Excerpt from Agricultural Outlook Forum, 1999: Speech Booklet 3, Monday, February 22

The title of the session carries with it an implicit question, or perhaps that should be questions. The rather apparent implicit question is one involving what price discovery will look like in the years beyond 2000. An arguably less apparent implied question, but one on the minds of many astute observers of the livestock industries in this country, is whether there will be any significant price discovery function as we have traditionally known it in the years beyond 2000.

Price discovery is the dynamic interaction of buyers and sellers as they seek to find or to discover the market-clearing price. By implication, this is a competitive process with well-informed buyers and sellers entering some type of marketplace infrastructure and executing their buy and sell objectives. In the process of that give-and-take with what is admittedly less than perfect information, a market-clearing price is being discovered. This is, of course, the process of interaction and/or negotiation that goes on at the various points of exchange along the continuum between the original livestock producer and the consumer of a finished product. Separate and independently operated profit centers are usually involved at the production, processing, transportation, and retailing levels of economic activity in a price coordinated system featuring several points of exchange.

The vast research and educational literature dealing with the livestock and meats systems in the United States has been predicated on this type of market organization or structure. There is separate ownership at the various levels of economic activity, and while these economic activities are technically related much as are the operating stations along an assembly line, they can be subjected to substantial separation or inconsistency in terms of goals, objectives, and Operating norms. The literature has always ascribed to the pricing system the job of coordinating these various levels of economic activity thereby ensuring that what is offered to the final consumers will in fact be consistent with their needs and/or preferences. Price signals, premiums or discounts, are gleaned from the yes-no consumer decisions on a particular product offering by retailers, and those signals are sent back down through the complex chain of events to prompt producers to make any needed changes in the quality of their production.

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