Cattle Market and Beef Packers Under the Microscope in Ag Committee Hearings

by Colter Brown

A big week for the cattle industry on Capitol Hill with hearings in both the Senate and House Agriculture Committees.

The excitement began in the Senate where lawmakers discussed bills to improve price discovery and market transparency in the cattle industry and increase federal oversight of the packing segment.

The hearing featured testimony from USDA officials, a livestock economist and three cattle producers, however it served to only highlight just how divided the industry is over how to deal with packer concentration.

The Senate hearing was largely focused on the bipartisan Cattle Price Discovery and Transparency Act. The much-discussed legislation would require USDA to establish minimum levels of negotiated cash trade for fed cattle by dividing up regions of the country. The cash-trade floor would depend on the number of packers in a region, availability of fed cattle, and the number of contractual arrangements — alternative marketing agreements (AMAs) — in each region as well. The mandate for cash trade would fall to packers that on average handle at least 5% of daily fed cattle slaughter. The bill also would create a library at USDA of AMA contracts that would allow cattle producers to see the premiums others are receiving.

Taking on the “Big 4” Packers

“The fact of the matter is these packers are doing pretty darned well,” said Sen. Jon Tester, D-Mont who doesn’t sit on the Senate Agriculture Committee but who backs Fischer’s bill as well as being the lead sponsor of another bill that will create a new special investigations office at USDA to deal with Packers and Stockyards Act violations.

Tester added, “I can guarantee you one thing: If we walk out of here today and we don’t pass these bills, we will see the same result that we’ve seen for the last 100 years. And in the end, our food security is put at risk.”

Tester, Fischer and Sen. Chuck Grassley, R-Iowa, have led the drive to mandate minimum negotiated cash trade and demand more scrutiny of the way the largest packers operate. They pointed to the erosion of cash trade in cattle markets as packers have locked up supplies through AMAs. Still, cash trade around the country sets the base prices on which the AMAs rely.

“This is not a new issue,” Fischer said. “This is not an issue that came about due to COVID. It has existed for years.” She added, “I understand the value of AMAs. They can provide economic returns and operational efficiencies. … However, AMAs rely on the negotiated market, often using publicly reported price information to set their base prices.”

Fischer commented that she was unable to convince cattle producers from her state to testify. “I wish we could have had a Nebraska producer here but none of the producer members we encouraged to testify were willing to put themselves out front for fear of possible retribution by other market participants; an unfortunate reality of today’s cattle industry.”

Grassley pointed to the long history with trying to bring more competition into the packing industry that he said links the four big packers with “a cozy relationship with big feedlots in four of five states.” He noted Iowa and Minnesota have the highest percentage of choice-grade cattle but also are among the highest in cash sales. While cash trade has eroded over time, Congress has stood by and let it happen, he said.

“It always ends the same — more profit for the packers and independent producers going out of business. Market reform is needed right now.”

Tester’s bill would create a new USDA office with subpoena power to investigate and prosecute violations of the Packers and Stockyards Act. Despite the push in Congress to beef up scrutiny of packers, that hasn’t shown up in USDA’s budget during the past decade. Andy Green, a senior adviser on fair and competitive markets at USDA, also testified that the Packers and Stockyards Division at USDA has seen a 40% decline in staffing since 2010, and that doesn’t include staffing problems at the USDA General Counsel’s office.

Producer Support

William “Ricky” Ruffin, a Mississippi cattle producer testifying for the U.S. Cattlemen’s Association, said he used to have multiple options for selling his cattle, but he’s now essentially down to one buyer most of the time.

“We sell our cattle in an environment where there is very little cash cattle traded,” Ruffin said. He added, “Without a cash value, they have put the independent feed yards out of business.”

“When you are talking as the whole market is AMAs, then I have no place to go with my cattle,” Ruffin said.

Shelly Ziesch, a cattle producer from Pettibone, North Dakota, and a member of the North Dakota Farmers Union, cited that the lack of enforcement of the Packers and Stockyards Act has caused more consolidation and anti-competitive practices. Ziesch said she wants her family farm to continue to the next generation.

