Live Lamb and Lamb Products Confidentiality Study

August 2017

Prepared for: Agricultural Marketing Service

By:

Joe Parcell and Glynn Tonsor
Table of Contents

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

2. Project Overview and Study Objectives ...........................................................4

3. Consideration of Alternatives to using the Weighted Average Price ................6

3.1 Relaxing the 3/70/20 thresholds .....................................................7

3.2 Apply the 3/70/20 threshold to plants instead of firms ..................10

3.3 Consolidating weight categories...................................................10

3.4 Consolidating transactions across weeks.....................................12

4. Alternative Confidentiality Considerations......................................................15

4.1 Comprehensive price report .........................................................15

4.2 Inclusion of cooperative lambs .....................................................21

4.3 Pricing off the net cutout...............................................................21

4.4 Augment LMR with voluntary........................................................23

4.5 Price Index ...................................................................................23

4.6 Rounding......................................................................................26

4.7 Averaging: alternatives to the weighted average.........................28

4.8 Standardized pricing model..........................................................30

5. When is Data No Longer Confidential?..........................................................34

6. Lamb Products...............................................................................................37

7. Appendix........................................................................................................39
1

1. Executive Summary

LMR confidentiality guidelines were established based on the premise of AMS “printing” 

a weighted average price along with the volume of transactions. We assessed the 

viability of alternative price reporting calculations that would: 1) maintain the integrity of 

the “printed” price as a result of price discovery between supply and demand; 2) ensure 

minimal infringement of private company information; and 3) not facilitate the act of 

market collusion. We used the period of one week for this study as the base period, 

which is consistent with most current AMS reporting for lamb.

Because of the lack of transaction volume in this market, we took great care to maintain 

the confidential integrity of the data. We also made an effort to provide meaningful 

information related to all alternatives. In most cases we masked the identity of an 

individual data series, and in most cases we used a proxy for the LMR’s 3/70/20 

confidentiality threshold. We were careful to note that any alternative price calculation 

deemed viable in this report will need to be further vetted by AMS. Our analysis of 

alternatives did not include a comprehensive review into any particular alternative price 

calculation.

We spent considerably less effort analyzing lamb product cuts. Our premise is that our 

findings at the level of live trade is generally applicable to the lamb product cuts report. 

For lamb product cuts, the need for an alternative reporting metric is hit-and-miss 

across different cuts. This makes offering a general recommendation difficult. As would 

be expected, lamb product firms tend to be in-and-out of the market regularly to 

replenish, or to move, inventories. For some cuts one firm may have such a large 

market share there is no viable alternative price reporting metric to consider.

We looked into the case of how long price information remains in the market. We 

determined that period to be no more than three weeks, with the exception of seasonal 

tendencies. However, caution must be taken in consideration of reporting historical 

prices without consideration of confidentiality. A key proprietary business detail is the 

margin, and firm-level margins tend to remain constant over time. Because the lamb 

and lamb products industries are fairly consolidated, we have a concern that firm-level 

margin information could be exposed with the release of historical information.

A concise summary of our findings for live lamb is as follows:

Relaxing 3/70/20 thresholds

Relax “3” ......................................................................................infeasible

Relax “70” ...................................................................................infeasible

Relax “20” ...................................................................................infeasible

Apply 3/70/20 to plants instead of firms .................................................infeasible

Consolidate weight categories

Lighter weight categories ............................................................infeasible 
2

Heavier weight categories .............feasible, but subject to being infeasible

Consolidate transactions across weeks .................................................infeasible

Use the comprehensive price ..................................... feasible, with slight caveat

Include cooperative lambs into formula .................................................infeasible

Include cooperative lambs into comprehensive ................. feasible, adds volume

Price off the net cutout ........................................................... generally infeasible

Supplement LMR with voluntary data .....................................potentially feasible, 

AMS to look at auction slaughter lamb data

Move to a voluntary system ................................................. most likely infeasible

Price Index ............ generally feasible, with caveat of using subjective judgement

Rounding ...............................................................................................infeasible

Olympic averaging .................................................................................infeasible

Simple average ......................................................................................infeasible

Removing the tails ................................................................. generally infeasible

Standardized pricing .......................... feasible, with caveat “black box” approach

Summary: live lamb

Ultimately, we believe the AMS comprehensive price to be a good price series for 

industry to use. The standardized pricing approach is worth consideration by USDA 

AMS and industry for implementation, should the comprehensive price not be sufficient 

to meet industry need. This approach relies upon price relationships from the two most 

recently completed market weeks as well as the proportion of transactions containing 

attributes of interest (FOB, formula, etc.) for the reported week. Accordingly, this 

process is conceptually transparent and reasonably appealing given existing reporting 

challenges faced by AMS and frustrations expressed by the lamb industry. If ultimately 

implemented, we would recommend USDA AMS periodically re-examine this process 

as any substantial change in transaction types could be important to further consider. 

