Firms' role in low cattle prices getting a look

Meatpackers -- including Cargill, JBS and Tyson Foods -- are facing a possible Government Accountability Office investigation over business practices that an advocate for cattlemen says cost the cattle industry millions of dollars.

Beef prices plummeted last year, leaving operators of feedlots with huge losses.

Coming off record-high cattle prices aided by tight supplies and growing demand, the crash was unexpected. The industry, analysts thought, was on the road to recovery after a drought that had depleted herds.

In February 2015, the U.S. Department of Agriculture Economic Research Services said cattle prices would steadily increase over a three-year period. The USDA predicted that prices would hit $165.03 per hundredweight in 2017.

But by the end of the year, prices had fallen to $118.15 per hundredweight, a $41.35 decline since the first half of 2015, according to the USDA. Kansas State University estimated that feedlot operators lost $837 million during November.

Early this year, Bill Bullard, chief executive for the Montana nonprofit Ranchers-Cattlemen Action Legal Fund (R-CALF), sent a letter to the Senate Judiciary Committee asking for an investigation into the crash. He said the downturn was because of anti-competitive behavior from the nation's top four meatpackers, which produce about 85 percent of the beef in the industry.

This week, the Senate Judiciary Committee moved Bullard's request to the next step -- the GAO. Officials in that office will decide whether to pursue an investigation.

Of the top meat producers, Arkansas-based Tyson Foods leads the pack, followed by JBS and Cargill. The National Beef Packing Co. is a distant fourth.

JBS and Cargill own feedlots, allowing the companies, according to Bullard, to delay the delivery of cattle. Tyson does not own any feedlots in the U.S.b̶u̶t̶ ̶s̶o̶m̶e̶ ̶C̶a̶n̶a̶d̶i̶a̶n̶ ̶s̶u̶b̶s̶i̶d̶i̶a̶r̶i̶e̶s̶,̶ ̶i̶n̶c̶l̶u̶d̶i̶n̶g̶ ̶L̶a̶k̶e̶s̶i̶d̶e̶ ̶F̶a̶r̶m̶ ̶I̶n̶d̶u̶s̶t̶r̶i̶e̶s̶,̶ ̶o̶p̶e̶r̶a̶t̶e̶ ̶f̶e̶e̶d̶l̶o̶t̶s̶.*

"We dispute R-CALF's claims. We depend on thousands of independent cattle producers to supply our beef operations, and it's very important to us for them to succeed and have long-term viability," said Tyson spokesman Gary Mickelson. "We don't own any cattle feedyards and instead buy from independent cattle producers who decide when to market their cattle and at what weights."

Bullard said the meatpackers manipulate the price of cattle by forcing cattle feeders to overfeed their animals. To do this, the meatpackers delay the delivery of cattle that are under their control, pass over market-ready cattle and offer to buy market-ready cattle on the condition that feeders don't deliver them for several weeks, he said.

"The underlying cause of that is the abusive market power that is being wielded by the highly concentrated meatpackers in our industry," he said. "They are able to leverage down cattle prices below the level that competitive market would otherwise dictate."

Bullard said he doesn't have a "smoking gun" that these practices exist or that companies are colluding to control prices. In his letter to the Senate Judiciary Committee, Bullard offered stories from unnamed feedlot operators.

Meatpackers are helped by the changing cattle industry. The traditional cash market, where prices are determined by negotiations between a buyer and seller, is disappearing.

More than half of cattle were sold this way in 2005. Today that number has dwindled to 23 percent.

Formula contracts have largely replaced the cash market. With a formula contract, the feedlot operator delivers cattle to a meatpacker when the cattle are ready for slaughter, but no price is negotiated. Price is based on a formula that is tied to the cash market.

"The cash market is becoming less able to discover a truly competitive price," Bullard said. "And on top of that, packers can easily manipulate the cash price."

The claims Bullard is making aren't new. The USDA and its Grain Inspection, Packers and Stockyard Administration have looked into the matter, but haven't found any evidence of collusion between meatpackers or anti-competitive action.

But the GAO has more power to conduct an investigation. The office can look at meatpacker records unavailable to the USDA. GAO investigations usually take about a year.

Bullard's explanation of the cattle price collapse is in contrast to the opinion of many analysts who pin the low cattle prices on normal market movements.

Travis Justice, chief economist at the Arkansas Farm Bureau and executive director at Arkansas Beef Council, said the decline in cattle prices is a response to high supply levels.

Justice said the cattle industry has been trying to rebuild its herds for years after the drought. At the beginning of the price collapse, grain prices were stable and affordable, and feedlots were making money by adding weight to their animals.

"So when those cattle started going to the market, it overshot the beef supply," he said. "They got upside down on the cattle. By the time the cattle came out of the feedlots, the market had turned, so they were losing money."

He said the industry has recovered some of what it lost in 2015, but prices are still volatile.

"The feedlots are trying to get a little more current," he said.

SundayMonday Business on 05/01/2016

*CORRECTION: Tyson Foods sold Lakeside Farm Industries in 2009. This story about a potential Government Accountability Office investigation into the practices of the cattle industry incorrectly described Tyson’s relationship with Lakeside.

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