

 

2

 The 3/70/20 confidentiality rule followed by USDA for mandatory price reporting states: “The 

guideline consists of three requirements: (1) At least three reporting entities need to provide data 

at least 50 percent of the time over the most recent 60-day time period, (2) no single reporting 

entity may provide more than 70 percent of the data for a report over the most recent 60-day time 

period, and (3) no single reporting entity may be the sole reporting entity for an individual report 

more than 20 percent of the time over the most recent 60-day time period.” Federal Register, May 

16, 2008 (p. 28,618) 
Figure 2. Beef Industry Mergers & Acquisitions 
Figure 3. Lamb Industry Merger & Acquisitions 
Figure 4. Swine Industry Mergers & Acquisitions 
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2.3 Changes in Livestock and Meat Marketing 

A number of authors have documented the impacts on livestock markets associated with LMR 

(e.g., Anderson et. al, 1998; Azzam, 2003; Bastian, Koontz, and Menkhaus; 2001; Koontz, 1999; 

Njoroge et al., 2007; Pendell and Schroeder, 2006; Perry et al., 2005; Schroeder, Grunewald, and 

Ward, 2002; and Wachenheim and DeVuyst, 2001). Koontz and Ward (2011) review and 

synthesize all of the research up until 2011 that involve mandatory price reporting. 

Livestock and meat products have experienced major shifts over time in how commerce occurs. 

Figures 5, 6, and 7 summarize changes in relative volumes of fed cattle, market hog and lamb 

sales methods over time. These trends are also summarized by the recent work of Adjemian et 

al. (2016a, b), while Purcell (1992) was the first to point out pricing and coordination issues as 

livestock market coordinate. Apparent in these charts is that what USDA-AMS categorizes as 

negotiated trade, has declined precipitously over the past 10-15 years. For example, negotiated 

fed cattle sales represented between 50-60% of volume in 2004 and dropped to 20-30% over the 

last couple of years. In contrast, formula trade went from about 30% to 60% of volume during 

this same time period. Market hogs went from 15% negotiated to less than 5% as packer-owned 

hogs nearly doubled from about 15% to 30%. Compounding the issue for both beef and lamb is 

that the volume of transactions has declined over time as beef production has declined and as 

imports of lamb have increasingly replaced domestic lamb production. 

Boxed beef is also realizing significant changes in pricing methods (Figure 8). Negotiated 0-21 

day sales have gone from about 50% of trade in 2002-03 to about 20% in 2016. Formula trade 

has increased from about 30% to 50% or more over the same time period. Longer term trends in 

relative pricing methods for wholesale pork are not readily available since LMR on wholesale 

pork is only available since July 2013 and boxed lamb pricing methods have not been regularly 

reported. 

Note, in each of Figures 5 through 8 the outlier volume level in October 13 signifies the loss of 

transactions due to the government shutdown. 

 
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Figure 5. Total Cattle Sold by Transaction, Monthly April 2004 through July 2016. 

Data Source: USDA-AMS 

Figure 6. U.S. Hogs Sold by Transaction and Total Head Transacted, Monthly 2004 

through July 2016. 

Data Source: USDA-AMS 

 

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% negotiated purchase % other market formula

% swine or pork market formula % other purchase type

% packer owned % packer sold
17 | Page

Figure 7. U.S. Lambs Sold by Transaction, Monthly 2004 through July 2016. 

Data Source: USDA-AMS 

Figure 8. U.S. Beef Sales by Transaction, Monthly 2004 through July 2016. 

Data Source: USDA-AMS 

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18 | Page

In our discussion with industry participants, consensus suggested trends toward less negotiated 

individual transactions and more forward contracts, marketing agreements, formula pricing, and 

packer-intra-firm transfers will continue for the foreseeable future. This is occurring because of 

several longer term business management strategies and, as such, recent trends will continue. 

