Farm state lawmakers and cattle producers are asking for action to strengthen the integrity of the cattle market and requesting an investigation into the volatility tied to the COVID-19 pandemic.
U.S. Sen John Thune, R-S.D., has asked both the U.S. Department of Agriculture and U.S. Department of Justice to look into possible collusion.
“I think we need some answers. There are no good explanations. Livestock producers are at a loss to try to figure out what’s going on with this volatility,” he says.
This is the second time there have been questions about the integrity of the beef markets in the last year, starting with the Tyson plant fire in Holcomb, Kan., in August and now the COVID-19 pandemic.
“Packers are pocketing $600 an animal and you’ve got livestock producers who are just taking it in the shorts. So, something has got to give here, and I think its time for us to get some answers," Thune says.
Cattle producers also charge that packers are price-fixing and making record profits while the producers are losing money. Boxed beef prices recently hit record highs, while cash prices and futures closed in on record lows. On March 12, choice boxed beef values were at $206 and rallied from there to a high of $257.32 on March 23. That is a record move of $50, or 25%, in 11 days. At the same time, the week of March 13 the negotiated weighted average dressed cash cattle price was $173.58 while the average formula price was $184.66. The week ending March 20 negotiated prices averaged $172.97 and formula cattle averaged $180.82.
The cattle futures also reacted negatively to COVID-19. On Jan. 23, when the markets first started trading the coronavirus news in China, April live cattle closed at $124.17. By April 6, they dropped to a new contract low of $83.82, down $43.08. June live cattle also hit a high of $118.27 on that same date. By March 12 they had fallen to $94.25 and were limit down the following two sessions to close at $85.25 on March 16. That is a drop of $9 in three days and is a $33 drop from Jan. 23.
Thune agrees that is a serious problem.
“Obviously, there are laws on the books that prevent anti-competitive practices that border on monopolistic, and I think that’s a Justice Department issue, but there are also things that Congress can do. We’ll take a look at what both USDA and DOJ come up with, if we can get DOJ to launch an investigation, USDA indicated that they will,” he says.
The senator also has asked USDA to conclude its probe into beef packing margins following the August 2019 Tyson beef processing plant fire in Holcomb. However, Thune admits that prior investigations of this nature have not uncovered violations that resulted in any change, which has been frustrating for cattle producers.
“Yes, that has happened in the past, and the packers obviously have a lot of very highly paid lawyers that I’m sure will make very good arguments about how these prices that are being paid out there reflect supply and demand," he says.
However, he isn’t convinced that with the large amount of trading being done by speculators that there isn’t some negative influence or manipulation.
On a call with reporters on April 17, U.S. Agriculture Secretary Sonny Perdue said he could not give an update on the status of the USDA's investigation. However, he conceded a disparity exists between packer profits and cattle prices and said he was considering starting a task force to look into the issue.
Some cattle producers are also urging the government to force the packers to buy more cash cattle on a negotiated basis and use less of their own captive supplies or formula cattle. Rock Valley, Iowa, cattle producer Brad Kooima and former Nebraska Cattlemen Association President Troy Stowater both serve on the National Cattlemen’s Beef Association committee working on this issue. They say the lack of competition and price discovery are at the root of the problem, as packers can use cattle they own or more commonly have contracted with feedlots and don’t have to bid in the market. As a result, they are asking lawmakers to support legislation to force the meat packers to buy 50% of their weekly inventory from the spot market.
“You know when you don’t have an active live market place or where a packer can step on the scale by pulling from their own captive supply it creates serious supply chain disruptions and makes it very hard for an average cattle operator to make a living,” Thune says.
Similar proposals would require packers to buy 30% of the cattle on a negotiated basis.
On April 20, state cattle organizations also sent a letter to U.S. Attorney General William Barr, requesting a formal investigation by the DOJ of fraudulent business practices within the beef meatpacking industry. Included were state organizations from Iowa, South Dakota, North Dakota, Minnesota and Montana. However, Texas, Oklahoma and Kansas were notably absent.