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Meatpackers skeptical of broader disclosure of cattle prices and purchases
Noting complaints about dwindling competition, the USDA listed several ways to improve price transparency in the cattle market on Wednesday and offered to assist stakeholders and policymakers in exploring options to assure fair prices and level the playing field between producers and processors. The meatpacking industry warned against sweeping changes in the name of market transparency that it said would disrupt the intertwined cattle feeding and beef processing system.
The USDA spelled out possible changes in cattle marketing in the final four pages of a report on two catastrophic events that led to record-setting divergences between cattle prices at the stockyard and beef prices in the supermarket. The Agricultural Marketing Service (AMS) report said an August 2019 fire at a large Kansas slaughter plant and the coronavirus pandemic this spring were the likely causes of the dramatic spread in prices. An investigation into allegations of anti-competitive practices in the meatpacking industry continues, said the USDA.
“If any unfair practices are detected, we will take quick enforcement action,” said Agriculture Secretary Sonny Perdue.
Senate Finance chairman Chuck Grassley of Iowa called on Congress “to fix this marketplace” after “years of rampant consolidation has led to unfair access for producers and (an) easily disrupted meat supply for consumers.” Grassley is sponsor of a bill to require packers, as a weekly average, to buy at least half of their slaughter cattle on the cash market.
Four companies account for more than 80% of U.S. cattle slaughter. Grassley and other critics say too few cattle are sold on the open market for independent producers to be sure of getting a fair price for their animals. For years, a growing share of cattle have been sold under contracts or through price formulas that reward producers who meet criteria set by the packers. Some small farmers and ranchers say they are given short shrift because packers prefer to deal with large feedlots.
“In its analysis of the effects of the fire and the pandemic, USDA found no wrongdoing and confirms the disruption in the beef markets was due to devastating and unprecedented events,” said Julie Anna Potts, chief executive of the North American Meat Institute (NAMI), a trade group for processors. “It is difficult to see how the USDA’s recommended legislative proposals would have changed the outcome of the fire or the pandemic.”
Analyst Dave Juday, in a report cited by NAMI, said a requirement that packers buy some of their cattle on the cash market would amount to “regulating how packers procure cattle and how producers and feeders market cattle.”
Complaints about large swings in cattle prices are part of “a larger discussion … about a highly concentrated meatpacking sector,” said the USDA. “At the core of many of these discussions is the desire by many market participants for improved price discovery, reinvigorated competition, and a more transparent relationship between the prices for live cattle and the resulting products.”
The USDA already issues reports on sale prices at stockyards. In some instances, prices are kept confidential because there is only one bidder, whose identity would be easily known. Among the ways to improve price reporting, said the USDA, would be to change the composition of a reporting region. “However, there has not been industry consensus on such a recommendation to date.”
Other options, said the report, would be to encourage quicker use in the marketplace of USDA estimates of daily and weekly slaughter, or to require packers to list how many cattle are scheduled for delivery in the next 14 days — an indication of how much of a plant’s slaughter capacity is already taken. If cash-market purchases are mandated, packers could be given a specified number of days to make up for shortfalls, said the AMS. Other possibilities include use by farmers and ranchers of risk management tools such as futures contracts or insurance policies. Or the government could assist in establishing custom-butchering plants and direct sales to consumers. Smaller producers might benefit from creating cooperatives so they have the volume to command higher prices.
The National Cattlemen’s Beef Association said that market dynamics “remained a central topic of conversation for NCBA, our state affiliates, and cattle producers throughout the country,” and that “we are collectively still awaiting the results of the Department of Justice’s ongoing investigation into these issues.”
“There’s little doubt that something is wrong when consumers are paying higher prices for meat and at the same time America’s farmers and ranchers are being paid less,” said the American Farm Bureau Federation. Referring to the Justice Department investigation, the group added, “It’s important to note the scrutiny of the markets is not concluded.”