Furthermore, we recommend USDA AMS not publically report actual relationships used 

in the price calculation process. While additional transparency in concept is appealing, 

reporting actual coefficients would reveal important information that may present 

confidentiality concerns.
3

Summary: lamb products

Because of the inclusion of imported lamb products, we generally found more firms 

contributing information. In general, the findings for live lamb hold for lamb products. For 

the lamb product cut prices associated with more than one firm reporting and now 

unreportable, there are three potential price reporting alternatives. The impact of any 

one, or combination, of these alternatives will lead to a marginal improvement in 

reporting of 5 or 6 price series. First, consideration should be given to merging fresh 

and frozen product with a rule for eliminating frozen product outlier data points. 

Second, AMS could look at a longer rolling-average period. However, we do not believe 

this alternative will consistently solve the confidentiality issue. The second option, which 

we view as viable, is applying the standardized pricing model when a specific cut no 

longer consistently conforms to 3/70/20 threshold and for which there is more than one 

firm reporting.
4

2. Project Overview and Study Objectives

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. 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 more vertical coordination and integration, and,

relative to when the Livestock Mandatory Reporting Act (LMR) was enacted in April 

2001, generally different terms of trade, e.g., contracts, is used by meat packers who 

report information to USDA-AMS under LMR. 

This issue has long been a concern, but it is becoming a greater concern as markets 

become more vertically integrated, coordinated, differentiated, and in many instances 

thinly traded. The use of LMR information has expanded beyond price discovery and 

determination to include establishing insurance contracts, futures contract settlement, 

indemnity loss payment determination, market research, and for policy analysis. 

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. 

The U.S. sheep and lamb industry has undergone considerable change over the past 

one-half century, and over the prior 15 years this change continues. In particular, the 

lamb meat market became a global marketplace beginning in the 1970’s and continues 

to today. Over a fifteen year period alone the percentage of imports in relation to 

domestic meat production has risen from 56% in 2000 to 142% in 2015. U.S. imports of 

lamb carcasses and lamb meat has reduced today’s domestic production to 20% of 

production levels fifty years ago (exhibit 2.1). Domestic production today is one-half of 

production to when the Livestock Mandatory Reporting Act (LMR) was enacted in April 

2001. This decline in domestic production at the farm-level has the up value-chain effect 

of a declining need for feeders and initial processors. 

Using live and carcass transaction level data over the 2012 through March 2017 period 

and lamb products transaction level data over the 2016 through March 2017 period, we 

examined various alternatives to the currently reported weighted average price. 

Specifically, the objectives of this study were: 

• Examine LMR transaction data for alternative confidentiality consideration of reporting 

entities while maintaining information integrity and consideration of the needs of 

producers and industry.

• Explore alternative ways to aggregate reported data to enable AMS to publish market 

information while preserving the confidentiality of the market participants. 

• Examine the period of time that data remains relevant to establishing the current 

market price.
5

Exhibit 2.1. Weekly head slaughtered and production, January 1970 to present.

Source: Livestock Marketing Information Center and Agricultural Marketing Service.
6

3. Consideration of Alternatives to using the Weighted Average Price

This section of the report describes alternative aggregation schemes to achieve the 

30/70/20 confidentiality guidelines used by AMS in deciding information to “print” a 

weighted average price. 

Because of the few numbers of firms reporting during a given week, we sought a 

method to convey market shares without disclosing confidential information. There is no 

exact replacement for a 3/70/20 threshold or for alternative threshold considerations. 

We apply the Herfindahl Index to the LMR transaction data to approximate the 

confidentiality threshold. The Herfindahl Index is computed as:

HH = ��SSii

2

�

nn

ii

Where si equals the market share of the i

th firm in the market of n firms. While the 

Herfindahl Index does not have a time dimension, i.e., measure over a 60-day period, 

we suggest a Herfindahl Index value of at least 0.60 is a decent approximation of the 

3/70/20 threshold. Herfindahl Index values above 0.60 indicate an increasing level of 

difficulty in meeting any relaxed confidentiality threshold. 

The 30/70/20 guidelines must be understood. The 3/70/20 confidentiality guideline 

requires the following three conditions (Source: 

https://www.ams.usda.gov/sites/default/files/media/ConfidentialityGuidelines.pdf): 

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.

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. 

Following AMS guidelines, an entity is equal to a firm. There are two important reasons 

why preserving confidentiality is a priority. First, the foundation of a free enterprise 

economy allows firms to maintain a degree of privacy to protect their firm-level 

knowledge. Second, the Sherman Antitrust Act severely penalizes firms and persons 

that engage in collusive activities. If a government agency were to report information

that potentially infringes on proprietary business, then the government would be a 

IMPORTANT

It is IMPORTANT to note that the Herfindahl Index reported here is relevant only to 

data reported through LMR and NOT the entire market. Thus, we refer to a LMR 

Herfindahl Index or the LMR H-index.
7

facilitator of an industry unfairly sharing information. If the agency reported transaction 

data for a small number of firms, then each firm could “back out” their own information 

to arrive at the competitor’s information. The 3 threshold protects against any two 

entities consistently reporting. Even for three or more firms, there is the concern of 

collusion if one or two of the firms represent a significant percentage of the market 

share, during a given time period. The 70 and 20 thresholds are in place to protect 

against such situations where one or two entities dominate over many smaller entities. If 

the thresholds of 70 and 20 are relaxed too much, e.g., 80 and 10, then the 3 threshold 

would need to increase to ensure the information is not used in a collusive manner. 

