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Mandatory Price Reporting, Market Efficiency, and Price Discovery in Livestock Markets

Author

Listed:
  • Mathews, Kenneth H., Jr.
  • Brorsen, Wade
  • Hahn, William F.
  • Arnade, Carlos
  • Dohlman, Erik

Abstract

As the use of alternative marketing arrangements (AMAs) such as forward contracts and formula pricing has expanded in livestock markets since the early 1990s, and negotiated cash markets have become less commonly used to arrive at transaction prices, questions about price discovery and market efficiency have arisen. Congress passed the Livestock Mandatory Reporting Act (LMRA) in 1999 in response to concerns about a lack of public disclosure regarding AMAs, as well as concerns about concentration in the meat packing industry. The LMRA introduced mandatory price reporting (LMR) of most livestock transactions to improve the flow of transaction information in the market place and enhance price discovery, and to replace the previous system (which had relied on voluntary reporting from cash market transactions). Renewed and amended in 2005 and 2010, the LMRA is up for renewal again in 2015. This report analyzes livestock market price behavior and price discovery before and after implementation of LMRA, and finds that the increased flow of market information with LMR better informs the broader market. Analyses also indicate that futures and cash prices for hogs respond and adjust to new information (market efficiency) better in the LMR era, with an increased role for cash markets in price discovery.

Suggested Citation

  • Mathews, Kenneth H., Jr. & Brorsen, Wade & Hahn, William F. & Arnade, Carlos & Dohlman, Erik, 2015. "Mandatory Price Reporting, Market Efficiency, and Price Discovery in Livestock Markets," Miscellaneous Publications 404248, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uersmp:404248
    DOI: 10.22004/ag.econ.404248
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    References listed on IDEAS

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