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Cyberattacks Aren’t the Only Issue in America’s Concentrated Cattle Market

A cyberattack over Memorial Day weekend temporarily shuttered the world’s largest meatpacking corporation, JBS, wiping out some 20% of U.S. beef and pork processing [[link removed]]. Cattle futures prices fell, and wholesale meat prices spiked [[link removed]]. JBS quickly resumed production without affecting shoppers [[link removed]], but the attack flamed ongoing critiques of the beef industry from ranchers [[link removed]] and lawmakers [[link removed]], who argue that too few packers hold too much sway over cattle markets.

Ranchers’ core concern is the growing gap between the price shoppers pay for beef and the price they receive for cattle. This gap existed before the pandemic and continues to grow even as business returns to normal: Since March 12, 2021, the wholesale price of beef has risen 43% while cattle prices have only increased by 5% [[link removed]]. While consumers and cattle producers suffer, packers in the middle reap record profits. Packers blame the price spread on insufficient capacity and labor shortages, but ranchers and lawmakers fear market manipulation. Lawmakers have asked for an update [[link removed]] on antitrust enforcers’ investigation into beef packers and introduced two bills requiring more transparency [[link removed]] in cattle bids and contracts.

Just four corporations control more than 80% [[link removed]] of all U.S. beef processing. Pandemic and cyber disruptions revealed how concentrated production can send shock waves when just a handful of closed plants take out a large chunk of meat processing capacity. And even before the pandemic, farmers and ranchers raised concerns [[link removed]] about meatpacker meddling in cattle markets. The cattle industry is the single largest segment of American agriculture by cash sales [[link removed]] and number of farmers – about a third of all U.S. farms [[link removed]] are in the cattle business.

For [[link removed]] years [[link removed]], the prices ranchers receive for their cattle have not kept up with the price shoppers pay for beef. This disparity ballooned in August 2019 after a fire closed a Tyson plant in Holcomb, Kansas, for four months [[link removed]]; the plant processed 5% of all U.S. beef. Supply disruptions during the pandemic also drove down cattle prices [[link removed]] while wholesale beef costs spiked and packers saw [[link removed]] historic profit margins [[link removed]]. Yet even as production resumed after these shocks, markets never truly “corrected.” Excluding one slump around the 2019 holiday season, the average beef packer operating margin has remained well above the 2014-2021 average [[link removed]] since mid-2019, and margins have spiked as high as $1,000 per head of cattle – by comparison, the average margin between August 2018 and early August 2019 was just $137 per head [[link removed]].

Packers and some economists argue that cattle prices are down while grocery prices are up because slaughter demand currently exceeds capacity [[link removed]]. Packers and industry groups blame diminished capacity on labor shortages [[link removed]] during a cyclical peak [[link removed]] in the slaughter-ready cattle population. JBS just announced plans to invest $130 million [[link removed]] to increase workers’ wages and processing capacity at two Nebraska plants.

Other analysts argue that processing capacity remains low because packers do not face enough competitive pressure. “Packers are content to deliver beef slowly and protect their margins, knowing there's no one else to take their place,” DTN analyst Todd Hultman told fellow DTN analyst ShayLe Steward in a recent column [[link removed]].

One 1990 economic study of cattle markets [[link removed]] in the 1970s and 1980s supports this idea: It found that 55% of farm-retail price spreads could be attributed to monopolistic distortion. But other economic [[link removed]] studies [[link removed]] of the ‘80s and ‘90s beef markets found no significant association between greater packer concentration, increased packer marketing margins, low farmer prices, and widening price spreads.

Today, some ranchers take these consolidation concerns one step further and allege that packers are conspiring to manipulate markets. “The packers ganged up together because they want to sell high and buy cheap,” says fifth-generation Kansas cattle rancher Nicole Pfrang. “They don’t want more competition … if things keep going as is, I see us as extinct.”

