Meat prices, packer profits on House’s plate

While the Senate agriculture committee was looking at several bills involving prices cattle producers receive, the other side of Congress was looking at price discrepancies and alleged unfair practices.

House Agriculture Chairman David Scott, D-GA, called the hearing critical to discuss cattle markets, concentration in the meatpacking industry, and allegations that the big four meatpackers have engaged in unfair practices that have driven down prices for cattle producers and led to distorted markets.

The hearing was named “An Examination of Price Discrepancies, Transparency, and Alleged Unfair Practices in Cattle Markets.”

“Since the 1980s we have seen a steady increase in concentration in the packing industry,” Scott said. “This consolidation has coincided with a steady decrease in the number of ranchers over that same period. In one analysis that I read, the authors noted that over half a million ranchers have gone out of business since the 1980s, that averages out to about 17,000 cattle operations a year. This statistic is highly worrisome.”

The family farmer is an essential part of this country and its food system, he said, adding the hearing was inspired by what has been happening to family farms. The purpose of the hearing is to hear what those farmers have to say. In the early 20th century, the country saw what concentration did to small business and how it hurt the everyday American. In 1921, Congress passed the Packers and Stockyards Act because of concern around concentration in the packing industry and anticompetitive practices.

The chairman said he was concerned the country the past 40 years has lost its grip on the “free market” component of capitalism.

“Fair and competitive markets should engender opportunities for many, and not just benefit a few at the top. We created antitrust laws for a reason, and unfortunately, we have gotten away from enforcing anticompetitive practices, and we have moved toward a system that prioritizes efficiency at all costs,” Scott said.

He also praised the Joe Biden administration for reprioritizing enforcement of competition laws through an executive order on promoting competition in the American economy and said he hopes that is a sign of action to come. Another issue with consolidated industry is that it can create less resilient supply chains, which cropped up in the Tyson Foods plant fire in Holcomb, Kansas, in August 2019 and then the COVID-19 pandemic.

When a small number of companies control an entire link in the supply chain it makes us more susceptible to shocks and less resilient when black swan events occur. In that vein, consolidation doesn’t just hurt ranchers, it also hurts consumers, who face supply bottlenecks and higher prices, Scott said.

A combination of market forces, including consistently strong demand for finished beef, constrained production due to labor shortages caused by the global pandemic, and record inflation, have been driving current beef prices, said Tyson Foods President and CEO Donnie King in testimony he provided to the committee.

As with nearly every other product, basic market forces drive beef prices. “Tyson does not set the prices for either the cattle we buy or the beef our customers purchase,” King said. “These prices are set by straightforward market forces, namely available supply and demand.”

An ongoing labor shortage—largely the result of the pandemic—has constrained beef production while consumer demand for beef continues to skyrocket, King said. “We just didn’t have enough people to fully staff our plants,” which resulted in a “sudden and swift rise” in the oversupply of cattle and a corresponding drop in cattle prices. At the same time, “the price for finished beef—the beef that consumers buy at grocery stores—was rising, driven by skyrocketing consumer demand” and “basic economics holds that when demand is high and supply is low, prices will rise, which is precisely what they did.”

A dramatic increase in input costs has pushed prices up at the grocery store, he said. Since March 2020, the cost of corn is 127% higher and cost of soybeans are up 90%, which both are reflected in livestock feed. Freight transportation costs are up, 68% for international shipping containers and 104% for diesel fuel costs in comparison to the previous year.

King said high prices have nothing to do with industry consolidation. Concentration in the beef processing industry has remained virtually unchanged over the last 30 years. During that time, data shows that ranchers more often than not achieve higher profit margins than beef processors. “In fact, in several years, ranchers made historic profits on live cattle while beef processors either lost money or barely broke even.”

Ranking Minority Member G.T. “Glenn” Thompson, R-PA, who has advocated for more hearings on the 2023 farm bill, worried the cattle discrepancy hearing was taking valuable time away from that process.

“Issues surrounding the cattle markets are certainly important, and I think that importance is exemplified by the time this committee has already spent exploring and debating them,” Thompson said. “We’ve had a productive closed-door roundtable on the matter and an insightful subcommittee hearing where we heard from a slate of esteemed economists.”

Thompson said if there has been collusion, manipulation or other wrongdoing by packers, then the law should be enforced under the existing authorities at the U.S. Department of Agriculture the Department of Justice.

National Beef Cattlemen’s Beef Association President and Minnesota rancher Don Schiefelbein urged committee members to support policies with broader industry support, including the cattle contract library pilot project, livestock mandatory reporting reauthorization and investments in small regional processing capacity expansion, instead of belaboring the same divisive issues.

Sign up for HPJ Insights

Our weekly newsletter delivers the latest news straight to your inbox including breaking news, our exclusive columns and much more.

“The only people who know exactly how cattle producers should navigate these uncertain times are the individuals who work around the clock, day in and day out, to raise the safest and highest quality beef in the world—in other words: cattle producers,” he said.

“The analysis of beef and cattle market margins from 2015 are not in dispute,” said Julie Anna Potts, president and CEO of the Meat Institute. “Cattle prices hit record highs in 2014 and 2015, when the overall cattle herd was at its smallest since 1952 (for context, that was during the Harry Truman administration). Those record prices incentivized rapid herd expansion among producers.

“While the beginning-of-the-year cattle inventory in the U.S. hit its peak in 2019, given the time needed to raise a calf to market weight, the supply of feeder cattle in the herd on the first of the year did not peak until January 2020. Total feeder cattle supply began 2020 at the highest level in more than a decade.

“Two and a half months later, in March 2020, COVID hit. Slaughter plants were idled beginning in April. By the week ending May 1, 2020, weekly slaughter dropped by 40 percent and didn’t recover until late June, but still lagged behind what would have been normal volumes during the season,” Potts said.

“If Chairman Scott wishes to consider the entire beef supply chain from beginning to end, he should consider the margins for producers as well. No sector—cow-calf, feedlot, nor packer—has realized positive margins every year. For example, the four-firm concentration ratio in 2014, when cow-calf and feedlot margins were at record highs, was the same as in 2017 when all three sectors showed positive margins. In fact, the four-firm ratio has not changed appreciably since 1994.”

Dave Bergmeier can be reached at 620-227-1822 or [email protected].