Hijacked Market

Divisions Deepen in the Cattle Industry Over Price Discovery


By Victoria G Myers, Progressive Farmer/DTN



Cattle producers from one end of the country to the other are convinced their markets were long-ago hijacked by the "Big Four." Namely, they blame Cargill, JBS, National Beef and Tyson—who collectively control more than 80% of the U.S. slaughter market for beef—for pricing inequities.


Confidentiality agreements these buyers operate under are allegedly responsible for thin cash markets and what many cattlemen believe are absurdly low prices at the farm level. Simply put, as COVID-19 drove up beef demand and sent prices received by packers soaring, cattle producers struggled to understand why they were losing money. That struggle continues.


The visuals have been damning. Empty meat cases at the grocery store and packer margins nearly $600 per head higher mid-March than they had been a few short weeks prior poured gasoline on a long-burning fire of discontent over price reporting.


Meatpackers blamed consumer panic buying, restaurant closures, plant shutdowns and illnesses among plant workers for a supply bottleneck that quickly pushed up prices. A look at the numbers shows production dropped precipitously in a short period of time. For the week of Feb. 22, 2020, prior to nationwide shutdowns, red meat production in the U.S. was estimated at 1,087.9 million pounds. During the last week of May 2020, beef production was at 428.6 million pounds.


In late January when the U.S. Health and Human Services declared COVID-19 a public health emergency, Choice boxed beef cutout value was $215.32 per cwt. By mid-May, that price was reported at $475.39 per cwt—a $260.07 per cwt increase. Producers, however, during the first quarter of the year saw prices fall for feeder cattle. By June, many were essentially forced to hold calves longer as sale barn reports pointed toward a range of $135 to $145 per cwt on 600-plus pound calves. The futures market looking to August was an anemic $95.6 to $96.9 per cwt on live cattle as reported by the Chicago Mercantile Exchange (CME).


Veteran cattle producer Bill Yancey markets about 140 calves each year. He is based at Prairie Grove, Arkansas, and often sells at the Joplin regional sales barn. He notes that regardless of what feedyards may or may not need to buy, calf prices always follow futures.


"If the futures are up, my calves are up. If they're down, so are my calves. CME has a lot more to do with my price than anything else. It seems that once the buyers that day see the CME is down, we don't have any chance of running prices up, and we have to take what they will give us. When you consider the fact that the CME doesn't have much to base its price on anymore, I feel we aren't always getting a fair deal."


As a result, Yancey says he is increasing his use of sales by video auction and is maximizing values on his calf crop with NHTC certification (Non-Hormone Treated Cattle). He still thinks, though, he and others would benefit from more price discovery.


"Packers are making money hand over fist, and our side of the industry is shrinking. I guess I'd be for a mandate to force them to buy a percentage of cattle on the cash market, but the devil is in the details. I don't like government intervention, but at this point, who is going to look out for the cow/calf producer?"


DTN livestock analyst ShayLe Stewart agrees with Yancey. She comes at the issue from the perspective of both a cow/calf producer and a professional market analyst. She lives and raises SimAngus cattle with her husband, Jimmy, in Cody, Wyoming. Stewart has long held the position there's an unfair advantage when feeder cattle sell in a competitive market yet fat cattle sell in what is essentially a noncompetitive market.


"We can't have an industry that functions properly when different segments are competing and achieving highs and lows, while others due to size and confidentiality clauses have found a way to buy behind a curtain."


Stewart notes the degree of discrepancy depends on the region in which a producer sells cattle. Northern producers, for example, see more participation in cash markets (more than 50%), while in the South, as little as 7% of sales are typically in cash trades.