‘Something isn’t right’: U.S. probes soaring beef prices

“I’m running at half speed,” Greiman said at an event hosted by the Nebraska Cattlemen’s Association. “Cattle are backing up because we can’t run our plants fast enough. Nothing is functioning properly. We need to be careful not to put blame on any one thing or part of the industry because we can’t get these plants going.”

The industry has long been a focus for government antitrust enforcement.

Exactly 100 years ago, after years of litigation, the five biggest U.S. meatpackers — which were responsible for 82 percent of the beef market — agreed to an antitrust settlement with the Justice Department that helped break their control over the industry.

The Justice Department’s efforts to reduce concentration in meatpacking led to decades of competition. By 1980, the top four firms controlled only 36 percent of cattle slaughters in the U.S., according to a report by the Government Accountability Office.

But during the next 10 years, meatpacking experienced a huge wave of deals, enough that the USDA dubbed the time “merger mania.” By 1988, the new four biggest companies again controlled 70 percent of the beef meatpacking market.

“There’s greater concentration in meatpacking now” than in 1921, said Thomas Horton, an antitrust professor at the University of South Dakota, who previously worked at the Justice Department. The first antitrust laws were “passed to take care of the Big Five. Now we have the Big Four. We’re going backwards.”

Unlike poultry and pork, which take weeks or months to raise, cattle can take as long as two years from birth to butcher. That lifecycle makes it much more difficult to adjust supply. Once cattle reaches its optimal weight, they need to be sold within two weeks, said Peter Carstensen, an antitrust professor at the University of Wisconsin. And realistically, a farmer can only transport cattle about 150 miles to a slaughterhouse.

“You’ve got at most four bidders, but the reality is there are often fewer,” said Carstensen, noting that in some states, there are only one or two meatpackers with plants.

While the structure of the industry has remained stable since 2009, changes in how the meatpackers buy cattle have also had an impact. Before 2015, about half of all cattle was purchased via direct negotiation between a rancher and meatpacker, known as the negotiated cash market. Today, about 70 percent are purchased through contracts where farmers agree to deliver cattle once they reach a certain weight with the price to be determined later — usually a formula that takes into account how much cattle sell for in the cash market.

The increase in these contracts has some advantages for ranchers, because they know they have a buyer and don’t have to spend time on negotiations, said Ted Schroeder, an agricultural economist at Kansas State University. But fewer cash trades have made it harder to figure out the right price for cattle, he said.

Due to the coronavirus pandemic, more than 14,271 meatpacking workers have been sick as of May 15, according to the nonprofit Food and Environment Reporting Network. Worker illnesses and temporary plant closures have led plants to operate at about 50 percent capacity, said Schroeder.

Schroeder, who has focused on cattle prices for more than three decades, said the rising consumer prices and falling cattle prices are consistent with normal supply and demand.

“It’s economics 101. There’s less meat around, but demand is still pretty strong,” he said. “We’ve got plenty of cattle but can’t get it through the system. We are pretty close to what I would expect to happen to wholesale and farm prices given the bottleneck.”

Not everyone is persuaded. Last year, ranchers filed an antitrust suit against the four meatpackers for colluding to depress cattle prices. The suit, pending in Minneapolis federal court, alleges that Tyson, JBS, Cargill and National Beef began coordinating in 2015 to reduce the number of cattle slaughtered while also limiting how many they bought in the cash market. Ranchers with excess animals on their hands were forced to sell for less or enter into long-term contracts beneficial to meatpackers.

“The Big Four simultaneously withdrew from the cash market with intent to reduce prices across the board,” said Bill Bullard, CEO of Ranchers-Cattlemen Action Legal Fund, one of the lead plaintiffs in the suit, in an interview.

The companies were able to coordinate by communicating through trade associations, said Bullard. The lawsuit is based in part on information provided by a confidential witness who worked for one of the meatpackers for a decade. The conspiracy drove prices down at least 8 percent, said Bullard.

If the meatpackers were communicating about prices, that would clearly violate criminal antitrust laws, said Carstensen. But if a company observes what a rival does and matches that behavior — sometimes called “tacit collusion”— that may not violate the law, he said.

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