Attorneys general seek cattle price investigation

Calls heighten for cattle price and market concentration probes into potential illegal activity by meat packers.

Jacqui Fatka, Policy editor

May 5, 2020

5 Min Read
Attorneys general seek cattle price investigation
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Antitrust concerns about the cattle market are nothing new, but calls for increased transparency are surging as requests continue for investigations by the U.S. Department of Justice, in addition to the U.S. Department of Agriculture’s investigation regarding market concentration and potential anticompetitive practices by meat packers in the cattle industry. The latest comes from 10 state attorneys general seeking an investigation to the state of competition in the cattle industry and the dynamics that are depriving cattle ranchers and American consumers of a competitive cattle industry.

Beginning in the first few weeks of the COVID-19 crisis, cattle producers have seen prices decline drastically, with cattle futures falling 29% between January and April, all while beef prices increased on market shelves.

“Competition issues arising from agricultural markets existed long before the COVID-19 pandemic and will persist long after we defeat our current crisis. The U.S. beef processing market is highly concentrated, with the four largest beef processors controlling 80% of U.S. beef processing,” the attorneys general stated. “In this highly concentrated industry, meat packers have achieved sizeable profit margins. Cattle ranchers, however, who, for generations, have supplied our nation’s beef, are squeezed and often struggle to survive.”

Related:DOJ asked to investigate beef market

The attorneys general added that consumers do not realize the benefits from a competitive market. “In short, with such high concentration and the threat of increasing consolidation, we have concerns that beef processors are well positioned to coordinate their behavior and create a bottleneck in the cattle industry — to the detriment of ranchers and consumers alike,” the letter added.

State attorneys general from North Dakota, Colorado, Missouri, Montana, Arizona, Idaho, Nebraska, South Dakota, Minnesota, Iowa and Wyoming said there are signs of firms engaging in collusion providing artificially low prices to suppliers and inflating prices to consumers.

“During an economic downturn, such as that caused by the current pandemic, firms’ ability to harm American consumers through market manipulation and coordinated behavior exacts a greater toll, providing an additional reason for conducting a careful inquiry into this industry,” the attorneys general said.

They also noted that if there is no appropriate enforcement action that can be pursued, additional regulatory strategies should be explored to promote competition, address market manipulation and protect consumers.

Related:USDA launches cattle market investigation

Meanwhile, the Organization for Competitive Markets (OCM) is calling for the breakup of the “Big Four” meat packing companies: Cargill, JBS, National Beef and Tyson. Together, these four companies control more than 85% of the U.S. beef supply. Recent packing plant closures due to the COVID-19 pandemic have caused supply chain disruptions, OCM said.

Ben Gotschall, OCM interim executive director, stated, “In the interest of our economic, food and national security, the United States needs to remove these weak links by breaking up the Big Four meat packers and taking steps to ensure that we never again reach today’s harmful level of market concentration.”

Members of Congress have also been outspoken about the need for ongoing oversight of the cattle market. In the House, 25 members urged Agriculture Secretary Sonny Perdue to provide the findings of USDA’s beef pricing investigation to Congress as soon as possible. Following the announcement of USDA’s Packers & Stockyards Division investigation in August 2019, Perdue extended USDA’s investigation last month to determine the causes of divergence between live beef and box prices during the COVID-19 pandemic.

“When market participants begin to believe that markets are not competitive or transparent, that suspicion has a dangerous, industry-wide ripple effect,” the House letter stated.

Livestock Marketing Assn. (LMA) livestock auction owner-members and their producer customers are also joining the chorus of those troubled and speaking up with their significant concerns about volatility, the futures market and especially livestock producers not getting their fair share of the beef dollar.

LMA vice president Larry Schnell said the group is focusing on investigations into the differential between the wholesale price of beef and the price cattle feeders are receiving for their cattle. Beyond encouraging these investigations, LMA is conducting independent research and having additional discussions to pinpoint specific areas of concern for USDA, DOJ and, hopefully, the Commodity Futures Trading Commission. This includes looking at futures market issues in addition to issues with fed cattle pricing.

“The cattle industry needs answers regarding what is behind the dramatic spread between live cattle and boxed beef prices, and these investigations are critical in answering these questions. Our goal is long-term solutions that will address problems within finished cattle marketing and a pricing mechanism that results in profitability for all segments of the industry,” Schnell said.

The largest beef industry group, the National Cattlemen’s Beef Assn. (NCBA), also clarified for the record that it does not support a 30-14 proposal being circulated. It is being recommended that the proposal would become part of the livestock mandatory price reporting legislation that needs to be renewed this fall. The 30-14 policy proposal refers to the government requiring beef packing companies to purchase at least 30% of individual plant fed cattle needs in the negotiated cash market and divert those purchases to the plant within 14 days.

Dr. Stephen R. Koontz of Colorado State University said contrary to his written and presentation documents being used as evidence supporting the need for this legislation, he does not recommend or support a mandate of a given percentage cash trade.

“The main issue I have with the policy proposal is that it would cost the cattle and beef industry millions and possibly billions of dollars per year,” Koontz said in a letter to NCBA leadership.

Koontz’s letter noted that the industry needs to look hard at current proposals on how to address the discrepancies in cattle markets today. He explained that there are strong economic reasons for members of the cattle and beef industry to move away for negotiated cash market use, but it is possible that the industry has “gone too far.” He claimed that not enough fed cattle are traded in some of the five USDA Agricultural Marketing Service reporting regions to offer proper price discovery.

“Joint research by Kansas State and Iowa State universities shows that expanding the reporting regions would reduce the incidence of non-reporting due to confidentiality. The weekly fed cattle price is infrequently reported for Colorado, and this is because there are only two packers that buy consistently in my state," Koontz said.

“Requiring more cash trade would not change this nor result in a Colorado fed cattle price being reported, and much of our price reporting problems are due to the confidentiality requirements that were not part of the original act,” Koontz added.

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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