3.1 Relaxing the 3/70/20 thresholds

We examined the impacts of relaxing each of the 3/70/20 thresholds now used with in 

LMR. To preserve the confidentiality of the actual data we report approximation 

computations to publicly show reasoning for concern, or lack of impact, over relaxing 

either of the 3, 70, or 20 thresholds.

Increasing the “3” threshold

• Readers will see by Exhibit 3.1.1 that relaxing the 3 threshold will have 

little impact because many weeks 3 or fewer firms are reporting [note: one 

may average across weeks to get the average number of firms reporting 

during a 60-day window].

• Keep in mind the volume of formula trade dominates over the volume of 

negotiated trade by a ratio of between 2:1 and 3:1.

Relaxing the “70” threshold

• Readers will see by Exhibit 3.1.2 that the percentage of weeks when one 

entity is above the 70 threshold is considerably high.

• Relaxing this threshold will have little impact on the number of reportable 

transactions. 

Relaxing the “20” threshold

• Because of the similarity in how the 20 and 70 thresholds are reviewed, 

readers can again examine Exhibit 3.1.2 to envision why relaxing the 70 

threshold will have little impact on the ability of AMS to report more 

information.
8

Exhibit 3.1.1. Number of firms participating by market, January 2012 - March 2017

Source: Agricultural Marketing Service.

Note: This figure represents the number of firms and not volume of trade by the firms.
9

Exhibit 3.1.2. Percent of observations with a single entity having over a 70% market share in a given week, January 2012 

– March 2017.

Source: Agricultural Marketing Service.

Note: F = Formula & N = Negotiated

Lighter Weights

Heavier Weights
10

3.2 Apply the 3/70/20 threshold to plants instead of firms

Readers will see through information in Exhibit 3.2.1, and comparison to Exhibit 

3.1.1, there is minimal change in the number of entities reporting transactions. 

o Due to confidentiality we report no price or headcount information here.

o Our review found that firms with multiple plants use similar procurement 

methods.

o Based on our review of the data this change would impede on business 

freedoms and potentially facilitate collusive behavior. 

3.3 Consolidating weight categories

In visiting with industry stakeholders, their preference is to NOT combine weight 

categories unless absolutely necessary to meet the confidentiality threshold. We 

examined two example scenarios for the lowest three weight categories. The baseline 

inflects current categories. The percentage of weeks with no submitting transactions or 

single entity submitting transaction is reported. The LMR Herfidahl index (H-index) is 

also reported in each of the three sampled weight categories where the H-index is 

above 0.60. There is evidence that combining weight categories allow for access to 

more regularly available data, however, the measure of meeting the confidentiality 

threshold remains a strong concern. 

Exhibit 3.3.1. Percentage of no transactions submitted or single entity reporting during a 

given week, for lighter weight categories.

Weight Category Category i Category ii Category iii

Baseline 97.18% 98.18% 75.56%

H-Index: >0.60 for each baseline category

Combining weight categories 73.93%

H-Index: > 0.60

• For the lighter weight categories, there is a very low probability of finding an 

alternative method for maintaining confidentiality. 

o Discontinuing reporting lighter weight categories should be considered.

• For the heaver weight categories, combining weight categories seems 

unnecessary given the feasibility of other aggregation alternatives reported in this

report.
11

Exhibit 3.2.1. Number of plants participating by market, January 2012 - March 2017.

Source: Agricultural Marketing Service.

Note: This figure represents the number of firms and not volume of trade by the firms.
12

3.4 Consolidating transactions across weeks

We considered alternative aggregating strategies across time. Using knowledge 

summarized in section 5 that “the market” encompasses two weeks, we examined 

aggregating data across two weeks. First, the baseline is established by computing the 

weekly LMR H-index for negotiated formulated transactions. The AMS moving to a 

comprehensive reported price was the only sustainable way to continue reporting a

price. 

Any significant change in LMR H-index by aggregating across weeks would be 

observed in the comprehension data, leading to a deeper study of more specific data 

Exhibit 3.4.2 issued to show the LMR H-index for a single week and two-week moving 

average. Obviously, the two week moving average LMR H-index is only minimally lower 

than the single week. Aggregating transactions across a two-week period is not 

sufficient to avoid collusive concerns. 
13

Exhibit 3.4.1. Weekly live lamb LMR Herfindahl Index, 2012 through March 2017

Source: Agricultural Marketing Service.
14

Exhibit 3.4.2. Weekly live lamb LMR Herfindahl Index, 2012 through March 2017, for actual week and two week rolling 

average.

Source: Agricultural Marketing Service.

A LMR Herfindahl index greater than 0.60 

is approximately equivalent to 3/70/20 

confidentially threshold being violated.
15

4. Alternative Confidentiality Considerations

This section follows closely on section 3, but delves more into alternative scenarios of 

market price reporting that go beyond AMS current use of the weighted average price.

