Letter: Investigation of Beef Pricing Margins
April 16, 2020
The Honorable William Barr
U.S. Attorney General
United States Department of Justice
950 Pennsylvania Ave, NW Washington, DC 20530
RE: Investigation into beef meatpacking margins
Dear Attorney General Barr,
The following undersigned state cattlemen’s associations express the need for the Department of Justice (DOJ) to work with the U.S. Department of Agriculture (USDA) Packers and Stockyards Administration regarding investigation of beef pricing margins resulting from two recent extreme market shifts. Collectively, the undersigned organizations represent producers in all segments of the beef cattle industry, and request an expeditious investigation into the market disruptions that occurred following the Holcomb, Kan. plant fire and COVID-19. Evidence of any fraudulent business practices within the beef meatpacking industry must be identified quickly and rectified immediately, as these actions directly impact our producers’ continuity of business and the vitality of our industry as a whole.
Previous and current concern in both situations is extreme market degradation to the producer segment, quickly followed by sharp increases and unseasonal profitability to the packing segment through boxed beef prices. The repeat nature of these market reactions emphasizes that the production sector of the industry is exposed to the highest potential for risk with little to no leverage to mitigate such risk. Sharp increases in profits for meatpackers, after repeated major market malfunctions less than seven months apart, highlight this issue.
Cattle producers take pride in being independent business entities. As the packing and processing industry repeatedly takes advantage of independent cattle producers, placing undue pressure on the production sector of the beef cattle industry, we fear a shift to production practices that mirror other protein industries could be inevitable. The shift toward consolidation and integration couldn’t be further from the goals of current stakeholders in the industry.
Following a fire at Tyson’s Holcomb, Kansas beef harvest plant in August of 2019, average cash fed cattle prices dropped $150 to $200 per head during the next five weeks. During this same time, packing plants managed to maintain ‘pre-fire’ harvest capacity and boxed beef values moved sharply higher. This resulted in windfall profits for the beef meatpacking industry—while the production sector dealt with multi-year market low prices for calves, yearlings, and fed cattle.
We are now seeing that same type of price action repeated in a more extreme manner and during a time of crisis, which includes logistical stressors on the nation’s food production and distribution system. Once federal, state, and local authorities began instituting recommended/mandatory economic shutdowns in early March 2020, the cattle industry experienced a sharp decline in fed cattle and feeder cattle prices. At the same time, boxed beef prices skyrocketed. The combination of these factors resulted in significant packer profit margins. All the while, livestock producers continue to receive a shrinking portion of the retail beef dollar paid by the consumer. Furthermore, a dramatically depressed futures market only worsens the pain by removing opportunities to manage price risk.
The day after the first COVID-19 diagnosis in the United States (January 22, 2020), the CME Live Cattle Futures April Contract closed at $126.775/cwt and negotiated fed steers traded at $124.17/cwt according to the USDA-LMR Daily Direct Steer and Heifer Slaughter Cattle Summary 5-Area average. USDA-LMR’s closing Choice boxed beef index for the week ending January 24, 2020 was $214.78/ cwt and the Select index closed at $212.17/cwt. As of April 3, 2020, the CME live cattle futures April contract had declined over 30% in price to close at $88.325/cwt while the average fed steer trading at $111.28/cwt as reported by the USDA-LMR Weekly Direct Steer and Heifer Slaughter Cattle Summary. Meanwhile, boxed beef for the week ending March 27, 2020 was $252.84/cwt choice and $242.38/cwt select.
We understand and acknowledge that there is a pending USDA investigation into the market reactions that took place after the August 2019 Holcomb, Kan. plant fire. However, as our industry looks for clarity of business function moving forward, we look to the DOJ to drive this investigation. Both events continue to wreak havoc through undue financial burden on cattle producers, which ultimately harms the vitality of our rural communities.
To feed the U.S. and the world, our industry needs producers, markets, packers, and retailers that can work together through mutually beneficial means. However, the issues connected to recent events have the ability to disrupt food security. An open and fair marketplace is quintessential to the health and sustainability of any industry. If anti-competitive practices are at play in one segment, it risks pushing participants in other segments out of business. The U.S. cattle industry needs answers to questions regarding the dramatic spread between live cattle and boxed beef prices and if there is any illegal activity involved.
Sincerely undersigned below,
Tennessee Cattlemen’s Association