Ziesch urged the committee to pass the two bills “because they will provide my three daughter and my grandchildren the transparent and fair markets they need to carry on our family’s ranching tradition.”

Ziesch pointed to the impacts of consolidation on pork, poultry and even barley production. Ziesch said her family used to be barley growers, but now barley is grown strictly on contracts now.

“So, you have no outlet for any barley if you’re growing it in the open market. It is strictly contract growing, and if you didn’t have a contract, you aren’t given acres into a new contract. So, they aren’t taking any new producers. And this is where I can see the beef industry going if this continues to go as it is.”

Opposition to Mandates

Opposing the bills from the producer side was Shawn Tiffany, president-elect of the Kansas Livestock Association and a member of the National Cattlemen’s Beef Association’s live cattle marketing committee. A custom feeder who feeds out about 70,000 head a year, Tiffany said a majority of cattle producers oppose the government mandating a minimum level of negotiated trade. He also pointed to the American Farm Bureau Federation changing its policy this year to oppose government requirements for minimum cash trade as well. Tiffany said the legislation would take away the premiums that his customers use to feed out their cattle with his operation.

“This bill would end my business model as it exists today,” Tiffany said. He added, “What it’s going to do is apply 20-year-old pricing mechanisms to an industry that has advanced beyond just cash trade.”

Fischer noted she, too, was a member of NCBA. She pointed to NCBA trying to expand voluntary cash cattle trade, a program that has failed to achieve its goals, “and it didn’t work because the packers didn’t participate.”

Fischer added, “NCBA also said if the voluntary program didn’t work, we should compel programs,” and added that she typically opposes mandates as well.

House Ag Committee Hearing

The following day, the House Agriculture Committee held a hearing of its own examining price discrepancies, transparency and alleged unfair practices in cattle markets. The hearing was highly anticipated as it featured testimony from the CEOs of the major four meatpackers as well as a panel of ranchers.

House Agriculture Committee Chairman Rep. David Scott, D-Ga., asked the CEOs whether they colluded to reduce record-high beef prices in 2014-15, and as a result, increase packer margins.

“Was there ever an agreement between your four companies to cooperate together on issues impacting supply or pricing?” Scott asked.

“I need to know if there ever was an agreement with you to set this up because the chart clearly states that it was 2015, and there was an abrupt, immediate charge up.”

They all responded “No.”

Hard to Continue Farming

Earlier in the day, Missouri cattle farmer Coy Young told the committee his family’s farm cannot continue operating long term unless changes are made to the cattle markets to allow cattle producers to earn profits.

Young was featured in a December 2021 New York Times story on the cattle industry. The Times reported Young had considered suicide.

“Farming and ranching has the most suicides in any industry due to distress, a shrinking bottom line,” Young said to the committee, “and that’s fueled by the greed and capitalistic nature. That’s everyday business, and the big four that are in question here today, there’s blood on the hands of the packers and leaders in Washington, and no one seems to care.

“I know we live in a country where capitalism reigns supreme and it’s every man for himself. The packers take capitalism to a whole new level,” Young said.

Young told the committee that expanding slaughter capacity at the local level would help create more competition, such as the cooperative model considered in some regions.

“Nowadays in rural America, everyone in the farming community has one, two or even three extra jobs outside of the farm to help pay their bills and make ends meet. The cows no longer pay for themselves and have (not) been for a very long time now. I never thought I would see the day when feeding America will become a part-time job.”

Gilles Stockton, a cow-calf producer from Grass Range, Montana, said the loss of cattle producers in the past several decades has hurt small towns.

“Now, I don’t want to give you the impression that I’m looking for sympathy,” Gilles said. “I’ve made my life, and it was a good life. But my concern is for my community, the future of agriculture and the future of food security for this nation. My community has, over the course of my life as a rancher, dried up and blown away like a tumbleweed.”

Gilles said labeling American beef products and requiring beef packers to buy cattle in a “competitive and transparent marketplace that they neither own nor control” are two actions that could benefit farmers and ranchers.