4.1. Comprehensive price report

An obvious option to consider is AMS’s recently created comprehensive report. We 

provide only facts here, based on historical information. Exhibits 4.1.1 and 4.1.2 show 

secondary data trends, for negotiated and formulated transactions, over the life of LMR.

Exhibits 4.1.3 and 4.1.4 are scatter plots showing how well different price series track 

against each other. Clusters closer to the black line show the two price series track 

better with each other. Overall, combining negotiated and formulated transactions into a 

comprehensive price tracks the formula price well (see Exhibit 4.1.4).

We went one step further to examine outliers shown in Exhibit 4.1.4. A rule was created 

that if the comprehensive price is outside of a range +/- $5 of the formulated, then only 

the formula price transactions are used to compute the reported price on the given day. 

The rule was enacted 138 (17.5%) of the 788 weeks. While this significantly improved 

the clustering of prices, going forward AMS would need to avoid announcing dates

when only the formula transactions are utilized. This would ensure firm-level 

confidentiality.

The comprehensive price now reported by AMS is a feasible option for the time being, 

as long as firms continue to report a sufficient number of transactions within both 

purchase types of negotiated trade and of formula trade. Note, there are two firms 

reporting formula transactions (see Exhibit 3.1.1), which is lower than the “3” threshold 

of 3/70/20.
16

Exhibit 4.1.1. Weekly formulated and negotiated lamb head reported through LMR (August 2001 through March 2017)

Source: Livestock Marketing Information Center and Agricultural Marketing Service.
17

Exhibit 4.1.2. Weekly combined formulated & negotiated lamb head reported through LMR (August 2001 through March 2017)

Source: Livestock Marketing Information Center and Agricultural Marketing Service.
18

Exhibit 4.1.3. Relationship between the weekly carcass basis reported formulated weighted average price and reported 

negotiated weighted average price (January 2002 through February 2017)

Source: Livestock Marketing Information Center and Agricultural Marketing Service.
19

Exhibit 4.1.4. Relationship between the weekly carcass basis reported formulated weighted average price and computed 

comprehensive weighted average price (January 2002 through February 2017)

Source: Livestock Marketing Information Center and Agricultural Marketing Service.
20

Exhibit 4.1.5. Relationship between the weekly carcass basis reported formulated weighted average price and computed 

comprehensive weighted average price & rule of an outlier greater than $5/cut. (January 2002 through February 2017)

Source: Livestock Marketing Information Center and Agricultural Marketing Service.
21

4.2 Inclusion of cooperative lambs

We examined 13 weeks of cooperate member owner lamb transactions for the impact 

on formula price reporting. The addition of this data does not impact the number of firms 

reporting. However, the LMR H-index declines sharply. Because we did not have weight 

categories, we were unable to reach conclusion related to specific formula weight 

categories. Because the addition of cooperative lamb transactions does not improve the 

3/70/20 “3” threshold, the addition of cooperative lambs alone is not sufficient to 

overcome concerns that LMR could facilitate collusion.

Exhibit 4.2. Formula trade confidentiality measures before and after inclusion of 

cooperative member owned transactions.

Before After

# of Firms LMR H-Index # of Firms LMR H-Index

Period 1 2 0.665 2 0.525

2 0.709 2 0.501

. 2 0.714 2 0.502

. 2 0.764 2 0.529

. 2 0.738 2 0.500

. 2 0.646 2 0.517

. 2 0.623 2 0.503

. 2 0.728 2 0.500

. 2 0.793 2 0.501

. 2 0.828 2 0.508

. 2 0.854 2 0.541

. 2 0.579 2 0.510

. 2 0.792 2 0.503

. 2 0.772 2 0.502

. 2 0.793 2 0.515

Period 13 2 0.776 2 0.759

Source: Agricultural Marketing Service.

4.3 Pricing off the net cutout

Because lamb meat cuts have more reportable transactions and a better chance of 

being reported, we examined the feasibility of using AMS voluntarily computed Net 

Cutout Value as an approximate value to a formula lamb weight category. We do not 

specify the weight category here to preserve confidentiality. Exhibit 4.3.1 is used to 

show the ratio of these prices. While the movement in price is quite high at 0.90, there 

are periods when the cutout and formulated carcass prices are measurably different. 

Values outside +/- 0.05 of the perfect relationship of 1.0 are a concern. If special 

considerations were put in place – such as in a window contract – the net cutout could 

serve as a mechanism to track lamb price. We do not now, however, see this as the 

best viable alternative.
22

Exhibit 4.3.1. Ratio of the cash price (unreportable and confidential weight categories) to the AMS net cutout value

Source: Agricultural Marketing Service.
23

4.4 Augment LMR with voluntary information

- We considered the option of supplementing LMR information with voluntary reported 

information. This option might cause confusion as to how much overlap exists 

between LMR and voluntary information. AMS provides supplemental information for 

the Live Cattle trade (see https://www.ams.usda.gov/mnreports/lsddirectfsc.pdf and

the appendix), but the voluntary cattle data is not combined with LMR data.

