Shoppers and farmers seethe over higher beef prices

It’s not just consumers who getting riled up about rising beef prices. Cattle producers are, too.

Cattle feeders are seething over a pattern they now consider all-too-familiar: the cost of hamburgers and steaks soar at the grocery store, yet the prices they get for the animals barely budges. The market is dominated by four giant meatpacking companies that together control most of the U.S. beef processing.

“The current state of the cattle industry is egregious, and must be addressed immediately,” wrote Richard Godfrey, president of the Iowa Cattlemen’s Association, in a May 17 letter to U.S. Attorney General Merrick Garland.

“Since August 2019, the cattle industry has suffered multiple extreme market disruptions, often referred to as ’black swan events.’ These disruptions are unpredictable, such as the Tyson plant fire in Holcomb, Kan., or the supply chain disruption caused by the COVID-19 pandemic, and are often accompanied by a ripple effect directly or indirectly affecting the cattle industry for an extended period of time. Every market disruption comes with a significant price — some more than others.

“The cattle industry is particularly vulnerable due to few buyers in the market. In the current, an oligopsony of four meatpackers control approximately 85 percent of the processing industry. The concentration of processing power between Tyson Foods, JBS, National Beef, and Cargill has created a severe bottleneck in the beef supply chain during black swan events and has also opened the door for market manipulation.”

The ire is driving political momentum for more oversight of cattle markets just as antitrust and competition issues gain new traction in Washington, where a backlash against Big Tech is fueling broader concerns about corporate behemoths abusing dominant positions.

The Biden administration views the pricing patterns in beef processing as evidence that concentration is having damaging effects on the supply chain and rural America, a senior U.S. Department of Agriculture official said. USDA officials are looking at ways to use their regulatory authority to reduce the imbalance in market power.

Six farm and cattle trade groups recently united behind demands for meatpackers to disclose more information on cattle purchases, and for the Justice Department to publicly report on an antitrust investigation it launched last May into the four major beef processors.

Republican Sens. Chuck Grassley and Joni Ernst of Iowa were among lawmakers of both parties to introduce legislation calling for more transparency in pricing and terms of cattle purchases, in the hopes it will give producers more leverage in transactions.

“Food doesn’t come from the grocery store, it comes from tens of thousands of farmers and independent producers who work day and night to ensure families across the country have an abundant supply of food,” Grassley said in a statement. “Independent producers deserve to be paid what their beef is worth.”

Rural lawmakers are sensitive to cattle producers' pain. Beef cattle operations account for more than a third of U.S. farms and ranches, making it the single largest segment in the nation's agriculture. Ranchers are also hurting from an expanding drought. Feedlot operators, who typically fatten cattle before they go to packers for slaughter, face soaring corn prices.

"At home, I hear about it all the time," said GOP Sen. Deb Fischer of Nebraska, who described encounters with cattle feedlot operators losing hundreds of dollars per animal. "You can't stay in business with those kind of losses."

According to the Iowa Beef Industry Council, the state ranked eighth in the nation as of January for the total number of cows and calves. Iowa ranked 12th in the number of dairy cows and 13th in the number of beef cows. The industry says it contributes nearly $8 billion a year to Iowa’s economy.

Meanwhile, with that at stake, packers are prospering.

Tyson Foods., the largest U.S. meat company, earlier this month reported record margins of 11 percent for beef in its second quarter. The company's stock is up 22 percent so far this year, compared with 9 percent for the benchmark S&P 500 index.

The stunning beef profit margins eventually will decline but still remain above historical levels, Tyson's Chief Executive Officer Dean Banks said at a conference this week.

With pandemic restrictions easing, restaurants are reopening and buying meat. Flush with stimulus payments and improving incomes from a recovering economy, Americans have been willing to pay up for more expensive steaks and burgers.

Since March 12, the wholesale price of beef has shot up 43 percent, according to USDA. But cattle prices have risen only 5 percent.

Producers see a rerun of their plight during COVID-19 disruptions last year, when virus outbreaks slowed slaughterhouses, and the prior year, when a fire temporarily shut down the plant in Kansas, said Colin Woodall, chief executive officer of the National Cattlemen's Beef Association. Each time, beef prices soared while cattle prices dropped.

Renee Strickland, a fourth-generation cattle rancher based in Myakka City, Fla., said she sometimes has to pass up beef for chicken at the grocery store because it's too expensive for her.

"I'm just so angry that I can't afford the product that I produce," she said.

The spread between the price packers pay for cattle and the price they receive for wholesale beef keeps hitting records, first following the August 2019 fire, and then after the pandemic hit. A USDA report that examined beefpacker margins reached no conclusion on whether prices were manipulated.

Greg Ibach, the undersecretary of agriculture in the Trump administration who oversaw livestock market regulation, said markets never really returned to normal levels after the Holcomb fire. In the year prior to the Aug. 9, 2019 fire, packers' operating margins on cattle averaged $137 a head. Since then, it has averaged $331 a head, according to data maintained by HedgersEdge.com.

"It never really has corrected itself," Ibach said. "I don't think the profits are being shared across the value chain in the same proportions that historically has happened."

Meatpacking companies say they're constrained and struggling to attract workers, particularly after the COVID-19 outbreaks that made the industry an early epicenter of the pandemic. Tyson executives said this month they've raised wages but still face high employee turnover and absenteeism.

"Despite the pandemic's challenges the market is competitive and growing," said Sarah Little, a spokeswoman for the North American Meat Institute, a trade group, in a statement.

There are nascent efforts to boost U.S. beef processing capacity.

Marfrig Global Foods SA in March said its subsidiary National Beef Packing Company is spending $100 million to more than double capacity at its plant in Tama, to 2,500 cattle daily by adding a second production shift. The changes will be done by late 2022, and there are other smaller plants in the works.

The USDA also is planning to use some funds from the Biden administration's $1.9 trillion rescue plan to help small- and medium-sized meat processors expand operations, possibly using loan guarantees or grants.

"There's an opportunity for us to support additional processing capacity and hopefully a more competitive market," said Agriculture Secretary Tom Vilsack, a former governor of Iowa.

Tough times on the farm also have an impact over time. Producers are expected to scale back herds in the coming months. That means the supply imbalance currently boosting packers will peak in 2021 and should eventually give more bargaining power to feedlots, according to Glynn Tonsor, agriculture economics professor at Kansas State University.

"Both of those adjustments will improve the relationship in favor of the cattle seller," Tonsor said of more capacity and a decline in herds. "We'll see more second shifts, more new plants and fewer cattle.“

Bloomberg contributed to this report.