The trends in changing livestock and meat procurement methods have several implications for 

LMR: 

1. Negotiated trade is thinning with fewer transactions across every sector being represented 

in this category (e.g., Nelson and Turner, 1995). Formula pricing is becoming more 

common. Much of formula pricing uses negotiated reported prices as the base in the 

formula. Thus, negotiated trade is being leveraged more heavily even as it declines in 

volume. This has shifted the role of LMR for negotiated prices more to price discovery 

in addition to price reporting. Any changes in LMR rules or USDA-AMS reporting 

protocols for negotiated prices directly impact many formula trades. This certainly 

increases the sensitivity to, and magnitude of, impact of adjustments to negotiated trade 

reporting protocols by AMS. Industry must carefully weigh the cost versus the benefit 

of a change before recommending adjustments to AMS or the LMR Act. 

2. Because of the importance of negotiated price reports for a variety of industry concerns, 

there is considerable interest in maintaining reliable negotiated price reports. However, 

with thinning markets several challenges arise in accomplishing this goal: 

a. The livestock industries represented here realize that thin markets will be 

subject to elevated confidentiality concerns making reporting more sporadic 

especially for disaggregated products reported more frequently (e.g. daily) or 

regionally (rather than nationally). Consideration and assessment for more 

product aggregation across time (e.g., daily to weekly reports), as multi-day 

rolling averages, across product form (e.g., composites as opposed to 

individual products), or across locations is needed. But this all has tradeoffs 

that must be assessed – the next three points illustrate such tradeoffs. 

 

b. Aggregate or composite price reporting is one way to deal with thinning 

markets, but aggregation brings with it several issues. Based on our 

conversations with industry stakeholders, an increasing number of both 

livestock and meat alternative marketing arrangements are using USDA-AMS 

composite prices yet doing so with partially accurate understanding. 

c. One way USDA-AMS might deal with thinning negotiated markets is to 

increase the length of time included in a specific report. Based on our 

conversations with industry stakeholders an increasing number of both 

livestock and meat alternative marketing arrangements are using USDA-AMS 

published weekly/rolling averages or are computing rolling averages for their 

own use in commerce and decision making. This can work during periods of 

stable markets, but when markets are moving up or down rapidly, increasing 

the length of time included in a report greatly reduces the value of the report. 

Industry stakeholders have differing perspectives on what time period 

constitutes establishing a market price. This is to be expected, as at the live 
19 | Page

animal level the marketing patterns of hog producers and cattle and lamb 

producers differ due to the flow of production. This is a tradeoff that needs to 

be assessed industry-by-industry for implications. 

d. Because of the changes in which marketing and procurement is occurring 

through alternative marketing arrangements there is greater emphasis on 

looking forward. For example, the regulation was amended in 2008 to 

accommodate a change in negotiated cattle trade and include 15- to 30-day 

delivery transactions. Live cattle forms and reports now include both one- to 

14-day and 15- to 30-day delivery windows. There will be increased demand 

for USDA-AMS to report forward looking information. However, this 

requires packers to increasingly report intentions rather than just what they 

have paid for livestock. This is addressed further in the next comment. 

e. The issue of reporting packer intentions in MPR has raised concerns about the 

original intent of MPR. Intentions and plans for scheduled slaughter delivery 

by packers goes beyond being a mirror of what prices have been paid for 

livestock and associated volume in these transactions. This overall issue is one 

that deserves on-going assessment since this information on intentions of 

packers has largely been collected through discretionary interpretation of 

LMR and may not be in the Act itself. 

3. Thin negotiated markets are bringing new forms of pricing into the array of price 

discovery institutions and platforms. The Fed Cattle Exchange, an electronic, web-based 

fed cattle market is one such example. There was considerable debate as this exchange 

was developed whether the prices from this market would, or even could legally, be 

included in LMR. This electronic market was launched by Superior Livestock Auctions 

as one way to increase the number of cash fed cattle transactions in the thinning 

negotiated fed cattle market. This market recently closed because of technical problems 

with software, but is reschedule to start trading again. The transactions that occurred in 

this market, as far as we understand, were not included in USDA LMR reports. This 

specific example simply illustrates the types of transactions that are likely to evolve. In 

this era of electronic commerce, more electronic livestock and meat markets are likely to 

evolve. AMS will continue to face these types of requests going forward. 