- AMS could examine the impact on the comprehensive price by aggregating auction 

slaughter lamb transactions with LMR live lamb transactions. This could add volume 

to LMR reports. We see slaughter lamb transactions as negotiated trade, so 

aggregating the data will not add to the formula trade reports and the negotiated 

trade is too thinly traded to regularly report by weight category. AMS personnel may 

want to investigate this option in more detail using more robust auction transaction

data.

- We visited with industry stakeholders about moving exclusively to a voluntary 

reporting program. Based on those discussions this is not a viable option for 

sustaining "printed" prices with sufficient volume to provide market price validity.

4.5 Price index

The price index shows the extent to which a price has changed over a period of time as 

compared with the price(s) in a certain year taken as the base. For example, if a price 

index has a base year of 2000, current prices are being compared to prices in that time 

period. Price indexes are used extensively to estimate changes in prices over time and 

are also used to measure differences in costs among different geographic locations. 

The collection of prices must be planned so that differences between the prices of any 

two dates will reflect changes in price and price alone.

There are several methodologies for computing an index. The simplest index price at 

time t is of the form:

IIIIIIIIII PPPPPPPP tt =

1

tt

∑ PPii ii ∙ ii

1

0

∑ii PPii0 ∙ ii0

= ∑ PPtt

∑ PP0

Where, 

nit is the market share of the ith firm in the current period t, subscript 0 represents the

base period, and nt = ∑ nit and n0 = ∑ ni0 ;

Pit represents the transaction prices in the current period; and 

Pi0 represents the transaction prices in the base period.

The challenge with persons using the simple index as a replacement for the “printed” 

price is that a base price period must be provided, which will disclose information 

related to P0 and n0. This allows for any entity to quite easily use a current index to back 
24

into the current price (P0), i.e., reverse engineer the information to facilitate the

presumption of collusion and infringe on private transaction information.

We consider a less common index computation (Lowe Index) of the form:

IIIIIIIIII PPPPPPPP tt =

1 ∑ PPii ii ∙ iiii

1 ∑ii PPii0 ∙ iiii

Where, 

nis is the market share of the ith firm in period s and n = ∑ nit ;

Pit represents the transaction price in the current period; and 

Pi0 represents the transaction price in the base period 0.

The advantage with the Lowe index is that the transaction volume weight (e.g., weight 

and head) share (nis) assigned to a firm price is tied to an arbitrary period of time. The 

chosen volume weights could be suppressed from public viewing.

The advantage of this particular index is that AMS can provide the base period price 

(P0) as a reference point, suppress the firm share weights used, and utilize the current 

price without the ease of reverse engineering the current price (Pt). Also, AMS will be 

able to provide the current number of transactions because the current period 

transactions are not used in computing the current period price. 

The downside is that AMS will need to select a period from which to derive the firm 

transaction head and lamb weights to compute market share weights. This is a 

subjective decision that would need to remain in place over time.

We cannot publicly recommend a time period for the firm share weights, as this would 

lead to loss of suppressed information. Instead, we offer an example using secondary 

data from the Livestock Marketing Information Center and AMS.

Assumptions and computational process, for this example, include:

1) Looking at carcass basis prices for the formulated 75-85 lb range for the May 

2013 through January 20, 2017 period (i.e., off the LS302).

2) Use the period May 2013 through July 2013 as the base pricing period.

3) Assume there are four firms in this market during the base period. Select an 

alternative set of dates, say the first 10 weeks of 2015, determining the four firms 

have a market share of formulated trade in this weight category of: 6%, 23%, 

56%, and 15%.
25

a. Note, the share weights would be suppressed from the public. Only AMS 

personnel and the third-party contractor will know these weights.

b. The share weights always remain the same except for when firms do not 

report share weights, as they will need to be adjusted where firms do not 

participate in the market in a given week.

c. If any firm reports no transactions share weights, the weighting matrix will 

adjust accordingly.

i. If only one firm reports, then the index will need to be suppressed 

due to confidentiality. This is a concern for lighter weight 

categories.

4) Using the information from 2) and 3) one computes the base period price is 

$221/cwt.

a. Note, this will differ from the actual weighted average price computed off 

the 302 because the share weights will differ.

5) Moving forward to the January 20, 2017 period, the reported 75-85 formulated 

carcass price is computed as $291/cwt.

a. Note, this will differ from the actual price because the index uses the 

weights of 3) in computing the weighted average price.

6) The index is computed as $291/$221 x 100 = 132. This is 132% of the base 

period price (see step 4).

a. A user of this data would take the 132.0 reported by AMS to know that the 

price of 75-85 lb. lambs today is, on average, 132% of the base price 

period. So, the price today is 132% of $221, on $291.

This price index is a feasible option though an option that will take considerable industry 

education.
26

4.6 Rounding

We examined the impact of rounding on the impact of market prices and on the ability to 

keep information confidential. Because the trade volume is light within the lamb trade 

and the industry is small, there is some risk that a firm could back out the true price of 

the day. Given this consideration, we chosen an interval of $20/cwt. to round. We chose 

$20/cwt, as this is approximately 7% of the average actual price in the data, which 

significantly reduces the chances of an entity backing out the actual price regardless of 

trade volume. 

