First some wonky background with apologies for getting deep in the weeds.
Four (that's right, just four) beef packers slaughter 85 percent of all the cattle in the U.S. – JBS, Cargill, Tyson, and National Beef Packing Company (we'll call them the Big 4 for short).
If that's not bad enough for cattle producers, only 25 percent of steers and heifers are sold into the cash market. The Big 4 have consolidated through mergers and acquisitions control over the nation's slaughterhouses, significantly reducing the individual cattle producer's ability to negotiate price.
OK … stay with me. This is going to get a little more complicated.
The Big 4 get most of their cattle through forward contracts or formula pricing where packers used a non-negotiated pricing formula to determine cattle value. In major cattle ranching regions more than 90 percent of cattle are acquired this way. Essentially the Big 4 are mostly saying “our way or the highway.”
On the face of it this is appalling. But the cash market is supposed to bring fairness back into cattle pricing because it is where prices for cattle are discovered (essentially set week to week) for the whole industry. And the cash market price does figure into the Big 4's formula pricing model.
So all is well right? Not so fast.
If just 25 percent of all cattle are sold on the cash market it doesn't take a whole lot of effort to manipulate prices. For example, packers can influence cash price by limiting how many days a week they bid for cattle.
The thinner the cash market the more vulnerable it is to unfair price influence.
And the cash market keeps getting smaller. While not as splashy as the Bayer-Monsanto merger, this past March National Beef Packing Company announced it was acquiring Sysco-owned Iowa Premium, a regional packer in the upper Midwest (Iowa-Minnesota), one of the last regions of the nation with a significant cash market.
As an aside for discussion in another blog, Brazil is becoming dominate in U.S. slaughterhouse ownership. Brazil-based Marfrig owns 51 percent of National beef and has a huge checkered past, including colluding with JBS to cut Brazilian cattle prices.
OK ... back to the main story. The last major independent U.S. cattle trade organization, the Ranchers-Cattlemen Action Legal Fund (R-CALF), says enough is enough. R-CALF has filed a class action lawsuit alleging the Big 4 manipulated the cash market. R-CALF Chief Executive Officer Bill Bullard pulled no punches in suggesting the Big 4 is dirty.
Bullard estimates cattle prices have been depressed by almost 8 percent since January 2015 by Big 4 collusion.
The lawsuit seeks to recover losses from any producer selling cattle to the Big 4 from January 2015 to the present and losses for traders who bought or sold live cattle futures or options at the Chicago Mercantile Exchange from January 2015 to present.
Tyson spokesman Gary Mickelson put out the prerequisite boilerplate:
"We’re disappointed this baseless case was filed. As with similar lawsuits concerning chicken and pork, there’s simply no merit to the allegations that Tyson colluded with competitors. This complaint is nothing more than another transparent and opportunistic attempt by attorneys to make money for themselves at the expense of consumers. Tyson will vigorously defend itself and its proud heritage of supporting America’s farmers and ranchers."
While at WILL-AM as agriculture director I saw first hand how often it was not until Thursday afternoon or Friday for a brief few minutes that cattle were actually sold into the cash market.
It was my view then that the cash market was unhealthy and not leading to fair price discovery. Now it turns out it may be illegally broken.
About Dave Dickey
Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station WILL-AM 580 where he won a dozen Associated Press awards for his reporting. For 13 years, he directed Illinois Public Media’s agriculture programming. His weekly column for the Midwest Center covers agriculture and related issues including politics, government, environment and labor. Email him at firstname.lastname@example.org.