4. Several participants mentioned a desire to potentially include negotiated transactions 

from intra-company transfers in AMS reports. There was support for including these 

transactions when it is determined that the transaction occurred through negotiation (for 

background see Parcell, Brees and Giddens, 2003). Some participants went further and 

suggested that one party to the transaction be an independent producer, i.e., exclude 

packer intra-company transactions. Precedent exists for including intra-company trade 

when independent producers are involved. Farmland Industries, a cooperative, supplied 

hog data to LMR and included transactions where the independent producer was a 

cooperative patron. Similarly, US Premium Beef (USPB) farmer-owners contributed 

cattle to the former USPB majority-owned National Beef processing plants. USPB was 

organized initially as a cooperative and later as an LLC. With a number of farmer-owned 

swine processing plants planned to open, a large farmer-owned sheep processing plant 

operating as a major player in sheep processing, and interest in farmer-owned beef 
20 | Page

processing, the potential exists to capture sufficient volume that would garner including 

these transactions. One concern is that intra-company transactions may not be marketdetermined. We highlight the issue here as one that AMS will be faced with again in the 

future. 

2.4 Product Proliferation and Price Reporting Standardization 

There is considerable product proliferation occurring in meat markets. Increased case-ready 

product, specialty trimmed cuts, branded products and other forms of differentiation (naturally 

raised, etc.) are adding to a large array of meat products being marketed by reporting packers. 

Boxed lamb, pork, and boxed beef market participants consistently referenced product 

differentiation and proliferation reducing negotiated trade volume on commodity products as a 

significant current and future concern. Several researchers have documented the proliferation in 

retail-level branding efforts (e.g. Parcell and Schroeder, 2007; Schulz, Schroeder, and White, 

2012; and Ward, Lusk, and Dutton, 2007). For example in the LMR data, Figure 9 summarizes 

the % of boxed beef indicated as being branded product relative to the total volume of boxed 

beef trade. Two common concerns surfaced regarding product differentiation. First, participants 

shared concern that product differentiation has increased use of alternative marketing 

arrangements in meat trade. Although using alternative marketing arrangements more frequently 

has reduced the volume of negotiated transactions, alternative marketing arrangement use is the 

reality of a more coordinated value chain driven by diverse consumer preferences. We expect use 

of alternative marketing arrangements to continue to increase and further erode negotiated meat 

trade volume. 

The second concern is that of product differentiation whereby processors offering more caseready product invokes the 3/70/20 confidentiality restriction. This is leading to new meat 

products that do not fit the IMPS code categories for either lamb or beef or lead to new product 

specification sheets for wholesale pork. As a result, either the product is only sold by one 

processor, or the product creates an entirely new product category that rarely 

trades. Furthermore, the niche primal categories take away trade volume from other primal 

categories and force these categories closer to the 3/70/20 confidentiality restriction. 

Overall, this is an area that we heard a lot of discussion with industry participants. Many also 

provided general recommendations for addressing these concerns going forward. Without doubt, 

this is a major topic with need for substantive assessment as LMR and USDA-AMS contemplate 

meat price reporting in the future. 

 
21 | Page

Figure 9. Branded Beef Sales, Monthly 2004 through July 2016. 

Data Source: USDA-AMS 

2.5 Composite and Primal Calculations 

Composite and primal value calculations are increasingly being used as the base price for meat 

alternative marketing arrangements (AMAs). An increasing number of live animal transactions 

also use the cutout value, or carcass, composite to establish base prices. Composite calculations 

were voluntarily offered by AMS in response to industry interest in tracking overall value 

proposition. Composite calculations were not intended for price discovery purposes. However, 

industry participants found comfort in composite calculations, and they adopted them into 

alternative marketing arrangements and used them for business decision making. Across the 

beef, lamb, and pork industries, the value of these composite calculations is increasing and will 

most likely continue to increase in use. 

Both Tomek (198) and Franke, Parcell, and Tonsor (2011) show the importance of the number of 

transactions to the confidence in the price level. As certain markets thin, data users will look to 

alternative markets. Motivation for adoption of composite calculations is the high degree of 

correlation between the primal or cutout has to the underlying commodity, or product, being 

priced off. Also, data users are more comfortable with the series’ because of the greater 

frequency of a price being reported. For example, Figure 10 is a summary of the consistency and 

low variability for certain lamb primals and lamb cutout. And, Figure 11 is the example of the 

correlation in movement between the choice boxed beef cutout and two negotiated live cattle 

price series. 