While rounding results in the same average price over a time span, the week-to-week 

variation in price is concerning. Since lamb markets will not sell the same volume of 

lambs each week, a lamb buyer or seller may observe a price above or below the true 

market value depending on the week. This approach distorts the market price in price 

discovery and could be controversial when used for a revenue insurance product.
27

Exhibit 4.6.1. Difference between formulated carcass price rounded to the nearest $20/cwt increment and actual price (@ 

7% of the average price), i.e., if the actual price is $288.63 /cwt the price printed is $280/cwt, or if the actual price is 

$291.13/cwt the price printed is $300/cwt.

Source: Agricultural Marketing Service.
28

4.7 Averaging: alternatives to the weighted average

Olympic averaging

Olympic averaging refers to the process of eliminating the high and low prices 

(i.e., entire transaction) over a time period. In the case of LMR lamb the period is 

a week.

We examined the coefficient of variation (weekly standard deviation in price 

divided by the weekly average price) for a random formulated carcass weight 

category, and the graph of this data is shown in Exhibit 4.7.1. The variability of 

the price series suggests reporting an Olympic average could be a viable option.

Removing the hi-lo values did not impact the mean value at a sufficient level to 

give concern to market distractions. However, upon review of the number of 

weekly transactions for specific weight categories there are insufficient weekly 

transactions to sustain any level of anonymity with the Olympic average option, 

i.e., easy for individual firms to identify missing transactions. While this concern is 

not necessarily true for heavier weight categories, the Olympic average 

alternative is not a long-term fix.

Simple Average

We looked at printing the simple average price versus the weighted average 

price. This is not a viable option because the simple average and weighted 

average differ significantly. Also, there is no week-to-week consistency in the 

difference. While the difference is not as pronounced for the heavier weight 

categories, the difference remains significant. 

Trimming the Tails Average

We looked at lopping off the bottom and top 1%, 5%, and 10% of the 

transactions during a week. On some days, lopping off this many transactions 

significantly reduces the number of transactions from which to compute a 

weighted average price. Regardless, this price reporting alternative was 

sufficiently different from the weighted average price. We see this alternative as 

deriving a price that does not reflect the true market price.
29

Exhibit. 4.7.1. Coefficient of variation for a randomly chosen price series in the formulated carcass category.

Source: Agricultural Marketing Service.
30

4.8 Standardized pricing model

Given the well-documented challenges AMS currently faces in regularly reporting 

prices, a new alternative approach was considered that utilizes information from all 

transactions AMS receives. Specifically, a standardized price-computed approach was 

considered for viability using the first 17 weeks of 2017 as an examination period. The 

three-step, sequential approach proceeds as follows:

1. Identify the full set of transactions for the most recently completed two weeks, but 

not current week (e.g. at 8 am on Monday of each week). Using these actual 

transactions, a regression model estimates the relationship between head count, 

processing plant, formula, FOB, and weight category on transaction price. 1

a. Step 1 provides a model correlation vector describing how attributes of 

each raw transaction reported to AMS impact the reported prices in the 

examined two week period.

2. Use the full set of transactions for the current week (e.g. at 4 pm on Friday of 

each week) to identify the mean head count as well as the proportion of 

transactions that occur for each processing plant, are formula, are FOB, and fall 

in each of six weight categories.

a. Step 2 summarizes the proportion of raw transactions reported to AMS in 

the current week that comprise each attribute considered in Step 1. 

3. Multiply the model correlation vector from Step 1 by the current week’s 

transaction summary in Step 2 to derive the “New Industry Weekly Reported 

Price.” 

a. Given the first 17 weeks of 2017 on average contained 65 transactions 

(ranging from 39 to 80) being received by AMS, this results in Step 1 using 

on average 130 transactions and step 2 using on average 65 transactions.

This three-step process was completed sequentially for the first 17 weeks of 2017. In 

each new week, the process was updated to utilize one new week of information and 

drop the oldest week of information. As an example, for the initial week’s assessment 

step 1 would contain information for the last two weeks of 2016 (December 17th – 30th) 

while step 2 (perhaps conducted late on January 6th) would contain information for 

December 31st - January 6th. Then when implementing for the second week’s 

assessment step 1 would contain information for December 24th – January 6th while 

step 2 (perhaps conducted late on January 13th) would contain information for January 

7th – 13th. 

 1 Here head count is a continuous variable while all other variables are discrete (0/1) 

variables that serve as intercept shifters from the base case of transactions from one 

specific plant, non-formula, non-FOB, in the under 45 lb category.
31

The primary benefits of this approach include an ability to report information every week 

in a manner that utilizes the full set of diverse transactions reported to AMS without 

concern over revealing confidentiality of individual transactions. One downside of this 

approach is that no information is provided separating reported values by FOB, formula, 

or weight category characteristics. 

