From information, knowledge Paragon Economics, Inc. Steve R. Meyer, Ph.D. Paragon Economics, Inc. PPIC/RAC – Spring 2011 Wholesale Pork Cuts - Mandatory Price Reporting

From information, knowledge Paragon Economics, Inc. Why, How, What, etc  Only 3-5% of pork is reported – cutout?  MPR for pork was added when MPR was reauthorized in 2010  Language required Negotiated Rulemaking -Not often used by USDA -Involves affected parties in writing the Proposed Rule  Committee representing various groups -12 members including NPPC, AMI, NAMP, GMA and FMI

From information, knowledge Paragon Economics, Inc. Process so far  2 meetings to date – Last one scheduled for May  Cooperation has been good and consensus has been reached on several items  Some key items remain, including -FOB plant vs. FOB Omaha -Transition period during which both voluntary and mandatory run -Offal/variety meats

From information, knowledge Paragon Economics, Inc. Pork MPR Ground Rules  Packers report ALL sales of “wholesale pork”  Packer: 100,000 head or more/year  Not everything “reported” to USDA will be “published” by USDA in a report – wording  Confidentiality rules (3/70/20) will apply since reporting is mandatory

From information, knowledge Paragon Economics, Inc. Current wholesale pork definition  " Fresh and frozen primals, sub-primals, cuts fabricated from sub-primals, pork trimmings, pork for processing, pork offal, and variety meats, excluding portion- control cuts, flavored, tray pack, cured, smoked, cooked, ground and diced pork products”  Some questioning of including of “pork offal and variety meats”

From information, knowledge Paragon Economics, Inc. Types of sales and delivery windows  4 categories/windows -Negotiated spot (0-14 boxed, 0-10 combos) -Forward contract (15-90 boxed, combos) -Forward contract (90 days and more) -Formula marketing agreement  NOTE – Day 0 is the production day at the plant  Packer-packer sales included, intra- company sales are NOT

From information, knowledge Paragon Economics, Inc. Several other items have been agreed to  Fresh vs. distressed vs. frozen  Domestic, NAFTA, non-NAFTA  A brand does not exclude a product from negotiated spot or put in a separate spec  Any marketing funds will be deducted  Brokerage fees are a sales expense and will not be deducted  Specialty products  Enhanced product

From information, knowledge Paragon Economics, Inc. Big Issue 1: FOB Omaha vs. FOB Plant  USDA opposes FOB Omaha -Does not want to adjust prices -Uses current beef system as an example  Overwhelming majority of the committee supports FOB Omaha -Current prices are FOB Omaha -More price stability – removes transport  Going to FOB Plant will make 2 BIG shifts -Voluntary to mandatory – include all cuts -FOB Omaha to FOB Plant

From information, knowledge Paragon Economics, Inc. Big Issue 2: Transition/overlap period  Almost unanimous support for 12 months  Mandatory running behind the scenes as a “beta” test -Work out any bugs (remember beef?) -Build 12 months of data to compare  PROVIDES RELATIONSHIPS TO ADJUST PRICING AGREEMENTS TO MANDATORY  USDA seems resistant – cost is an issue  Letter to Craig Morris – not signed by FMI