September 1, 2005
It is said that the ability to simplify requires eliminating the unnecessary so that the necessary may speak. In the U.S. business realm, necessity continues to trigger changes in the rules of the games. This is particularly true in the food business. Consider these recent headlines:
“Governor Schwarzenegger signs landmark legislation to combat childhood obesity,” calling the law (banning junk food and sodas from school campuses and mandating more fruits and vegetables) “the most progressive school nutrition reform package in the nation.”
“Technomic says rising gas prices impacting consumer restaurant spending,” based on overnight survey results indicating consumer cutbacks on visits to quick-service restaurants and full-service eateries.
“U.S. farming is going south — to fertile, cheap lands of Brazil,” seeking relief from high production costs and low-market prices.
“Texas exporters stand to profit from Central American Free Trade Agreement (CAFTA),” with beef ranchers poised to triple current exports to six CAFTA nations of 44 million consumers.
“BSE-induced shifts in domestic and international animal protein markets likely to persist in 2006,” according to a USDA Livestock, Dairy, and Poultry Outlook forecast.
“USDA releases estimates of farm production losses,” totaling about $900-million — $30 million concerning short-term livestock production — related to the devastation of hurricane Katrina in the mid-south coupled with $1.3 billion for corn and soybean due to drought conditions in the eastern Corn Belt.
“Smithfield Foods and Iowa AG [attorney general] settle packer ban dispute,” clearing the way for the Virginia meat-processing company to contract directly with Iowa farmers to raise hogs for its slaughter needs.
These are trends and issues that will shape the food industry into the future, to be sure. The last item speaks to concentration, often disputed in times of low livestock prices on the open market. Although “challenging” pretty much defines food manufacturing and marketing businesses, some obstacles are more daunting than others.
Concentration and its impact on raw material prices remain high on the list. In that regard, the industry has been holding its collective breath waiting for Congressional word on the future of The Livestock Mandatory Reporting (LMR) Act of 1999, requiring major meatpackers to report all transactions covering hog, cattle, and lamb purchases and commitments to the USDA. The goal being “to facilitate price discovery, make the market open, and provide all market participants with market information that can be easily understood.”
LMR is considered an unnecessary federal mandate by opponents charging the requirement yields no better information than the previous voluntary or market-oriented systems.
Now, the final headline: “Did the mandatory requirement aid the market?: Impact of the Livestock Mandatory Reporting Act.” The study, which evaluates whether the mandatory system improved the amount and quality of information available to the market, focused on fed cattle — the largest raw material segment of the livestock industries affected by the Act.
Following are excerpts.
The mandatory system provided far more information on prices and volumes in formula sales of cattle in national and major regional reports and for different pricing basis and quality categories.
On average, formula prices slightly exceeded negotiated prices for cattle in common quality categories and priced on the same basis.
Initial analyses of the data in the Market News report indicate that weekly volatility in reported prices rose substantially after implementation of mandatory reporting and, as a result, average weekly prices became harder to predict.
Although current legislation expires this year, the conclusion of the 46-page document, penned by USDA Agricultural Marketing Service representatives and reviewed by member of academia, suggests that LMR is here to stay.
That being the case, industry must continue to find ways to soften the brunt of this Act on its business decisions by any means possible.
Nothing has changed for the meat and poultry industry, accept the continuing pace of volatile market forces. The prudent course left to business managers is that they keep their ears on the rail and be prepared to adapt to offset derailments.
Note: Headlines culled from a variety of on-line news sources and press releases.