Exhibit 4.8.1 shows how the New Industry Weekly Reported Price would have 

performed early in 2017 had it been implemented. To provide context, the simple 

average price of actual transactions for each week is also plotted. On average over 

these 17 weeks, the mean actual price was $0.73 higher than the New Industry Weekly 

Reported Price which corresponds to a 0.20% difference. The most extreme differences 

in mean actual price and the New Industry Weekly Reported Price were -$8.00 (-3.0% 

in week 9) and +$11.47 (+3.9% in week 14). While this suggests the New Industry 

Weekly Reported Price concept does a reasonable job of depicting representative 

industry trade, underlying variation in actual transactions reported to AMS warrants 

appreciation. To help show this in a confidential manner, the range in actual prices 

received by AMS each week is also shown in Exhibit 4.8.1. This also helps indicate how 

the New Industry Weekly Reported Price provides values that always fall between 

extremes in actual prices received by AMS without revealing information specific to 

these extreme transactions.

In addition to implementing this three-stage process as described, we considered a host 

of sensitivity analyses. These alternative approaches did not improve the process and 

included:

• Instead of Step 1 using the most recent two weeks, we considered using the most 

recent week only, using the most recent four weeks, and using the most recent five

years of data. Using the two week period is consistent with our point on market 

information persisting for two weeks (see Section 5).

 

• We considered alternative specifications, including omission of an intercept term, 

dropping plant effects, collapsing weight categories into four groupings, and 

incorporating weight information continuously rather than discretely. This lead to 

model correlation vectors that were less robust. 

• Finally, we considered using only subsets of the transactions reported to AMS. 

Specifically, we considered omitting transactions with prices under a certain 

threshold price as well as running models separately by formula characteristics. 

Challenges immediately arise with shrinking an already low number of transactions.

Given the variation in actual prices summarized by range information in Exhibit 4.81, to 

go one stage further it is worth considering how adjusting this three-step process could 

provide reportable information for weight categories. Exhibit 4.8.2 shows the New 

Industry Weekly Reported Price that results and could be reported. Values for lighter 

weight categories were not included as relationships between the lightest three 

categories are not stable for the examined period. 
32

Exhibit 4.8.1. Standardized weekly reported price concept demonstration

Note: The dots (represented by the right-hand axis) indicate the price range. For example, the dot shown for week 2 is a 

value around $85/cwt, representing the difference between the observed low and high price for the week to be $85/cwt.
33

Exhibit 4.8.2. Standardized weekly reported price concept, for three chosen weight categories
34

5. When Is Data No Longer Confidential?

Some may wonder when information, or data, is irrelevant to the current market 

situation. Market prices are determined by the interstation of market supply and demand 

curves (see exhibit 5.1). 

The market supply curve is derived from the summation of individual firm marginal cost 

curves. For lambs, this is the summation of individual feed yard cost curves. The factors 

of supply are the size of the live lamb herd, costs of inputs, and imports of lambs or 

carcasses. In a biological process like lamb production, lamb supply is primarily 

determined 6 to 8 months in advance by the number of lambs born. This is why the 

supply curve is drawn steeply in exhibit 5.1, i.e., once a producer has the lambs on the 

ground it’s difficult to increase the supply of lamb much.

Market demand is determined by the summation of all end-user needs and wants, which 

derives the demand for live lamb by processors. End-user products vary in price and 

form, and the lamb value chain coordinates the flow of quantities versus payments from 

end-users. This creates a retail-to-processor margin as shown in exhibit 5.2. The retail 

price is set based on the price necessary to clear the market based on supplies 

established from the lamb crop 6 to 8 months ago. The retail demand price is then used 

to set the processor and farmer prices.

Before moving forward, let’s reflect: Globally, sheep producers lambing today are a 

strong signal of lamb meat available 6 to 8 months from now. Currently, the end-user 

must find a price point to clear the market of this quantity of meat. Demand is realized 

through this iterative process, leaving the processor to work off a margin between the 

price paid for a lamb and the composite value of all the parts of the lamb sold to endusers (i.e., meat, offal, pelts, etc.). Processors then take costs out of this gross margin 

to arrive at a level of profitability. An individual processor’s margin can tell much about 

operating costs, fabrication costs, employment costs, and pricing strategies of the 

business. Their “margin” is considered proprietary information. Reporting past prices 

because the prices are no longer relevant to the current market runs the risk of 

exposing firm-level margins, which tend to be stable over time.
35

Exhibit 5.1. Farm-level supply and demand.

Exhibit 5.2 Farm-to-retail margin.

Price paid 

by processor 

for lambs

Quantity of lambs available for 

processing 

S

D

Q

P

S Derived 

D Primary 

P

Q

S Primary 

D Derived 

Quantity of lambs 

available for 

processing

Price in carcass 

weight equivalent 

between end-user 

and consumer

Price paid by 

processor for lambs

Difference between 

prices is the 

processor margin
36

Market price persistence

Market prices fluctuate day-to-day or week-to-week based on supply and demand 

fluctuations. For livestock market reporting of live lamb, the market has been set as one 

week, i.e., weekly reports such as the 302, 352, or 500 (note: 500 is a 5-day rolling 

average) For an example, see here https://www.ams.usda.gov/mnreports/lm_lm352.txt

and the appendix for the LM352, National Weekly Slaughter Sheep Review. How long 

does the current market remain relevant to prices in the future?