NCBA Urges Patience

Don Schiefelbein, a Minnesota cattle producer and president of the National Cattlemen’s Beef Association, said cattle markets are the “most complex markets on Earth” but that their dynamics have been consistent.

“I implore you to listen to what producers are telling you,” he said. “The hearing focuses on meatpackers; we share the committee’s concern about the consolidation, but we would have preferred to discuss a host of more pressing challenges with you today. Make no mistake, curbing rapid inflation and skyrocketing input costs, addressing urgent labor shortages and increasing market transparencies are the true immediate needs of producers.”

Schiefelbein said the Biden administration’s efforts to expand packer capacity through new small and regional facilities are helpful, as well as establishing a contract library.

On the other hand, he said, the industry is frustrated the Department of Justice has provided no updates on an ongoing investigation into the packer industry.

The Holcomb, Kansas, packing plant fire and COVID-19 packer capacity losses resulted in the highest recorded spreads between box beef and live cattle at $67.17 per hundredweight and $279 per hundredweight, respectively, Schiefelbein said.

“This behavior is rooted in basic laws of supply and demand,” he said. “But given the magnitude of these price disparities, it would have been imprudent not to further scrutinize the packers. The results of this investigation have yet to be released. But I urge Congress to proceed carefully as we await the findings.”

Schiefelbein said there also is a need to have proper and effective oversight of packers.

Future Questioned

CEOs of the four packers were asked about what they see for the future of the cattle industry.

Tim Schellpeper, CEO of JBS USA Holdings Inc., said his company will follow the lead of cattle feeders and ranchers as to the direction the industry moves in the coming years.

“This is a cyclical business, and we’re coming now into a cycle where perhaps the profitability will switch in the chain,” he said.

“Our model at JBS is we buy not from the ranchers, but we buy from the cattle feeders, and we buy the cattle how they want to sell them, whether that’s on a cash market, whether that’s on an AMA (alternative marketing agreement), whatever that might look like.”

Schellpeper was asked whether JBS has the intention of owning ranches. He responded, “No, I don’t anticipate that happening in the future.” Schellpeper said his company continues to expand packing capacity.

David MacLennan, CEO of Cargill, said his company would continue to “provide markets” for the ranchers to sell their cattle.

“I do believe that the cyclicality of this industry is starting to turn,” he said.

“One of the witnesses from the prior panel talked about an eight- to 10-year cycle, and we are starting to see that the market, the supply and demand and components, and the prices in the cattle market are starting to change. We can’t survive as an industry without the small family ranchers and farms that we depend on.”

Donnie King, CEO of Tyson Foods, said that whatever the future holds, his company needs farmers.

“This industry can’t survive without the ranchers and farmers supporting it,” King said, “and the American food supply has proven to be a system that has proven to be incredibly resilient, as we saw the last two and a half years. But I think some of it is the cyclicality.”

Little Correlation

Though the Biden administration has pointed to consolidation in the meatpacking industry as a reason for higher meat prices, King said there is little correlation.

“The data doesn’t support this claim,” King said. “The concentration of the industry for commercial cattle among the four processors here today is 69% and has been virtually unchanged over the past 30 years. And in most of those 30 years, the profit margins of ranchers and cattle producers have been much higher than the low single-digit margins we’ve made as meat processors.”

Rising Transportation, Labor Costs

Tim Klein, CEO of National Beef Packing Company LLC, said the biggest economic strain on his company in the past year has been rising transportation and labor costs.

“That’s about $80 a head, which is a significant jump,” he said.

“That means that cattle prices either gotta go down by that much, or consumer prices have to go up in order for us to maintain the same profit margin. The biggest single factor we’re dealing with right now is where we’re at in the cattle cycle. There are simply more cattle available every week than there is demand and capacity to process those cattle.”


DTN/NCBA/NAFB/Sen. Deb Fischer/Northern Plains Resource Council

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Mary Hackett

More cattle available because cattle producers are going out of business and selling out.

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