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% branded
22 | Page

Figure 10. Lamb Primal and Cutout Prices, Monthly 2006 through July 2016. 

Data Source: USDA-AMS 

Figure 11. Choice Beef Cutout and Selected Choice Live Cattle Prices, Weekly 2006 

through July 2016. 

Data Source: USDA-AMS 

 

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232 Loin, Trimmed, 4x4

Cutout Value Less Processing/ Packaging Costs

204 Rack, 8-Rib, Medium

232E Flank, Untrimmed

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cutout value live over 80% choice live 35-65% choice
23 | Page

2.6 International Trade 

Trade is immensely important to the US livestock and meat industry and this will continue into 

the foreseeable future. This is an area all industry participants agreed upon. There were also 

sentiments strongly supporting more reporting of especially North American trade -- specifically, 

inclusion of Canada and Mexico -- in beef LMR. Some participants expressed reservation that 

including North American trade would not sufficiently add to negotiated trade liquidity and 

justify the costs of submitting data, auditing, and adjusting the AMS reporting system. The 

percent of total US beef exports to domestic US production is 10% in 2015 (see Table). 

Approximately 1/3 of total US beef exports is to either Canada or Mexico. With increased 

importance of international trade in livestock and meat markets, there is desire by industry for 

consideration of incorporating similar muscle cut specification North American trade in with 

domestic trade price reporting. 

 
24 | Page

CHAPTER 3: LMR IN A DYNAMIC INDUSTRY 

The nature, magnitude, and velocity of changes occurring in livestock and meat markets 

indicates LMR and USDA-MPR will face regular changes in how commerce occurs, in structural 

issues with reporting firms, and in product changes over time. Nearly every interview we 

conducted pointed to immense value that could be gained from coordinated regular 

communication with USDA between reauthorization periods. 

Interview participants provided a number of anecdotes about significant industry change being a 

factor that would bring value to regularly scheduled meetings open to LMR data providers and 

LMR data users. Some industry changes occurred relatively quickly, and AMS was able to 

implement an adjustment because of strong industry advocacy and awareness, e.g., prevalence in 

use of basis contracts and adding this as a transaction category. Some changes have been 

completely unforeseen, e.g., the current trend away from processors trimming grind at the plant 

instead of retail due to FSIS ruling that retail trimming presents a food safety concern. Or, when 

there is a situation of how to report products and into what bucket differentiated products are 

being reported, e.g., country of origin labeling law with exemptions (see Tonsor, Schroeder, and 

Parcell 2015) and subsequent repeal of the law. Or, when there are longer term industry issues 

like thinning markets and the need for broad-based prioritization and study of means by which to 

sustain negotiated trade. The area of continued communication with industry and USDA-AMS 

is a fruitful area for additional effort. Ultimately any efforts by USDA-AMS to expand 

communication with the industry must be reciprocated by industry representatives to be 

successful. 

Some interviewed stakeholders acknowledged the AMS development of the MPR Data Mart 

portal as providing both better access and enhanced transparency of LMR data. Some 

stakeholders without access to analytical resources, however, still seem to have trouble knowing 

what to do with the immense amount of information available through the MPR Data Mart portal 

Every industry participant we visited with said USDA-AMS is approachable, responsive, and 

willing to help address issues that arise. Despite this willingness to help, our multiple discussions 

with stakeholders from each industry, made it apparent that confusion exists about the 

information contained in various price reports and especially in composite values such as cutout 

and primal values. Several comments indicated a desire for additional transparency and 

documentation of underlying processes used in deriving composite values. In short, the net 

social value of LMR could expand if additional documentation were provided. Industry in turn 

could enhance social value by more regularly providing updated yield and cost information for 

composite calculations by USDA-AMS. 

Beyond coordinated communication, all parties involved would be well served by a systematic 

process by which proposed adjustments to LMR are empirically assessed both for direct and 

indirect implications before being implemented. Given the dynamic and diverse nature of the 

livestock and meat industry as synthesized in this report the need for an empirical assessment of 

candidate changes only grows over time. In many cases, but not all, this will require engagement 

of third-party experts with appropriate skills and unbiased roles in assessing proposed changes. 

 
25 | Page

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