To evaluate ranchers’ market manipulation claims, you need to understand how most cattle are sold. Most ranchers do not sell their cattle in the open bid auctions of yore. Only a quarter of all cattle are sold at open cash auctions, yet these spot-market transactions help determine the going price for cattle across the industry. An ongoing [[link removed]] ranchers’ lawsuit [[link removed]] alleges that packers worked together to rig these auctions, by coordinating bids and creating artificial cattle surpluses to push down prices. For example, packers allegedly imported more expensive foreign cattle to increase cattle supply and drive down the prices they had to pay to American ranchers. Packers also allegedly avoided bidding for cattle in certain areas to create regional gluts of slaughter-ready cattle.

Cattle producers also argue that multinational meatpackers use their global supply chains and deceptive U.S. marketing laws to replace U.S. beef products with imports and suppress domestic cattle prices. Beef imports are up since 2010 [[link removed]], and current loopholes allow foreign-raised beef repackaged in the U.S. to carry a “Product of the USA” label.

The U.S. Department of Agriculture (USDA) opened an investigation into cattle market manipulation and put out a report on the Tyson Holcomb plant fire last year. However, its final report did not examine [[link removed]] whether potential violations of the livestock anti-monopoly law, the Packers & Stockyards Act (PSA), contributed to the price spreads. USDA said its staff “have discussed allegations of anticompetitive practices in the meat packing industry” with the U.S. Department of Justice (DOJ). The DOJ is still investigating beef packers and subpoenaed the top four packers a year ago [[link removed]] for potential antitrust violations.

Ranching groups and lawmakers [[link removed]] have demanded an update [[link removed]] on DOJ’s investigation, as well as greater PSA enforcement and packer oversight. Leading packer JBS suspended its membership in the National Cattlemen’s Beef Association after the group joined other cattle producer groups in this request.

Meanwhile, drawing on recommendations from USDA’s report, lawmakers introduced legislation that would require packers to share more information [[link removed]] about their cattle purchases and contracts with USDA. Another bill [[link removed]] would require packers buy at least half of all cattle in open cash auctions to create a more robust spot market for determining the price of cattle.

Yet these bills provide tweaks around the edges to a fundamentally structural problem, something lawmakers recognize. “Arguably, every piece of beef legislation introduced before Congress is the direct result of our attempts to put a band-aid on the real issue: packer concentration,” a June 1 letter [[link removed]] from 28 members of Congress to the DOJ states. “The anticompetitive practices occurring in the industry today are unambiguous and either our antitrust laws are not being enforced or they are not capable of addressing the apparent oligopoly that so plainly exists.”

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What We're Reading

Agriculture Secretary Tom Vilsack told reporters Tuesday that the agency is considering issuing new livestock farmer protection rules under the Packers & Stockyards Act. USDA also announced a $4 billion initiative to build regional food systems and processing. ( Bloomberg [[link removed]])

Union workers at Smithfield’s Sioux Falls pork processing plant, a source of one of the earliest and largest COVID-19 meatpacking plant outbreaks, authorized a strike in advance of their contract negotiations. Workers want competitive wages, affordable health care, and better breaks. ( Argus Leader [[link removed]])

A new report by USDA tracks the loss of rural grocery stores between 1990 and 2015, finding that “the median number of grocery stores per capita decreased by 40 percent for rural and urban nonmetro counties.” ( USDA [[link removed]])

Yesterday, Labor Secretary Marty Walsh said long-awaited COVID-19 emergency workplace safety rules will only apply to the health care sector, disappointing food labor advocates. ( Politico [[link removed]])

About the Open Markets Institute

The Open Markets Institute promotes political, industrial, economic, and environmental resilience. We do so by documenting and clarifying the dangers of extreme consolidation, and by fostering discussions of ways to reestablish America’s political economy on a more stable and fair foundation.

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Tweet [link removed] Share [[link removed]] Forward [link removed] Written by Claire Kelloway

Edited by Phil Longman and LaRonda Peterson.

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