By Eric Bohl
In late July, the U.S. Department of Agriculture released a report on the difference between the prices of live cattle and processed meat. To those outside the industry, this report probably sounded like a run-of-the-mill government document. But cattle producers have been anxiously awaiting its findings for nearly a year. Since Missouri is a top-three state in cattle inventory with many small producers, improvement to the opaque cattle market could have a huge positive impact on our state.
Cattle producers have grown increasingly frustrated as the meat processing industry consolidated over the past three decades. With over 80 percent of U.S. beef now processed by only four companies, small farmers feel increasingly powerless. After small producers took the brunt of last August’s Holcomb beef plant fire and this spring’s COVID-19 meat market disruptions, they demanded answers.
The new USDA report found that after the Holcomb fire, the spread between boxed beef values and fed cattle prices (essentially, the packer’s gross profit margin) increased 143 percent, to a then-record $67.17 per hundredweight. During the COVID-19 disruptions, the spread grew to an absurd $279 per hundredweight – more than four times the prior all-time record.
USDA did not issue conclusions regarding if these margins were achieved through criminal acts in violation of the Packers and Stockyards Act, as those investigations are ongoing. However, it did examine potential changes to the law that could improve overall cattle markets for smaller producers.
The report suggests boosting pricing transparency in the cattle market. While negotiated cash sales must be disclosed and reported, certain rules prevent the disclosure of some prices. Closing these gaps could give producers more information and create fairer sale prices.
USDA also noted that small and medium farmers do not have access to the same risk management tools and training as larger farmers. During the two recent market disruptions, farmers who had hedged their positions weathered the storm far better than those who had not. The report suggested creating risk management tools specifically tailored to small and medium producers.
Combining purchasing power through cooperatives and supporting small meat processors were also suggested as pieces of the puzzle. These could both reduce the vast disparity of bargaining power that currently exists between individual producers and massive meatpackers.
When tweaks intended to open up fairness in the marketplace are not enough, USDA needs sufficient tools to investigate wrongdoing. The report identified some key investigative and enforcement tools that other agencies possess but USDA does not. This may be an issue for Congress to look into to ensure meatpackers are held accountable.
Unfortunately, the USDA report did not clearly identify who is to blame for the recent price anomolies. The report also did not suggest any silver bullet solutions to the industry’s problems. This lack of clarity probably isn’t surprising for a government report, but it is disappointing to those who hoped for more. USDA was careful to say Packer and Stockyards Act investigations are ongoing. Hopefully those inquiries will soon paint a clearer picture of what happened in the cattle market and identify specific wrongdoers.
Some of USDA’s suggestions probably have merit and need to be explored and implemented, but they will likely not be enough to fix the problems in an industry in which tensions have been growing for so many years. Novel legislative solutions, antitrust investigations and regulatory enforcement may all need to join forces to restore fairness to this classically American industry.