To examine this question, we used LMIC price data. To test the relationship of lamb 

carcass price across weeks we regressed 822 weeks of current week formula lamb 

carcass prices on the last four weeks of reported prices (see exhibit 5.3). One week ago 

the price is virtually the same. Two weeks ago approximately every $0.29 of price this 

week is in common with a price two weeks ago. Three and four weeks ago are virtually 

irrelevant to today’s market. Thus we conclude that transactions more than three weeks 

old are of little relevance to the current market price.

Exhibit 5.3 Regression Results of Market Price Relative to Time Dimension, Using 

Secondary Data

Regression Statistics

R Square 0.997

Standard Error 3.476

Observations 822

Coefficients Standard Error t Stat P-value

Intercept 0.94 0.47 2.00 0.05

Formula price lagged 1 week 1.01 0.03 29.52 0.00

Formula price lagged 2 weeks 0.29 0.05 6.02 0.00

Formula price lagged 3 weeks -0.08 0.05 -1.57 0.12

Formula price lagged 4 weeks -0.23 0.03 -6.65 0.00

We completed a similar time-series study for one set of firm-level transactions for a

specific weight category. The results of this analysis were revealed the exact same 

results of the current market price showing up in the price over the next two week 

period. These results are not reported here to preserve confidentiality. 

We recognize the seasonality of prices is present, but we did not specifically model 

seasonality in the modeling.
37

6. Lamb Products

For lamb product cuts, we looked at transaction data over the 2016 through March 2017 

period. Over 50 cuts were included in the data. Using the premise that the findings of 

the live trade are generally applicable to the product trade, we spent considerably less 

time analyzing these transactions.

As shown in exhibit 6.1, the issue of confidentiality is not as much a concern with the 

lamb product cuts price series. Not surprising is that frozen product cuts have fewer

firms in the market than firms in the market for fresh product. We believe more harm 

than good can be accomplished by adjusting how lamb product prices are adjusted.

Exhibit 6.1. Percentage of approximately 55 cuts having fewer than 2, 3, or 4 firms 

reporting over the period January 2016 through March 2017. Includes both fresh and 

frozen trade. 

Less than ___ firms reporting consistently 2 firms 3 firms 4 firms

14% of cuts 23% of cuts 32% of cuts

Note: These percentages should be taken as maximums because we did not take the 

time to cross-reference cuts with blended IMPS codes.

Combining fresh and frozen cuts

We examined the prices between fresh and frozen product trade. When data were 

available prices of fresh and frozen, for the same IMPS code, were either close to each 

other or the frozen product was significantly discounted. AMS could consider combining 

fresh and frozen transaction data with a rule of dropping transactions from the 

computation for any frozen cut value 10% below the weighted average cut price for that 

reporting period.

Extending the rolling average period beyond 5 days

Because of the vastness of the lamb product cut data, we did not specifically evaluate 

how long a current price remains relevant beyond the 5-day rolling average. A cursory 

review of the many price series suggests AMS may want to investigate with industry 

increasing the number of days from a 5-day to a 7-day or 10-day rolling average. Due to 

the volume weight of specific transactions and the high value of the cuts, it is difficult to 

quantify the firm-level financial implications of establishing a new price series. The 

caveat here is that this aggregation alternative would minimally increase the number of 

currently unreportable prices.
38

Standardized pricing model

Without conducting significant analysis we believe that cut prices associated with more 

than one firm reporting and now unreportable could be reported using a standardized 

pricing model. Our review of the data for the various cuts now unreportable lead us to 

this conclusion. By our calculations this would allow 5 additional fresh cuts to be 

reported for fresh product.
39

7. Appendix

https://www.ams.usda.gov/mnreports/lm_lm352.txt

LM_LM352 **Please see note below regarding the Comprehensive section**

St. Joseph, MO Fri Aug 18, 2017 USDA Market News

National Weekly Slaughter Sheep Review for w/e Friday, August 18, 2017

Compared to last week, negotiated purchases of slaughter lambs were 

7.00 to 8.00 lower.

Negotiated Purchases:

This Week: 7600 Last Week: 5000 Last Year: 7500

Domestic Slaughter Lambs

Choice and Prime:

 Live Purchases: Weight Price Wtd Avg

 Range Range Price

 Wooled and Shorn 120-170 lbs 145.00-199.25 167.98

-----------------------------------------------------------------------------

Formula Purchases:

Formula purchase information for previously slaughtered lambs (carcass basis)

Weighted Average Weight: 84.14 lbs

Weighted Average Net Price: 324.01

Weighted Average Dressing Percent: 50.60

-----------------------------------------------------------------------------

**Effective today, cooperative member lambs are included in this 

Comprehensive

Information section**

Comprehensive Information:

Includes all negotiated, formula, & cooperative member lamb data submitted 

this week

(carcass basis)

Weighted Average Weight: 77.72 lbs 

Weighted Average Net Price: 325.69

Weighted Average Dressing Percent: 51.20

-----------------------------------------------------------------------------

This report covers transactions reported this week. Comments and market

conditions include information gathered from voluntary sources. All prices,

weights, and head counts are gathered through the Livestock Mandatory

Reporting

system.
40

Voluntary Reporting Example: Live Cattle LS-831 complements LMR cattle fed cattle reports